UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of 1934
March
4, 2010
Date of
Report (date of earliest event reported)
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MICRON
TECHNOLOGY, INC.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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1-10658
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75-1618004
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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8000
South Federal Way
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Boise,
Idaho 83716-9632
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(Address
of principal executive offices)
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(208)
368-4000
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(Registrant’s
telephone number, including area code)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4c))
Item
8.01. Other Events.
This
Current Report on Form 8-K is being filed by Micron Technology, Inc. (the
"Company") to retrospectively adjust portions of the Company's Annual Report on
Form 10-K for the fiscal year ended September 3, 2009 (the "2009 Form 10-K")
reflecting changes to the Company's accounting for noncontrolling interests,
certain convertible debt and its presentation of its reportable segments as
described below.
Effective
at the beginning of fiscal 2010, the Company adopted new accounting standards
for noncontrolling interests and certain convertible debt instruments, which
require retrospective application. The impact of these new standards
is summarized below.
Noncontrolling interests in
subsidiaries: Under the new standard, noncontrolling interests
in subsidiaries is (1) reported as a separate component of equity in the
consolidated balance sheets and (2) included in net income in the
statement of operations.
Convertible debt
instruments: The new standard applies to convertible debt
instruments that may be fully or partially settled in cash upon conversion and
is applicable to the Company’s 1.875% convertible senior notes with an aggregate
principal amount of $1.3 billion issued in May 2007 (the “Convertible
Notes”). The standard requires the liability and equity components of
the Convertible Notes to be stated separately. The liability
component recognized at the issuance of the Convertible Notes equals the
estimated fair value of a similar liability without a conversion option and the
remainder of the proceeds received at issuance was allocated to
equity. In connection therewith, at the May 2007 issuance of the
Convertible Notes there was a $402 million decrease in debt, a $394 million
increase in additional capital, and an $8 million decrease in deferred debt
issuance costs (included in other noncurrent assets). The fair value
of the liability was determined using an interest rate for similar
nonconvertible debt issued as of the original May 2007 issuance date by entities
with credit ratings comparable to the Company’s credit rating at the time of
issuance. In subsequent periods, the liability component recognized
at issuance is increased to the principal amount of the Convertible Notes
through the amortization of interest costs. Through fiscal 2009, $107
million of interest was amortized.
In
addition, in the first quarter of fiscal 2010, the Company’s Imaging segment no
longer met the quantitative thresholds of a reportable segment and management
does not expect that Imaging will meet the quantitative thresholds in future
years. As a result, Imaging is no longer considered a reportable
segment and is included in the Company’s All Other nonreportable
segments.
The
impact of the adoption of these new accounting standards and the changed
presentation of the Company’s reportable segments is reflected in the following
sections of the 2009 Form 10-K, which are included as Exhibits 99.1, 99.2 99.3,
99.4 and 99.5 (collectively, the “Exhibits”) to this Current Report on Form
8-K:
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•
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Part
I, Item 1. Business (Exhibit
99.1);
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•
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Part
II, Item 6. Selected Financial Data (Exhibit
99.2);
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•
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Part
II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Exhibit
99.3);
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•
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Part
II, Item 7A. Quantitative and Qualitative Disclosures about
Market Risk (Exhibit 99.4); and
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•
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Part
II, Item 8. Financial Statements and Supplementary Data
(Exhibit 99.5).
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Accordingly,
the Company has revised the presentation of its noncontrolling interests,
certain convertible debt and the presentation of its reportable segments to
reflect these changes and has recast all comparative prior period information on
this basis. The Company is filing this Current Report on Form 8-K to
reflect the impact of the adoption of these new accounting standards and the
revised presentation of its reportable segments. This will permit the
Company to incorporate these financial statements by reference in future SEC
filings. This Form 8-K contains only the sections and exhibits to the
2009 Form 10-K that are being revised. The sections of and exhibits
to the 2009 Form 10-K as originally filed, which are not included herein, are
unchanged and continue in full force and
effect as
originally filed. All information in this filing is as of September
3, 2009 and does not reflect events occurring after the date of the 2009 Form
10-K, other than the recasting of certain amounts as described in the Summary of
Significant Accounting Policies note and disclosures affected by the adoption
the new accounting standards and the presentation of its reportable segments
subsequent to the date of the 2009 Form 10-K.
Item
9.01. Financial Statements and
Exhibits.
(d) Exhibits.
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Exhibit No.
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Description
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23.1
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Consent
of PricewaterhouseCoopers LLP
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99.1
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Part
I, Item 1. Business
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99.2
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Part
I, Item 6. Selected Financial Data
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99.3
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Part
II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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99.4
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Part
II, Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
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99.5
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Part
II, Item 8. Financial Statements and Supplementary
Data
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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MICRON
TECHNOLOGY, INC.
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Date:
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March
4, 2010
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By:
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/s/
Brian Shirley
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Name:
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Brian
Shirley
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Title:
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Vice
President Memory
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INDEX
TO EXHIBITS FILED WITH
THE
CURRENT REPORT ON FORM 8-K DATED MARCH 4, 2010
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Exhibit No.
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Description
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23.1
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Consent
of PricewaterhouseCoopers LLP
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99.1
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Part
I, Item 1. Business
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99.2
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Part
I, Item 6. Selected Financial Data
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99.3
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Part
II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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99.4
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Part
II, Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
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99.5
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Part
II, Item 8. Financial Statements and Supplementary
Data
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EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statement on Forms
S-3 (File Nos. 333-71620, 333-143026, 333-158473) and Forms S-8 (File Nos.
33-148357, 33-27078, 33-57887, 33-65050, 333-07283, 333-17073, 333-50353,
333-65449, 333-71249, 333-82549, 333-99271, 333-102545, 333-103341, 333-111170,
333-120620, 333-133667, 333-135459, 333-140091, 333-159711) of Micron
Technology, Inc. of our report
dated October 28, 2009 except with respect to our opinion on the consolidated
financial statements insofar as it relates to the effects of the change in
accounting for convertible debt instruments and noncontrolling interests
described in the Adjustment for Retrospective Application of New Accounting
Standards note, which is as of March 4, 2010, relating to the
financial statements, financial statement schedule and the effectiveness of
internal control over financial reporting, which appears in this Current Report
on Form 8-K.
PricewaterhouseCoopers
LLP
San Jose,
California
March 4,
2010
EXHIBIT
99.1
PART
I
Item
1. Business
The following discussion contains trend
information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not
limited to, statements such as those made in “Overview” regarding royalty
payments from Nanya, Inotera’s transition to the Company’s stack process
technology and gross margins from the Company’s imaging wafer supply agreement
with Aptina; in “Products” regarding increased sales of DDR3 DRAM products and
growth in demand for NAND Flash products and solid-state drives; and in
“Manufacturing” regarding the transition to smaller line-width process
technologies and Inotera’s transition to the Company’s stack process
technology. The Company’s actual results could differ materially from
the Company’s historical results and those discussed in the forward-looking
statements. Factors that could cause actual results to differ
materially include, but are not limited to, those identified in “Item 1A. Risk
Factors.” All period references are to the Company’s fiscal periods unless
otherwise indicated.
Corporate
Information
Micron Technology, Inc., and its
consolidated subsidiaries (hereinafter referred to collectively as the
“Company”), a Delaware corporation, was incorporated in 1978. The
Company’s executive offices are located at 8000 South Federal Way, Boise, Idaho
83716-9632 and its telephone number is (208) 368-4000. Information
about the Company is available on the internet at
www.micron.com. Copies of the Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any
amendments to these reports, are available through the Company’s website as soon
as reasonably practicable after they are electronically filed with or furnished
to the Securities and Exchange Commission (the “SEC”). Materials
filed by the Company with the SEC are also available at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C.
20549. Information on the operation of the Public Reference Room is
available by calling 1-800-SEC-0330. Also available on the Company’s
website are its: Corporate Governance Guidelines, Governance
Committee Charter, Compensation Committee Charter, Audit Committee Charter and
Code of Business Conduct and Ethics. Any amendments or waivers of the
Company’s Code of Business Conduct and Ethics will also be posted on the
Company’s website at www.micron.com within four business days of the amendment
or waiver. Copies of these documents are available to shareholders
upon request. Information contained or referenced on the Company’s
website is not incorporated by reference and does not form a part of this Annual
Report on Form 10-K. In January 2009, the Company’s Chief Executive
Officer certified to the New York Stock Exchange that he was not aware of any
violation by the Company of the NYSE’s Corporate Governance Listing
Standards.
Overview
The Company is a global manufacturer
and marketer of semiconductor devices, principally DRAM and NAND Flash
memory. In addition, the Company manufactures semiconductor
components for CMOS image sensors and other semiconductor
products. The Company’s products are offered in a wide variety of
package and configuration options, architectures and performance characteristics
tailored to meet application and customer needs. Individual devices
leverage the Company’s advanced semiconductor processing technology and
manufacturing expertise. The Company aims to continually introduce
new generations of products that offer lower costs per unit and improved
performance characteristics. The Company’s reportable Memory segment
consists of its DRAM and NAND Flash operations. The Company’s other
segments, which were primarily composed of CMOS image sensor products, are not
reportable and are included in All Other segments. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Segment Information.”)
In 2009, 2008 and 2007, the
semiconductor memory industry experienced a severe downturn due to a significant
oversupply of products. The downturn was exacerbated by global
economic conditions which adversely affected demand for semiconductor memory
products. Average selling prices per gigabit for the Company’s DRAM
and NAND Flash products declined 52% and 56%, respectively, for 2009 as compared
to 2008 after declining 51% and 67%, respectively, for 2008 as compared to 2007
and declining 23% and 56%, respectively, for 2007 as compared to
2006. These declines significantly outpaced the long-term historical
pricing trend. As a result of these market conditions, the Company
and other semiconductor memory manufacturers reported substantial losses in
recent periods. The Company recognized net losses attributable to Micron of $1.9
billion for 2009, $1.7 billion for 2008 and $331 million for
2007.
1
Memory: The
Memory segment’s primary products are DRAM and NAND Flash, which are key memory
components used in a broad array of electronic applications, including personal
computers, workstations, network servers, mobile phones, Flash memory cards, USB
storage devices, MP3/4 players and other consumer electronics
products. The Company sells primarily to original equipment
manufacturers, distributors and retailers located around the
world. The Company is focused on improving its Memory segment’s
competitiveness by developing new products, advancing its technology and
reducing costs.
In response to adverse market
conditions, the Company initiated restructure plans in 2009, primarily within
the Company’s Memory segment. In the first quarter of 2009, IM Flash,
a joint venture between the Company and Intel Corporation (“Intel”), terminated
its agreement with the Company to obtain NAND Flash memory supply from the
Company’s Boise facility, reducing the Company’s NAND Flash production by
approximately 35,000 200mm wafers per month. The Company and Intel
also agreed to suspend tooling and the ramp of NAND Flash production at IM
Flash’s Singapore wafer fabrication facility. In addition, the
Company phased out all remaining 200mm DRAM wafer manufacturing operations in
Boise, Idaho in the second half of 2009.
In 2008, the Company established a
partnering arrangement with Nanya Technology Corporation (“Nanya”) pursuant to
which the Company and Nanya jointly develop process technology and designs to
manufacture stack DRAM products. Each party generally bears its own
development costs. In addition, the Company has deployed and licensed
certain intellectual property related to the manufacture of stack DRAM products
to Nanya and licensed certain intellectual property from Nanya. As a
result, the Company is to receive an aggregate of $207 million from Nanya
through 2010, of which the Company recognized license revenue of $105 million
and $37 million in 2009 and 2008, respectively. In addition, the
Company expects to receive royalties in future periods from Nanya for sales of
stack DRAM products manufactured by or for Nanya.
In the first quarter of 2009, the
Company acquired a 35.5% ownership interest in Inotera Memories, Inc.
(“Inotera”), a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for
$398 million. In August 2009, the Company’s ownership interest in Inotera
was reduced to 29.8% as a result of Inotera’s issuance of common stock in a
public offering for approximately $310 million. In connection with
the acquisition of the shares in Inotera, the Company and Nanya also entered
into a supply agreement with Inotera (the “Inotera Supply Agreement”) pursuant
to which Inotera will sell trench and stack DRAM products to the Company and
Nanya. The Company has rights and obligations to purchase up to 50% of
Inotera’s wafer production capacity. Inotera’s actual wafer production
will vary from time to time based on market and other conditions. Inotera
charges the Company and Nanya for a portion of the costs associated with its
underutilized capacity, if any. Inotera’s trench production is
expected to transition to the Company’s stack process technology. The cost
to the Company of wafers purchased under the Inotera Supply Agreement is based
on a margin sharing formula among the Company, Nanya and
Inotera. Under such formula, all parties’ manufacturing costs related
to wafers supplied by Inotera, as well as the Company’s and Nanya’s selling
prices for the resale of products from wafers supplied by Inotera, are
considered in determining costs for wafers from Inotera. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information – Equity Method
Investments – DRAM joint ventures with Nanya”)
All
Other: The primary product of All Other segments was CMOS
image sensors. On July 10, 2009, the Company sold a 65% interest in
Aptina Imaging Corporation (“Aptina”), previously a wholly-owned subsidiary of
the Company and a significant component of the Company’s All Other segments, to
Riverwood Capital and TPG Capital. In connection with the
transaction, the Company received approximately $35 million in cash and retained
a 35% minority interest in Aptina. The Company also retained all cash
held by Aptina and its subsidiaries. The Company accounts for its
remaining interest in Aptina under the equity method. The Company
continues to manufacture products for Aptina under a wafer supply
agreement. The Company anticipates that pricing under the Aptina
wafer supply agreement will generally result in lower gross margins than
historically realized on sales of CMOS image sensor products to end
customers. (See “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements – Supplemental Balance Sheet
Information – Equity Method
Investments – Aptina”)
Products
Memory: Sales
of Memory products were 89%, 89% and 88% of the Company’s total net sales in
2009, 2008 and 2007, respectively.
2
Dynamic Random Access Memory
(“DRAM”): DRAM products are
high-density, low-cost-per-bit, random access memory devices that provide
high-speed data storage and retrieval. DRAM products were 50%, 54%
and 65% of the Company’s total net sales in 2009, 2008 and 2007,
respectively. The Company offers DRAM products with a variety of
performance, pricing and other characteristics including high-volume DDR2 and
DDR3 products as well as specialty DRAM memory products including DDR, SDRAM,
Mobile DRAM, PSRAM and RLDRAM.
DDR2 and
DDR3: DDR2 and DDR3 are standardized, high-density,
high-volume DRAM products that are sold primarily for use as main system memory
in computers and servers. DDR2 and DDR3 products offer high speed and
high bandwidth at a relatively low cost compared to other DRAM
products. DDR2 products were the highest volume parts in the DRAM
market in 2009 and were 22%, 28% and 32% of the Company’s total net sales in
2009, 2008 and 2007, respectively. DDR3 products were 7% of total net
sales in 2009 and the Company expects that sales of DDR3 products will increase
significantly in 2010.
The Company offers DDR2 products in 256
megabit (“Mb”), 512 Mb, 1 gigabit (“Gb”) and 2 Gb densities. The
Company offers DDR3 products in 1 Gb and 2 Gb densities. The Company
expects that these densities will be necessary to meet future customer demands
for a broad array of products. The Company offers its DDR2 and DDR3
products in multiple configurations, speeds and package types. In
connection with the Company’s acquisition of Inotera in 2009, the Company
currently also offers DDR2 and DDR3 DRAM products manufactured by Inotera using
a trench DRAM technology as Inotera transitions to the Company’s stack DRAM
technology.
Other DRAM
products: The Company also offers specialty DRAM memory
products including DDR, SDRAM, Mobile DRAM, Pseudo-static RAM (“PSRAM”) and
Reduced Latency DRAM (“RLDRAM”), which are used primarily in networking devices,
servers, consumer electronics, communications equipment and computer peripherals
as well as memory upgrades to legacy computers. Aggregate sales of
these products were 21%, 25% and 33% of the Company’s total net sales in 2009,
2008 and 2007, respectively. The Company offers these products in
densities ranging from 64 Mb to 1Gb.
NAND Flash memory
(“NAND”): NAND products are electrically re-writeable,
non-volatile semiconductor memory devices that retain content when power is
turned off. NAND sales were 39%, 35% and 23% of the Company’s total
net sales in 2009, 2008 and 2007, respectively. NAND is ideal for
mass-storage devices due to its fast erase and write times, high density, and
low cost per bit relative to other solid-state memory. The market for
NAND products has grown rapidly and the Company expects it to continue to grow
due to demand for removable and embedded storage devices. Removable
storage devices such as USB and Flash memory cards are used with applications
such as personal computers, digital still cameras, MP3/4 players and mobile
phones. Embedded NAND-based storage devices are utilized in MP3/4
players, mobile phones, computers and other personal and consumer
applications.
NAND and DRAM share common
manufacturing processes, enabling the Company to leverage its product and
process technologies and manufacturing infrastructure across these two product
lines. The Company’s NAND designs feature a small cell structure that
allows for higher densities for demanding applications. The Company
offers Single-Level Cell (“SLC”) products and Multi-Level Cell (“MLC”) NAND
products, which have two or more times the bit density of SLC
products. In 2009, the Company offered SLC NAND products in 1 Gb, 2
Gb, 4 Gb and 8 Gb densities. In 2009, the Company offered 8 Gb, 16 Gb
and 32 Gb 2-bit-per-cell MLC NAND products and began sampling 3-bit-per-cell 32
Gb MLC NAND products. In 2009, 32 Gb MLC NAND products manufactured
using industry-leading 34 nanometer (“nm”) process technology were 14% of the
Company’s total net sales. The Company offers high-speed NAND
products that deliver transfer speeds up to 200 megabytes per second (MB/s) as
compared to 40 MB/s for conventional SLC NAND. These higher speeds
are achieved by leveraging an ONFI 2.0 specification and a four-plane
architecture with higher clock speeds.
The Company offers next-generation
RealSSD™ solid-state drives for enterprise server and notebook applications
which offer higher performance, reduced power consumption and enhanced
reliability as compared to typical hard disk drives. Using Micron's
SLC and MLC NAND process technology, the solid-state drives are offered in
2.5-inch and 1.8-inch form factors, with densities up to 256 gigabytes and as
embedded USB devices with densities up to 8 gigabytes. The Company
expects that demand for solid-state drives will increase significantly over the
next few years. The Company also offers NAND Flash in multichip
packages (“MCP’s”) that incorporate NAND Flash with other memory products
manufactured by the Company to create a single package that simplifies design
while improving performance and functionality.
3
The Company’s Lexar subsidiary sells
high-performance digital media products and other flash-based storage products
through retail and original equipment manufacturing (OEM)
channels. The Company’s digital media products include a variety of
Flash memory cards with a range of speeds, capacities and value-added
features. The Company’s digital media products also include its
JumpDrive™ products, which are high-speed, portable USB flash drives for
consumer applications that serve a variety of uses, including floppy disk
replacement and digital media accessories such as card readers and image rescue
software. The Company offers Flash memory cards in all major media
formats currently used by digital cameras and other electronic host devices,
including: CompactFlash, Memory Stick and Secure Digital
Cards. Many of CompactFlash, Memory Stick and Memory Stick PRO
products sold by the Company incorporate its patented controller
technology. Other products, including Secure Digital Card Flash
memory cards and some JumpDrive products, incorporate third party
controllers. The Company also resells Flash memory products that are
purchased from suppliers. The Company offers Flash memory cards in a
variety of speeds and capacities. The Company sells products under
its Lexar™ brand and also manufactures products that are sold under other brand
names. The Company has an agreement with Eastman Kodak to sell
digital media products under the Kodak brand name.
All
Other: The Company manufactures CMOS image sensor products for
Aptina under a wafer supply agreement entered into at the time the Company
agreed to sell a 65% interest in Aptina on July 10, 2009. All Other
sales are dependent on Aptina’s ability to successfully design and market CMOS
image sensor products to end customers.
Manufacturing
The Company’s manufacturing facilities
are located in the United States, China, Italy, Japan, Puerto Rico and
Singapore. The Company’s Inotera joint venture also has a wafer
fabrication facility in Taiwan. The Company’s manufacturing
facilities generally operate 24 hours per day, 7 days per
week. Semiconductor manufacturing is extremely capital intensive,
requiring large investments in sophisticated facilities and
equipment. Most semiconductor equipment must be replaced every three
to five years with increasingly advanced equipment.
The Company’s process for manufacturing
semiconductor products is complex, involving a number of precise steps,
including wafer fabrication, assembly and test. Efficient production
of semiconductor products requires utilization of advanced semiconductor
manufacturing techniques and effective deployment of these techniques across
multiple facilities. The primary determinants of manufacturing cost
are die size, number of mask layers, number of fabrication steps and number of
good die produced on each wafer. Other factors that contribute to
manufacturing costs are wafer size, cost and sophistication of manufacturing
equipment, equipment utilization, process complexity, cost of raw materials,
labor productivity, package type and cleanliness of the manufacturing
environment. The Company is continuously enhancing its production
processes, reducing die sizes and transitioning to higher density
products. The Company was transitioning its DRAM production to 50nm
line-width process technology in 2009 and expects that most of its DRAM products
will be manufactured using its 50nm line-width process technology in the second
half of 2010. In 2009, the Company manufactured the majority of its
NAND Flash memory products using its 34nm line-width process
technology. In 2010, the Company expects to transition to a lower
line-width process technology for its manufacture of NAND Flash memory
products. In 2009, the Company manufactured substantially all of its
high-volume Memory products on 300mm wafers. The Company manufactured
some specialty DRAM and CMOS image sensor products using 200mm
wafers.
Wafer fabrication occurs in a highly
controlled, clean environment to minimize dust and other yield- and
quality-limiting contaminants. Despite stringent manufacturing
controls, dust particles, equipment errors, minute impurities in materials,
defects in photomasks and circuit design marginalities or defects can lead to
wafers being scrapped and individual circuits being
nonfunctional. Success of the Company’s manufacturing operations
depends largely on minimizing defects to maximize yield of high-quality
circuits. In this regard, the Company employs rigorous quality
controls throughout the manufacturing, screening and testing
processes. The Company is able to recover many nonstandard devices by
testing and grading them to their highest level of functionality.
After fabrication, silicon wafers are
separated into individual die. The Company sells semiconductor
products in both packaged and unpackaged (i.e. “bare die”) forms. For
packaged products, functional die are sorted, connected to external leads and
encapsulated in plastic packages. The Company assembles products in a
variety of packages, including TSOP (thin small outline package), TQFP (thin
quad flat package) and FBGA (fine pitch ball grid array). Bare die
products address customer requirements for smaller form factors and higher
memory densities and provide superior flexibility. Bare die products
are used in packaging technologies such as systems-in-a-package (SIPs) and
multi-chip packages (MCPs), which reduce the board area required.
4
The Company tests its products at
various stages in the manufacturing process, performs high temperature burn-in
on finished products and conducts numerous quality control inspections
throughout the entire production flow. In addition, the Company uses
its proprietary AMBYX™ line of intelligent test and burn-in systems to perform
simultaneous circuit tests of DRAM die during the burn-in process, capturing
quality and reliability data and reducing testing time and cost.
The Company assembles a significant
portion of its memory products into memory modules. Memory modules
consist of an array of memory components attached to printed circuit boards
(“PCBs”) that insert directly into computer systems or other electronic
devices. The Company’s Lexar subsidiary contracts with independent
foundries and assembly and testing organizations to manufacture flash media
products such as memory cards and USB devices.
The Company utilizes subcontractors to
perform a significant portion of its assembly, test and module assembly
services. Outsourcing these services enables the Company to reduce
costs and minimize its capital investment.
In recent years, the Company has
produced an increasingly broad portfolio of products, which enhances the
Company’s ability to allocate resources to its most profitable products but also
increases the complexity of its manufacturing process. Although the
Company’s product lines generally use similar manufacturing processes, the
Company’s overall cost efficiency can be affected by frequent conversions to new
products; the allocation of manufacturing capacity to more complex,
smaller-volume parts; and the reallocation of manufacturing capacity across
various product lines.
NAND Flash joint
ventures with Intel Corporation: The Company has formed two
joint ventures with Intel to manufacture NAND Flash memory products for the
exclusive benefit of the partners: IM Flash Technologies, LLC and IM
Flash Singapore LLP (collectively, “IM Flash”). IM Flash manufactures
NAND Flash memory products using NAND Flash designs developed by the Company and
Intel. The parties share the output of IM Flash generally in
proportion to their investment in IM Flash. The Company owned a 51%
interest in IM Flash at September 3, 2009. IM Flash’s financial
results are included in the consolidated financial statements of the
Company.
In the first quarter of 2009, IM Flash
substantially completed construction of a new 300mm wafer fabrication facility
structure in Singapore. The Singapore facility has not been equipped
and in October 2008 the Company and Intel agreed to suspend tooling and the ramp
of NAND Flash production at the facility. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Consolidated Variable Interest Entities – NAND Flash Joint Ventures with
Intel.”)
TECH
Semiconductor Singapore Pte. Ltd. (“TECH”): TECH is a DRAM
memory manufacturing joint venture in Singapore among Micron Technology, Inc.,
Canon Inc. and Hewlett-Packard Company. The Company owned an
approximate 85% interest in TECH at September 3, 2009. TECH’s
semiconductor manufacturing facilities use the Company’s product and process
technology. Subject to specific terms and conditions, the Company has
agreed to purchase all of the products manufactured by TECH. In 2009,
TECH accounted for approximately 20% of the Company’s total wafer
production. The shareholders’ agreement for the TECH joint venture
expires in April 2011. In the first quarter of 2010, TECH received a
notice from HP that it does not intend to extend the TECH joint venture beyond
April 2011. The Company is working with HP and Canon to reach a
resolution of the matter. (See “Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – TECH
Semiconductor Singapore Pte. Ltd.”)
Inotera: In the first quarter of
2009, the Company acquired a 35.5% ownership interest in Inotera. In
August 2009, the Company’s ownership interest in Inotera was reduced to 29.8% as
a result of Inotera’s issuance of common stock in a public offering for
approximately $310 million. In connection with the acquisition,
the Company entered into a supply agreement with Inotera. Inotera
manufactures products using a trench DRAM process technology and is expected to
transition to the Company’s stack DRAM process technology. Under the
Inotera supply agreement, the Company has the right to obtain 50% of Inotera’s
output (approximately 50,000 300mm DRAM wafers per month as of September 3,
2009). The Company began receiving trench DRAM products from Inotera
in the fourth quarter of 2009. (See “Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Equity Method
Investments – DRAM Joint Ventures with Nanya.”)
Aptina Supply
Agreement: On July 10, 2009, the
Company sold a 65% interest in Aptina, previously a wholly-owned subsidiary of
the Company and a significant component of the Company’s All Other
segments. Subsequent to the sale, the Company continues to
manufacture CMOS image sensor products for Aptina under a wafer supply
agreement. (See “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements – Equity Method Investments –
Aptina.”)
5
MP Mask
Technology Center, LLC (“MP Mask”): The Company produces
photomasks for leading-edge and advanced next generation semiconductors through
MP Mask, a joint venture with Photronics, Inc. (“Photronics”). The
Company and Photronics have 50.01% and 49.99% interest, respectively, in MP
Mask. The Company and Photronics also have supply arrangements
wherein the Company purchases a substantial majority of the reticles produced by
MP Mask. The financial results of MP Mask are included in the
consolidated financial results of the Company. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Consolidated Variable Interest Entities – MP Mask Technology
Center, LLC.”)
Availability
of Raw Materials
The Company’s production processes
require raw materials that meet exacting standards, including several that are
customized for, or unique to, the Company. The Company generally has
multiple sources and sufficient availability of supply; however, only a limited
number of suppliers are capable of delivering certain raw materials that meet
the Company’s standards. Various factors could reduce the
availability of raw materials such as silicon wafers, photomasks, chemicals,
gases, lead frames, molding compound and other materials. In
addition, any transportation problems could delay the Company’s receipt of raw
materials. Although raw materials shortages or transportation
problems have not interrupted the Company’s operations in the past, shortages
may occur from time to time in the future. Also, lead times for the
supply of raw materials have been extended in the past. If the
Company’s supply of raw materials is interrupted, or lead times are extended,
results of operations could be adversely affected.
Marketing
and Customers
The Company’s products are sold into
computing, consumer, networking, telecommunications, and imaging
markets. Approximately 30% of the Company’s net sales for 2009 were
to the computing market, including desktop PCs, servers, notebooks and
workstations. Sales to Intel, primarily for NAND Flash from the IM
Flash joint ventures, were 20% of the Company’s net sales in 2009 and 19% of the
Company’s net sales in 2008. Sales to Hewlett-Packard Company were
10% of the Company’s net sales in 2007.
The Company’s Memory products are
offered under the Micron, Lexar, Crucial and SpecTek brand names and private
labels. The Company markets its semiconductor products primarily
through its own direct sales force and maintains sales offices in its primary
markets around the world. The Company maintains inventory at
locations in close proximity to certain key customers to facilitate rapid
delivery of products. The Company sells Lexar-branded NAND Flash
memory products primarily through retail channels and its Crucial-branded
products primarily through a web-based customer direct sales
channel. The Company’s products are also offered through independent
sales representatives and distributors. Independent sales
representatives obtain orders subject to final acceptance by the Company and are
compensated on a commission basis. The Company makes shipments
against these orders directly to the customer. Distributors carry the
Company’s products in inventory and typically sell a variety of other
semiconductor products, including competitors’ products.
The Company offers products designed to
meet the diverse needs of computing, server, automotive, networking, security,
commercial/industrial, consumer electronics, medical and mobile
applications. Many of the Company’s customers require a thorough
review or qualification of semiconductor products, which may take several
months. As the Company further diversifies its product lines and
reduces the die sizes of existing products, more products become subject to
qualification which may delay volume introduction of specific devices by the
Company.
Backlog
Because of volatile industry
conditions, customers are reluctant to enter into long-term, fixed-price
contracts. Accordingly, new order volumes for the Company’s
semiconductor products fluctuate significantly. Orders are typically
accepted with acknowledgment that the terms may be adjusted to reflect market
conditions at the date of shipment. Customers can change delivery
schedules or cancel orders without significant penalty. For these
reasons, the Company does not believe that its order backlog as of any
particular date is a reliable indicator of actual sales for any succeeding
period.
6
Product
Warranty
Because the design and manufacturing
process for semiconductor products is highly complex, it is possible that the
Company may produce products that do not comply with customer specifications,
contain defects or are otherwise incompatible with end uses. In
accordance with industry practice, the Company generally provides a limited
warranty that its products are in compliance with Company specifications
existing at the time of delivery. Under the Company’s general terms
and conditions of sale, liability for certain failures of product during a
stated warranty period is usually limited to repair or replacement of defective
items or return of, or a credit with respect to, amounts paid for such
items. Under certain circumstances, the Company provides more
extensive limited warranty coverage than that provided under the Company’s
general terms and conditions.
Competition
The Company faces intense competition
in the semiconductor memory markets from a number of companies, including Elpida
Memory, Inc.; Hynix Semiconductor Inc.; Samsung Electronics Co., Ltd; SanDisk
Corporation; and Toshiba Corporation. Some of the Company’s
competitors are large corporations or conglomerates that may have greater
resources to withstand downturns in the semiconductor markets in which the
Company competes, invest in technology and capitalize on growth
opportunities. The Company’s competitors seek to increase silicon
capacity, improve yields, reduce die size and minimize mask levels in their
product design resulting in significantly increased worldwide supply and
downward pressure on prices.
Research
and Development
The Company’s process technology
research and development (“R&D”) efforts are focused primarily on
development of successively smaller line-width process technologies which are
designed to facilitate the Company’s transition to next generation memory
products. Additional process technology R&D efforts focus on the
enablement of advanced computing and mobile memory architectures, the
investigation of new opportunities that leverage the company’s core
semiconductor expertise, and the development of new manufacturing
materials. Product design and development efforts are concentrated on
the Company’s high density DDR3 and mobile products, as well as high density and
mobile NAND Flash memory (including MLC technology), specialty memory products
and memory systems. The Company’s R&D expenses were $647 million,
$680 million and $805 million in 2009, 2008 and 2007, respectively.
To compete in the semiconductor memory
industry, the Company must continue to develop technologically advanced products
and processes. The Company believes that expansion of its
semiconductor product offerings is necessary to meet expected market demand for
specific memory solutions. The Company’s process development center
and largest design center are located at its corporate headquarters in Boise,
Idaho. The Company has several additional product design centers in
other strategic locations around the world. In addition, the Company
develops leading edge photolithography mask technology at its MP Mask joint
venture facility in Boise.
R&D expenses vary primarily with
the number of development wafers processed, the cost of advanced equipment
dedicated to new product and process development, and personnel
costs. Because of the lead times necessary to manufacture its
products, the Company typically begins to process wafers before completion of
performance and reliability testing. The Company deems development of
a product complete once the product has been thoroughly reviewed and tested for
performance and reliability. R&D expenses can vary significantly
depending on the timing of product qualification. The Company and
Intel share R&D process and design costs for NAND Flash
equally. The Company and Nanya also jointly develop process
technology and designs to manufacture stack DRAM products with each party
bearing its own development costs.
7
Geographic
Information
Sales to customers outside the United
States totaled $3.9 billion for 2009 and included $1.2 billion in sales to
China, $542 million in sales to Malaysia, $470 million in sales to Europe, $447
million in sales to Taiwan, and $990 million in sales to the Asia Pacific region
(excluding China, Malaysia and Taiwan). Sales to customers outside
the United States totaled $4.4 billion for 2008 and $4.0 billion for
2007. As of September 3, 2009, the Company had net property, plant
and equipment of $4.7 billion in the United States, $2.1 billion in Singapore,
$180 million in Italy, $112 million in Japan and $52 million in other
countries. (See “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements – Geographic Information” and “Item
1A. Risk Factors.”)
Patents
and Licenses
In recent years, the Company has been
recognized as a leader in volume and quality of patents issued. As of
September 3, 2009, the Company owned approximately 17,300 U.S. patents and 2,900
foreign patents. In addition, the Company has numerous U.S. and
foreign patent applications pending. The Company’s patents have terms
expiring through 2028.
The Company has a number of patent and
intellectual property license agreements. Some of these license
agreements require the Company to make one time or periodic
payments. The Company may need to obtain additional patent licenses
or renew existing license agreements in the future. The Company is
unable to predict whether these license agreements can be obtained or renewed on
acceptable terms.
In recent years, the Company has
recovered some of its investment in technology through sales of intellectual
property rights to joint venture partners and other third
parties. The Company is pursuing additional opportunities to recover
its investment in intellectual property through additional sales of intellectual
property and potential partnering arrangements.
Employees
As of September 3, 2009, the Company
had approximately 18,200 employees, including approximately 9,300 in the United
States, 4,500 in Singapore, 1,900 in Italy, 1,500 in Japan, 800 in China and 200
in the United Kingdom. The Company’s employees include approximately
1,500 employees in its IM Flash joint ventures that are located in the United
States and 2,000 employees in its TECH joint venture that are located in
Singapore. Approximately 500 of the Company’s employees in Italy are
represented by labor organizations that have entered into national and local
labor contracts with the Company. The Company’s employment levels can
vary depending on market conditions and the level of the Company’s production,
research and product and process development. Many of the Company’s
employees are highly skilled, and the Company’s continued success depends in
part upon its ability to attract and retain such employees. The loss
of key Company personnel could have a material adverse effect on the Company’s
business, results of operations or financial condition.
Environmental
Compliance
Government regulations impose various
environmental controls on raw materials and discharges, emissions and solid
wastes from the Company’s manufacturing processes. In 2009, the
Company’s wholly-owned wafer fabrication facilities continued to conform to the
requirements of ISO 14001 certification. To continue certification,
the Company met annual requirements in environmental policy, compliance,
planning, management, structure and responsibility, training, communication,
document control, operational control, emergency preparedness and response,
record keeping and management review. While the Company has not
experienced any materially adverse effects on its operations from environmental
regulations, changes in the regulations could necessitate additional capital
expenditures, modification of operations or other compliance
actions.
8
Directors
and Executive Officers of the Registrant
Officers of the Company are appointed
annually by the Board of Directors. Directors of the Company are
elected annually by the shareholders of the Company. Any directors
appointed by the Board of Directors to fill vacancies on the Board serve until
the next election by the shareholders. All officers and directors
serve until their successors are duly chosen or elected and qualified, except in
the case of earlier death, resignation or removal.
As of September 3, 2009, the following
executive officers and directors of the Company were subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended.
|
Name
|
Age
|
Position
|
|
|
Mark
W. Adams
|
45
|
Vice
President of Worldwide Sales
|
|
|
Steven
R. Appleton
|
49
|
Chairman
and Chief Executive Officer
|
|
|
Kipp
A. Bedard
|
50
|
Vice
President of Investor Relations
|
|
|
D.
Mark Durcan
|
48
|
President
and Chief Operating Officer
|
|
|
Ronald
C. Foster
|
58
|
Vice
President of Finance and Chief Financial Officer
|
|
|
Roderic
W. Lewis
|
54
|
Vice
President of Legal Affairs, General Counsel and Corporate
Secretary
|
|
|
Patrick
T. Otte
|
47
|
Vice
President of Human Resources
|
|
|
Brian
J. Shields
|
48
|
Vice
President of Worldwide Wafer Fabrication
|
|
|
Brian
M. Shirley
|
40
|
Vice
President of Memory
|
|
|
Teruaki
Aoki
|
67
|
Director
|
|
|
James
W. Bagley
|
70
|
Director
|
|
|
Robert
L. Bailey
|
52
|
Director
|
|
|
Mercedes
Johnson
|
55
|
Director
|
|
|
Lawrence
N. Mondry
|
49
|
Director
|
|
|
Robert
E. Switz
|
63
|
Director
|
|
Mark W. Adams joined the
Company in June 2006. From January 2006 until he joined the Company,
Mr. Adams was the Chief Operating Officer of Lexar Media, Inc. Mr.
Adams served as the Vice President of Sales and Marketing for Creative Labs,
Inc. from December 2002 to January 2006. From March 2000 to September
2002, Mr. Adams was the Chief Executive Officer of Coresma, Inc. Mr.
Adams holds a BA in Economics from Boston College and an MBA from Harvard
Business School.
Steven R. Appleton joined the
Company in February 1983 and has served in various capacities with the Company
and its subsidiaries. Mr. Appleton first became an officer of the
Company in August 1989 and has served in various officer positions with the
Company since that time. From April 1991 until July 1992 and since
May 1994, Mr. Appleton has served on the Company’s Board of
Directors. From September 1994 to June 2007, Mr. Appleton served as
the Chief Executive Officer, President and Chairman of the Board of Directors of
the Company. In June 2007, Mr. Appleton relinquished his position as
President of the Company but retained his positions of Chief Executive Officer
and Chairman of the Board. Mr. Appleton is a member of the Board of
Directors of National Semiconductor Corporation. Mr. Appleton holds a
BA in Business Management from Boise State University.
Kipp A. Bedard joined the
Company in November 1983 and has served in various capacities with the Company
and its subsidiaries. Mr. Bedard first became an officer of the
Company in April 1990 and has served in various officer positions since that
time. Since January 1994, Mr. Bedard has served as Vice President of
Investor Relations for the Company. Mr. Bedard holds a BBA in
Accounting from Boise State University.
D. Mark Durcan joined the
Company in June 1984 and has served in various technical positions with the
Company and its subsidiaries since that time. Mr. Durcan was
appointed Chief Operating Officer in February 2006 and President in June
2007. Mr. Durcan has been an officer of the Company since
1996. Mr. Durcan holds a BS and MChE in Chemical Engineering from
Rice University.
Ronald C. Foster joined the
Company in April 2008 after serving as a member of the Board of Directors from
June 2004 to April 2005. From March 2005 to March 2008, he was the
Chief Financial Officer for FormFactor, Inc. Mr. Foster previously
served in senior financial management positions for Hewlett-Packard, Applied
Materials, Novell and JDS Uniphase. Mr. Foster holds a BA in
Economics from Whitman College and an MBA from the University of
Chicago.
9
Roderic W. Lewis joined the
Company in August 1991 and has served in various capacities with the Company and
its subsidiaries. Mr. Lewis has served as Vice President of Legal
Affairs, General Counsel and Corporate Secretary since July 1996. Mr.
Lewis holds a BA in Economics and Asian Studies from Brigham Young University
and a JD from Columbia University School of Law.
Patrick T. Otte has served as
the Company's Vice President of Human Resources since March 2007. Mr.
Otte joined Micron in 1987 and has served in various positions of increasing
responsibility, including Production Manager in several of Micron’s fabrication
facilities, Operations Manager for Micron Technology Italia S.r.l. and, Site
Director for the Company's facility in Manassas, Virginia. Mr. Otte holds a
Bachelor of Science degree from St. Paul Bible College in Minneapolis,
Minnesota.
Brian J. Shields joined the
Company in November 1986 and has served in various operational positions with
the Company. Mr. Shields first became an officer of the Company in
March 2003 and has been Vice President of Wafer Fabrication since December
2005.
Brian M. Shirley joined the
Company in August 1992 and has served in various technical positions with the
Company. Mr. Shirley became Vice President of Memory in February
2006. Mr. Shirley holds a BS in Electrical Engineering from Stanford
University.
Teruaki Aoki has served as
President of Sony University since April 2005. Dr. Aoki has been
associated with Sony since 1970 and has held various executive positions,
including Senior Executive Vice President and Executive Officer of Sony
Corporation as well as President and Chief Operating Officer of Sony
Electronics, a U.S. subsidiary. Dr. Aoki holds a Ph.D. in Material
Sciences from Northwestern University as well as a BS in Applied Physics from
the University of Tokyo. He was elected as an IEEE Fellow in 2003 and
serves as Advisory Board Member of Kellogg School of Management of Northwestern
University. Dr. Aoki also serves on the board of Citizen Holdings
Co., Ltd. Dr. Aoki is the Chairman of the Board’s Compensation
Committee.
James W. Bagley became the
Executive Chairman of Lam Research Corporation (“Lam”), a supplier of
semiconductor manufacturing equipment, in June 2005. From August 1997
through June 2005, Mr. Bagley served as the Chairman and Chief Executive Officer
of Lam. Mr. Bagley is a member of the Board of Directors of Teradyne,
Inc. He has served on the Company’s Board of Directors since June
1997. Mr. Bagley holds a MS and BS in Electrical Engineering from
Mississippi State University.
Robert L. Bailey has been
Chairman of the Board of Directors of PMC-Sierra (“PMC”) since 2005 and also
served as PMC’s Chairman from February 2000 until February 2003. Mr.
Bailey has been a director of PMC since October 1996. He also served
as the President and Chief Executive Officer of PMC from July 1997 until May
2008. PMC is a leading provider of broadband communication and
semiconductor storage solutions for the next-generation Internet. Mr.
Bailey holds a BS degree in Electrical Engineering from the University of
Bridgeport and an MBA from the University of Dallas.
Mercedes Johnson was the
Senior Vice President and Chief Financial Officer of Avago Technologies Limited,
a supplier of analog interface components for communications, industrial and
consumer applications, from December 2005 to August 2008. Prior to
that, she served as the Senior Vice President, Finance, of Lam from June 2004 to
January 2005 and as Lam’s Chief Financial Officer from May 1997 to May
2004. Before joining Lam, Ms. Johnson spent 10 years with Applied
Materials, Inc., where she served in various senior financial management
positions, including Vice President and Worldwide Operations
Controller. Ms. Johnson holds a degree in Accounting from the
University of Buenos Aires and currently serves on the Board of Directors for
Intersil Corporation.
Lawrence N. Mondry was
the President and Chief Executive Officer of CSK Auto Corporation (“CSK”), a
specialty retailer of automotive aftermarket parts, from August 2007 to July
2008. Prior to his appointment at CSK, Mr. Mondry served as the Chief
Executive Officer of CompUSA Inc. from November 2003 to May 2006. Mr.
Mondry joined CompUSA in 1990. Mr. Mondry currently serves on the
Board of Directors of CSK. Mr. Mondry is the Chairman of the Board’s Governance
Committee and Lead Director.
10
Robert E. Switz is currently
Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc.,
(“ADC”), a supplier of network infrastructure products and
services. Mr. Switz has been President and Chief Executive officer of
ADC since August 2003 and Chairman since August 2008. He has been
with ADC since 1994 and prior to his current position, served ADC as Executive
Vice President and Chief Financial Officer. Mr. Switz holds an MBA
from the University of Bridgeport as well as a degree in Marketing/Economics
from Quinnipiac University. Mr. Switz also serves on the Board of
Directors for ADC and Broadcom Corporation. Mr. Switz is the Chairman
of the Board’s Audit Committee.
There is no family relationship between
any director or executive officer of the Company.
11
EXHIBIT
99.2
Item
6. Selected
Financial Data
Amounts and balances in the table below
have been adjusted to reflect the retrospective application of new accounting
standards for noncontrolling interests and certain convertible debt
instruments. (See “Item 8. Financial Statements and Supplementary
Data – Notes to Consolidated Financial Statements – Adjustment for Retrospective
Application of New Accounting Standards.”)
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||
|
Net
sales
|
$ | 4,803 | $ | 5,841 | $ | 5,688 | $ | 5,272 | $ | 4,880 | ||||||||||
|
Gross
margin
|
(440 | ) | (55 | ) | 1,078 | 1,200 | 1,146 | |||||||||||||
|
Operating
income (loss)
|
(1,676 | ) | (1,595 | ) | (280 | ) | 350 | 217 | ||||||||||||
|
Net
income (loss)
|
(1,993 | ) | (1,665 | ) | (209 | ) | 415 | 188 | ||||||||||||
|
Net
income (loss) attributable to Micron
|
(1,882 | ) | (1,655 | ) | (331 | ) | 408 | 188 | ||||||||||||
|
Diluted
earnings (loss) per share
|
(2.35 | ) | (2.14 | ) | (0.43 | ) | 0.57 | 0.29 | ||||||||||||
|
Cash
and short-term investments
|
1,485 | 1,362 | 2,616 | 3,079 | 1,290 | |||||||||||||||
|
Total
current assets
|
3,344 | 3,779 | 5,234 | 5,101 | 2,926 | |||||||||||||||
|
Property,
plant and equipment, net
|
7,089 | 8,819 | 8,279 | 5,888 | 4,684 | |||||||||||||||
|
Total
assets
|
11,459 | 13,432 | 14,810 | 12,221 | 8,006 | |||||||||||||||
|
Total
current liabilities
|
1,892 | 1,598 | 2,026 | 1,661 | 979 | |||||||||||||||
|
Long-term
debt
|
2,379 | 2,106 | 1,597 | 405 | 1,020 | |||||||||||||||
|
Total
Micron shareholders’ equity
|
4,953 | 6,525 | 8,135 | 8,114 | 5,847 | |||||||||||||||
|
Noncontrolling
interests in subsidiaries
|
1,986 | 2,865 | 2,607 | 1,568 | -- | |||||||||||||||
|
Total
equity
|
6,939 | 9,390 | 10,742 | 9,682 | 5,847 | |||||||||||||||
In the first quarter of 2009, the
Company acquired a 35.5% ownership interest in Inotera Memories, Inc.
(“Inotera”), a publicly-traded DRAM manufacturer in Taiwan. In
connection with the acquisition of the shares in Inotera, the Company and Nanya
entered into a supply agreement with Inotera pursuant to which Inotera sells
trench and stack DRAM products to the Company and the Company’s DRAM joint
venture partner, Nanya Technology Corporation. On August 3, 2009, Inotera
issued shares in a public offering, decreasing the Company’s interest in Inotera
to 29.8%. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Equity Method Investments – DRAM
joint ventures with Nanya.”)
On July 10, 2009, the Company sold a
65% interest in Aptina Imaging Corporation (“Aptina”), a wholly-owned subsidiary
of the Company. The Company continues to manufacture products for
Aptina under a wafer supply agreement. The Company accounts for its
remaining interest in Aptina under the equity method. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Equity Method Investments – Aptina.”)
The Company formed two joint ventures
(collectively “IM Flash”) with Intel Corporation to manufacture NAND Flash
memory products for the exclusive benefit of the partners: IM Flash
Technologies, LLC, which began operations in the second quarter of 2006, and IM
Flash Singapore LLP, which began operations in the third quarter of
2007. The Company owns 51% and Intel owns 49% of IM
Flash. The financial results of IM Flash are included in the
consolidated financial statements of the Company. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Consolidated Variable Interest Entities – NAND Flash joint venture
with Intel.”)
The Company began consolidating the
financial results of its TECH Semiconductor joint venture (“TECH”) as of the
beginning of the third quarter of 2006. In the third quarter of 2007,
the Company acquired all of the shares of TECH common stock held by Singapore
Economic Development Board, which increased the Company’s ownership interest in
TECH from approximately 43% to approximately 73%. As a result of the
purchases of TECH shares in 2009, the Company’s ownership interest in TECH was
increased from to approximately 73% as of August 28, 2008 to approximately 85%
in August 2009. (See “Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – TECH
Semiconductor Singapore Pte. Ltd.”)
1
In the
fourth quarter of 2006, the Company acquired Lexar Media, Inc., a designer,
developer, manufacturer and marketer of Flash memory products, in a
stock-for-stock merger.
(See
“Item 1A. Risk Factors” and “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements.”)
2
EXHIBIT
99.3
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion contains
trend information and other forward-looking statements that involve a number of
risks and uncertainties. Forward-looking statements include, but are not limited
to, statements such as those made in “Overview” regarding Inotera's transition
to the Company's stack process technology and anticipated margins and operating
expenses for All Other segments in future periods; in “Net Sales” regarding DRAM
production received from Inotera in 2010, future increases in NAND Flash
production, and future All Other revenue under an imaging wafer supply agreement
with Aptina; in “Gross Margin” regarding future charges from Inotera for
underutilized capacity, future charges for inventory write-downs, gross margins
from the Company’s imaging wafer supply agreement with Aptina; in “Selling,
General and Administrative” regarding future legal expenses; in “Research and Development”
regarding reductions of future research and development expenses in connection
with the sale of a majority interest in Aptina; in “Restructure” regarding
future levels of employees; in “Stock-based Compensation” regarding future costs
to be recognized; in “Liquidity and Capital Resources” regarding capital
spending in 2010, future distributions from IM Flash to Intel and capital
contributions to TECH; and in “Recently Issued Accounting Standards” regarding
the impact from the adoption of new accounting standards. The Company’s actual
results could differ materially from the Company’s historical results and those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
in “Item 1A. Risk Factors.” This discussion should be read in
conjunction with the Consolidated Financial Statements and accompanying notes
for the year ended September 3, 2009. All period references are to
the Company’s fiscal periods unless otherwise indicated. The Company’s fiscal
year is the 52 or 53-week period ending on the Thursday closest to August
31. All tabular dollar amounts are in millions. The
Company’s fiscal 2009, which ended on September 3, 2009, contained 53 weeks and
its fiscal 2008 and fiscal 2007 both contained 52 weeks. All
production data includes production of the Company and its consolidated joint
ventures and the Company’s supply from Inotera.
Overview
The Company is a global manufacturer
and marketer of semiconductor devices, principally DRAM and NAND Flash
memory. In addition, the Company manufactures semiconductor
components for CMOS image sensors and other semiconductor
products. Its products are used in a broad range of electronic
applications including personal computers, workstations, network servers, mobile
phones and other consumer applications including Flash memory cards, USB storage
devices, digital still cameras, MP3/4 players and in automotive
applications. The Company markets its products through its internal
sales force, independent sales representatives and distributors primarily to
original equipment manufacturers and retailers located around the
world. The Company’s success is largely dependent on the market
acceptance of a diversified portfolio of semiconductor products, efficient
utilization of the Company’s manufacturing infrastructure, successful ongoing
development of advanced process technologies and generation of sufficient return
on research and development investments.
The Company has made significant
investments to develop proprietary product and process technology that is
implemented in its worldwide manufacturing facilities and through its joint
ventures to enable the production of semiconductor products with increasing
functionality and performance at lower costs. The Company generally
reduces the manufacturing cost of each generation of product through
advancements in product and process technology such as its leading-edge
line-width process technology and innovative array architecture. The
Company continues to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package
size, lower power consumption and increased memory density. To
leverage its significant investments in research and development, the Company
has formed various strategic joint ventures under which the costs of developing
memory product and process technologies are shared with its joint venture
partners. In addition, from time to time, the Company has also sold
and/or licensed technology to other parties. The Company is pursuing
additional opportunities to recover its investment in intellectual property
through partnering and other arrangements.
The semiconductor memory industry is
experiencing a severe downturn due to a significant oversupply of
products. The downturn has been exacerbated by global economic
conditions which have adversely affected demand for semiconductor memory
products. Average selling prices per gigabit for the Company’s DRAM
and NAND Flash products declined 52% and 56%, respectively, for 2009 as compared
to 2008, after declining 51% and 67%, respectively, for 2008 as compared to
2007, and declining 23% and 56%, respectively, for 2007 as compared to
2006. These declines significantly outpaced the long-term historical
pricing trend. As a result of these market conditions, the Company
and other semiconductor memory manufacturers reported substantial losses in
recent periods. The Company recognized net losses attributable to
Micron of $1.9 billion for 2009, $1.7 billion for 2008 and $331 million for
2007.
1
In response to adverse market
conditions, the Company initiated restructure plans in 2009, primarily within
the Company’s Memory segment. In the first quarter of 2009, IM Flash,
a joint venture between the Company and Intel Corporation, terminated its
agreement with the Company to obtain NAND Flash memory supply from the Company’s
Boise facility, reducing the Company’s NAND Flash production by approximately
35,000 200mm wafers per month. The Company and Intel also agreed to
suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore
wafer fabrication facility. In addition, the Company phased out all
remaining 200mm DRAM wafer manufacturing operations at its Boise, Idaho,
facility in the second half of 2009.
Adjustment for
Retrospective Application of New Accounting Standards: Effective at the
beginning of 2010, the Company adopted new accounting standards for
noncontrolling interests and certain convertible debt
instruments. The impact of the retrospective adoption of the new
accounting standards is summarized below.
Noncontrolling
interests: Under the new standard, noncontrolling interests in
subsidiaries is (1) reported as a separate component of equity in the
consolidated balance sheets and (2) included in net income in the statement of
operations.
Convertible debt
instruments: The new standard applies to convertible debt
instruments that may be fully or partially settled in cash upon conversion and
is applicable to the Company’s 1.875% convertible senior notes with an aggregate
principal amount of $1.3 billion issued in May 2007 (the “Convertible
Notes”). The standard requires the liability and equity components of
the Convertible Notes to be stated separately. The liability
component recognized at the issuance of the Convertible Notes equals the
estimated fair value of a similar liability without a conversion option and the
remainder of the proceeds received at issuance was allocated to
equity. In connection therewith, at the May 2007 issuance of the
Convertible Notes there was a $402 million decrease in debt, a $394 million
increase in additional capital, and an $8 million decrease in deferred debt
issuance costs (included in other noncurrent assets). In subsequent
periods, the liability component recognized at issuance is increased to the
principal amount of the Convertible Notes through the amortization of interest
costs. Through 2009, $107 million of interest was amortized.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Adjustment for Retrospective Application of New
Accounting Standards.”)
Inotera Memories,
Inc. (“Inotera”): In the first quarter of 2009, the Company
acquired a 35.5% ownership interest in Inotera, a publicly-traded entity in
Taiwan, from Qimonda AG (“Qimonda”) for $398 million. The interest in
Inotera was acquired for cash, a portion of which was funded from loan proceeds
of $200 million received from Nan Ya Plastics Corporation and $85 million
received from Inotera. Nan Ya Plastics is an affiliate of Nanya Technology
Corporation (“Nanya”), a then 35.6% shareholder in Inotera. The loans were
recorded at their fair values which reflect an aggregate discount of $31 million
from their face amounts. This aggregate discount was recorded as a
reduction of the Company’s basis in its investment in Inotera. The Company
also capitalized $10 million of costs and other fees incurred in connection with
the acquisition. As a result of the above transactions, the initial
carrying value of the Company’s investment in Inotera was $377
million. On August 3, 2009, Inotera issued shares in a public
offering for approximately $310 million that reduced the Company and Nanya’s
ownership in Inotera to 29.8% and 29.9%, respectively. As a result of
Inotera’s public offering, the Company will recognize a gain of $59 million in
the first quarter of 2010.
In connection with the acquisition of
the shares in Inotera, the Company and Nanya entered into a supply agreement
with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will
sell trench and stack DRAM products to the Company and Nanya. The Company
has rights and obligations to purchase up to 50% of Inotera’s wafer production
capacity. Inotera’s actual wafer production will vary from time to time
based on market and other conditions. Inotera’s trench production is
expected to transition to the Company’s stack process
technology. Inotera charges the Company and Nanya for a portion of
the costs associated with its underutilized capacity, if any. The cost to
the Company of wafers purchased under the Inotera Supply Agreement is based on a
margin sharing formula among the Company, Nanya and Inotera. Under
such formula, all parties’ manufacturing costs related to wafers supplied by
Inotera, as well as the Company’s and Nanya’s selling prices for the resale of
products from wafers supplied by Inotera, are considered in determining costs
for wafers from Inotera. The Company’s purchase obligation includes
purchasing Inotera’s trench DRAM capacity (less any trench DRAM products sold to
Qimonda pursuant to a separate supply agreement between Inotera and Qimonda (the
“Qimonda Supply Agreement”)). Under the Qimonda Supply Agreement, Qimonda
was obligated to purchase trench DRAM products resulting from wafers started for
it by Inotera through July 2009 in accordance with a ramp down schedule
specified in the Qimonda Supply Agreement. In the second quarter of 2009,
Qimonda filed for bankruptcy protection and defaulted on its obligations to
purchase products from Inotera. Pursuant to the Company’s obligations
under the Inotera Supply Agreement, the Company recorded $95 million of charges
to cost of goods sold in 2009 for underutilized capacity.
2
The Company’s results of operations for
2009 also include losses of $130 million for the Company’s share of Inotera’s
losses from the acquisition date through the second calendar quarter of
2009. The Company accounts for its interest in Inotera under the
equity method and does not consolidate Inotera. The Company
recognizes its share of earnings or losses from Inotera for a period that lags
the Company’s fiscal periods by two months. As of September 3, 2009,
the Company had recorded $3 million to accumulated other comprehensive income in
the accompanying consolidated balance sheet for cumulative translation
adjustments for its investment in Inotera. During the third quarter
of 2009, the Company received $50 million from Inotera pursuant to the terms of
a technology transfer agreement. As of September 3, 2009, the
carrying value of the Company’s equity investment in Inotera was $229
million.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements – Supplemental Balance Sheet Information –
Equity Method Investments – DRAM joint ventures with Nanya”)
Aptina Imaging
Corporation (“Aptina”): On July 10, 2009, the Company sold a
65% interest in Aptina, previously a wholly-owned subsidiary of the Company and
a significant component of the Company’s All Other segments, to Riverwood
Capital (“Riverwood”) and TPG Capital (“TPG”). In connection with the
transaction, the Company received approximately $35 million in cash and retained
a 35% interest in Aptina. A portion of the 65% interest held by
Riverwood and TPG are convertible preferred shares and have a liquidation
preference over the common shares. As a result, the Company’s
interest represents 64% of Aptina’s common stock. The Company also
retained all cash held by Aptina and its subsidiaries. The Company
recorded a loss of $41 million in connection with the sale. Under the equity
method, the Company will recognize its share of Aptina’s results of operations
based on its 64% share of Aptina’s common stock on a two-month lag beginning in
2010. As of September 3, 2009, the Company’s investment in Aptina was
$44 million. The Company continues to manufacture products for Aptina
under a wafer supply agreement. The Company anticipates that pricing
under the Aptina wafer supply agreement will generally result in lower gross
margins than historically realized on sales of CMOS image products to end
customers. The Company also anticipates that the sale of the majority
interest in Aptina will significantly reduce research and development costs and
other operating expenses. (See “Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Supplemental
Balance Sheet Information – Equity Method Investments –
Aptina”)
Inventory
write-downs: The Company’s results
of operations for the second and first quarters of 2009 included charges of $234
million and $369 million, respectively, to write down the carrying value of work
in process and finished goods inventories of memory products (both DRAM and NAND
Flash) to their estimated market values. For the fourth, second and
first quarters of 2008, the Company recorded inventory charges of $205 million,
$15 million and $62 million, respectively.
Results
of Operations
|
2009
|
2008
|
2007
|
||||||||||||||||||||||||||
|
(in
millions and as a percent of net sales)
|
||||||||||||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||||||
|
Memory
|
$ | 4,290 | 89 | % | $ | 5,188 | 89 | % | $ | 5,001 | 88 | % | ||||||||||||||||
|
All Other
|
513 | 11 | % | 653 | 11 | % | 687 | 12 | % | |||||||||||||||||||
| $ | 4,803 | 100 | % | $ | 5,841 | 100 | % | $ | 5,688 | 100 | % | |||||||||||||||||
|
Gross margin:
|
||||||||||||||||||||||||||||
|
Memory
|
$ | (522 | ) | (12 | ) | % | $ | (241 | ) | (5 | ) | % | $ | 845 | 17 | % | ||||||||||||
|
All Other
|
82 | 16 | % | 186 | 28 | % | 233 | 34 | % | |||||||||||||||||||
| $ | (440 | ) | (9 | ) | % | $ | (55 | ) | (1 | ) | % | $ | 1,078 | 19 | % | |||||||||||||
|
Selling, general and
administrative
|
$ | 354 | 7 | % | $ | 455 | 8 | % | $ | 610 | 11 | % | ||||||||||||||||
|
Research and
development
|
647 | 13 | % | 680 | 12 | % | 805 | 14 | % | |||||||||||||||||||
|
Restructure
|
70 | 1 | % | 33 | 1 | % | 19 | 0 | % | |||||||||||||||||||
|
Goodwill
impairment
|
58 | 1 | % | 463 | 8 | % | -- | -- | ||||||||||||||||||||
|
Other operating (income)
expense, net
|
107 | 2 | % | (91 | ) | (2 | ) | % | (76 | ) | (1 | ) | % | |||||||||||||||
|
Net loss attributable to
Micron
|
(1,882 | ) | (39 | ) | % | (1,655 | ) | (28 | ) | % | (331 | ) | (6 | ) | % | |||||||||||||
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31.
3
Amounts in the table above have been
adjusted to reflect the retrospective application of new accounting standards
for noncontrolling interests and certain convertible debt
instruments. (See “Item 8. Financial Statements and Supplementary
Data – Notes to Consolidated Financial Statements – Adjustment for Retrospective
Application of New Accounting Standards.”)
In 2009, the Company had two reportable
segments, Memory and Imaging. In the first quarter of 2010, Imaging
no longer met the quantitative thresholds of a reportable segment and management
does not expect that Imaging will meet the quantitative thresholds in future
years. As a result, Imaging was no longer considered a reportable
segment and was included in the Company’s All Other nonreportable
segments. All amounts herein have been recast to reflect Imaging in
All Other. The Memory segment’s primary products are DRAM and NAND
Flash memory. Operating results of All Other primarily reflect
activity of Imaging.
Net
Sales
Total net sales for 2009 decreased 18%
as compared to 2008 primarily due to a 17% decrease in Memory sales and a 21%
decrease in All Other sales. Memory sales for 2009 reflect
significant declines in per gigabit average selling prices partially offset by
significant increases in gigabits sold as compared to 2008. Memory
sales were 89% of total net sales for 2009 and 2008 and 88% for
2007. The 21% decrease in All Other sales for 2009 was primarily due
to lower sales volume and average sales prices for CMOS image sensor
products. Total net sales for 2008 increased 3% as compared to 2007
primarily due to a 4% increase in Memory sales partially offset by a 5% decrease
in All Other sales.
In response to adverse market
conditions, the Company shut down production of NAND for IM Flash at the
Company’s Boise fabrication facility beginning in the second quarter of 2009 and
phased out the remainder of its 200mm DRAM production at the Boise fabrication
facility in the second half of 2009. In addition, the Company
implemented production slowdowns at some of its manufacturing facilities during
2009. Production of Memory and All Other products in 2009 was
affected by the shutdown of the Boise fabrication facility and slowdowns at
other facilities. The Company will adjust utilization of 200mm wafer
processing capacity as product demand varies.
The Company has formed partnering
arrangements under which it has sold and/or licensed technology to other
parties. The Company’s Memory segment recognized royalty and license
revenue of $135 million in 2009 and $58 million in 2008.
Memory: Memory
sales for 2009 decreased 17% from 2008 primarily due to a 23% decrease in sales
of DRAM products and a 10% decrease in sales of NAND Flash
products.
Sales of DRAM products for 2009
decreased from 2008 primarily due to a 52% decline in average selling prices
mitigated by a 56% increase in gigabits sold. Gigabit production of
DRAM products increased 52% for 2009 despite the shutdown of the Boise
fabrication facility and production slowdowns at other 200mm wafer fabrication
facilities. The DRAM production increase was primarily due to
production efficiencies achieved primarily through transitions to higher
density, advanced geometry devices. In the fourth quarter of 2009,
the Company began receiving trench DRAM products from Inotera. The
Company expects that in 2010 its DRAM production will increase as a result of
increases in stack and trench DRAM production purchased from Inotera. Sales of
DDR2 and DDR3 DRAM, the Company’s highest volume products, were 29% of the
Company’s total net sales for 2009 and 2008 and were 32% for 2007.
The Company sells NAND Flash products
in three principal channels: 1) to Intel Corporation (“Intel”) through its IM
Flash consolidated joint venture at long-term negotiated prices approximating
cost, 2) to original equipment manufacturers (“OEM’s”) and other resellers and
3) to retail customers. Aggregate sales of NAND Flash products for
2009 decreased 10% from 2008 and represented 39% of the Company’s total net
sales for 2009 as compared to 35% for 2008 and 23% for 2007
Sales through IM Flash to Intel were
$886 million for 2009, $1,037 million for 2008 and $497 million for
2007. For 2009, average selling prices for IM Flash sales to Intel
decreased significantly due to a 61% reduction in costs per
gigabit. However, gigabit sales to Intel were 110% higher in 2009 as
compared to 2008 primarily due to an 85% increase in gigabit production of NAND
Flash products over the same period as a result of the Company’s continued
transition to higher density 34 nanometer (nm) NAND Flash products and other
improvements in product and process technologies. The increase in
NAND Flash production was achieved despite the shutdown of 200mm NAND Flash
production which began in the second quarter of 2009. The Company
expects that its gigabit production of NAND Flash products will continue to
increase in 2010 but at a slower rate than in 2009.
4
Aggregate sales of NAND Flash products
to the Company’s OEM, resellers and retail customers were 4% lower for 2009 as
compared to 2008 primarily due a 52% decline in average selling prices,
partially offset by a 100% increase in gigabit sales. Average selling
prices to the Company’s OEM and reseller customers for 2009 decreased
approximately 41% compared to 2008, while average selling prices of the
Company’s Lexar brand, directed primarily at the retail market, decreased
approximately 62% for 2009 compared to 2008.
Memory sales for 2008 increased 4% from
2007 primarily due to a 55% increase in sales of NAND Flash products offset by a
15% decrease in sales of DRAM products. Sales of NAND Flash products
for 2008 increased from 2007 primarily due to an increase of approximately 370%
in gigabits sold as a result of production increases partially offset by a
decline of 67% in average selling prices per gigabit. Gigabit
production of NAND Flash products increased approximately 350% for 2008 as
compared to 2007, primarily due to the continued ramp of NAND Flash products at
the Company’s 300mm fabrication facilities and transitions to higher density,
advanced geometry devices. Sales of DRAM products for 2008 decreased
from 2007 primarily due to a decline of 51% in average selling prices (which
included the effects of a $50 million charge to revenue in the first quarter of
2007 as a result of a settlement agreement with a class of direct purchasers of
certain DRAM products), mitigated by an increase in gigabits sold of
approximately 70%. Gigabit production of DRAM products increased
approximately 70% for 2008, primarily due to production efficiencies from
improvements in product and process technologies, including TECH’s conversion to
300mm wafer fabrication.
All
Other: All Other sales for 2009 decreased by 21% from 2008
primarily due to decreased unit sales and declines in average selling prices for
CMOS image sensor products. Demand for All Other products in 2009 was
adversely impacted by weakness in the mobile phone markets. All
Other sales for 2009 were also negatively impacted by the Company’s sale of a
65% interest in Aptina on July 10, 2009. After the sale of the
Company’s 65% interest in Aptina, revenue from the sales of CMOS image sensors
is derived entirely from sales of wafers to Aptina under a wafer supply
agreement. The Company anticipates that pricing under the wafer
supply agreement will generally result in lower revenue than historically
realized on sales by the Company of CMOS image sensor products to end
customers. All Other sales for 2008 decreased 5% from 2007 primarily
due to significant declines in average selling prices by product type for CMOS
image sensor products partially offset by a shift in product mix from products
with 1-megapixel or lower resolution to products with 3-megapixel or higher
resolution, which had higher average selling prices per unit. All
Other sales were 11% of the Company’s total net sales for 2009 and 2008 and 12%
for 2007.
Gross
Margin
The Company’s overall gross margin
percentage declined from negative 1% for 2008 to negative 9% for 2009 due to
declines in the gross margins for both Memory and All Other primarily as a
result of severe pricing pressure mitigated by cost reductions. The
Company’s overall gross margin percentage declined from 19% for 2007 to negative
1% for 2008 primarily due to a decrease in the gross margin percentage for
Memory as a result of significant declines in average selling
prices. Production slowdowns implemented at some of the Company’s
200mm manufacturing facilities during 2009 adversely affected per gigabit costs
of Memory products and per unit costs of All Other products.
Memory: The
Company’s gross margin percentage for Memory products declined from negative 5%
for 2008 to negative 12% for 2009 primarily due to declines in the gross margin
for DRAM products partially offset by improvements in the gross margin for NAND
Flash products. Gross margins for 2009 were positively affected by
significant cost reductions for DRAM and NAND Flash products and the effects of
selling memory products that were subject to inventory write-downs in 2008, as
discussed in more detail below. Gross margins for Memory products in
2009 were adversely affected by $187 million of costs associated with
underutilized capacity, primarily from Inotera and IM Flash’s Singapore
facility. The Company expects that underutilized capacity costs from
Inotera will decrease substantially in 2010 as Inotera increases its utilization
of production capacity.
5
The Company’s gross margins for Memory
in 2009, 2008 and 2007 were impacted by charges to write down inventories to
their estimated market values as a result of the significant decreases in
average selling prices for both DRAM and NAND Flash products. As
charges to write down inventories are recorded in advance of when inventories
are sold, gross margins in subsequent reporting periods are higher than they
otherwise would be. The impact of inventory write-downs on gross
margins for all periods reflects inventory write-downs less the estimated net
effect of prior period write-downs. The effects of inventory
write-downs on gross margin by period were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Inventory
write-downs
|
$ | (603 | ) | $ | (282 | ) | $ | (20 | ) | |||
|
Estimated
effect of previous inventory write-downs
|
767 | 98 | -- | |||||||||
|
Net effect of inventory
write-downs
|
$ | 164 | $ | (184 | ) | $ | (20 | ) | ||||
In future periods, the Company will be
required to record additional inventory write-downs if estimated average selling
prices of products held in finished goods and work in process inventories at a
quarter-end date are below the manufacturing cost of those
products.
Declines in gross margins on sales of
DRAM products for 2009 as compared to 2008 were primarily due to the 52% decline
in average selling prices mitigated by 40% reduction in costs per
gigabit. The reduction in DRAM costs per gigabit was primarily due to
production efficiencies achieved through transitions to higher-density,
advanced-geometry devices. DRAM production costs for 2009 were
adversely impacted by $95 million of underutilized capacity costs from
Inotera.
The Company’s gross margin on sales of
NAND Flash products for 2009 improved from 2008, despite a 56% decrease in
overall average selling prices per gigabit, primarily due to a 61% reduction in
costs per gigabit. The reduction in NAND Flash costs per gigabit was
primarily due to lower manufacturing costs as a result of increased production
of higher-density, advanced-geometry devices, in particular from the Company’s
transition to 34nm process technology. Gross margins on sales of NAND
Flash products reflect sales of approximately half of IM Flash’s output to Intel
at long-term negotiated prices approximating cost.
The Company’s gross margin percentage
for Memory products declined from 17% for 2007 to negative 5% for 2008 primarily
due to the significant decreases in average selling prices, write-downs of
inventories to their estimated market values and the shift in product mix to
NAND Flash products (which had a significantly lower gross margin than DRAM
products in 2008), mitigated by cost reductions. The Company’s gross
margin for DRAM products for 2008 declined from 2007, primarily due to the 51%
decline in average selling prices per gigabit mitigated by a 38% reduction in
costs per gigabit. Cost reductions in 2008 for DRAM products were
partially offset by inventory write-downs. The Company’s gross margin
for NAND Flash products for 2008 declined from 2007 primarily due to the 67%
decline in average selling prices per gigabit mitigated by a 64% reduction in
costs per gigabit. Cost reductions in 2008 primarily reflect lower
manufacturing costs and lower costs of NAND Flash products purchased for sale
under the Company’s Lexar brand. NAND Flash costs for 2008 were
also reduced by a recovery of $70 million for price adjustments for NAND Flash
products purchased from other suppliers in prior periods. Cost
reductions in 2008 for NAND Flash Products were partially offset by inventory
write-downs.
All
Other: The Company’s gross margin percentage for All Other
declined from 28% for 2008 to 16% for 2009 primarily due to declines in average
selling prices for CMOS image sensor products and costs associated with
underutilized production capacity. The decrease in the gross margin
percentage for 2009 was mitigated by a shift in product mix to products with
3-megapixels or more, which realized higher margins. All Other gross
margins subsequent to the Company’s sale of a 65% interest in Aptina on July 10,
2009, are affected by the transition to a wafer foundry manufacturing model
wherein the Company sells all of its output CMOS image sensor products to Aptina
under a wafer supply agreement. The Company anticipates that pricing
under the wafer supply agreement will generally result in lower gross margins
than historically realized by the Company on sales of CMOS image sensor products
to end customers. The Company’s gross margin for All Other declined
to 28% for 2008 from 34% for 2007 primarily due to declines in average selling
prices mitigated by cost reductions and a shift to higher resolution products
that realized better gross margins.
6
Selling,
General and Administrative
Selling, general and administrative
(“SG&A”) expenses for 2009 decreased 22% from 2008, primarily due to lower
payroll expenses and other costs related to the Company’s restructure
initiatives and lower legal expenses. Lower payroll expenses reflect
reductions in headcount, variable pay, salary levels and employee
benefits. SG&A expenses for 2008 decreased 25% from 2007
primarily due to lower legal costs as well as lower payroll costs and other
expenses driven by the Company’s restructure initiatives. The
reduction of payroll costs in 2008 was primarily the result of a decrease in
employee headcount. In 2007, the Company recorded a $31 million
charge to SG&A as a result of the settlement of certain antitrust class
action (direct purchaser) lawsuits. Future SG&A expense is
expected to vary, potentially significantly, depending on, among other things,
the number of legal matters that are resolved relatively early in their
life-cycle and the number of matters that progress to trial. SG&A
expenses by segment were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Memory
|
$ | 315 | $ | 385 | $ | 532 | ||||||
|
All Other
|
39 | 70 | 78 | |||||||||
| $ | 354 | $ | 455 | $ | 610 | |||||||
Research
and Development
Research and development (“R&D”)
expenses vary primarily with the number of development wafers processed, the
cost of advanced equipment dedicated to new product and process development, and
personnel costs. Because of the lead times necessary to manufacture
its products, the Company typically begins to process wafers before completion
of performance and reliability testing. The Company deems development
of a product complete once the product has been thoroughly reviewed and tested
for performance and reliability. R&D expenses can vary
significantly depending on the timing of product qualification as costs incurred
in production prior to qualification are charged to R&D.
R&D expenses for 2009 decreased 5%
from 2008 primarily due to lower payroll costs and decreases in costs of
development wafers processed. Lower payroll expenses reflect
reductions in variable pay, salary levels and employee
benefits. R&D expenses were reduced by $107 million in 2009, $148
million in 2008 and $240 million in 2007 for amounts reimbursable from Intel
under a NAND Flash R&D cost-sharing arrangement. R&D expenses
for 2008 decreased 16% from 2007 primarily due to decreases in development
wafers processed and lower payroll costs driven by the Company’s restructure
initiatives. The Company expects that the sale of a majority interest
in Aptina in the fourth quarter of 2009 will reduce R&D expenses in future
periods. R&D expenses by segment were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Memory
|
$ | 529 | $ | 536 | $ | 648 | ||||||
|
All Other
|
118 | 144 | 157 | |||||||||
| $ | 647 | $ | 680 | $ | 805 | |||||||
The Company’s process technology
research and development (“R&D”) efforts are focused primarily on
development of successively smaller line-width process technologies which are
designed to facilitate the Company’s transition to next generation memory
products. Additional process technology R&D efforts focus on the
enablement of advanced computing and mobile memory architectures, the
investigation of new opportunities that leverage the Company’s core
semiconductor expertise, and the development of new manufacturing
materials. Product design and development efforts are concentrated on
the Company’s high density DDR3 and mobile products, as well as high density and
mobile NAND Flash memory (including MLC technology), specialty memory products
and memory systems.
7
Restructure
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, the Company
initiated restructure plans in 2009 primarily within the Company’s Memory
segment. In the first quarter of 2009, IM Flash, a joint venture
between the Company and Intel, terminated its agreement with the Company to
obtain NAND Flash memory supply from the Company’s Boise facility, reducing the
Company’s NAND Flash production by approximately 35,000 200mm wafers per
month. In connection with the termination of the NAND Flash memory
supply agreement, Intel paid the Company $208 million in 2009. The
Company and Intel also agreed to suspend tooling and the ramp of NAND Flash
production at IM Flash’s Singapore wafer fabrication facility. In
addition, the Company phased out all remaining 200mm DRAM wafer manufacturing
operations in Boise, Idaho in the second half of 2009. As a result of
these restructure plans, the Company reduced employment in 2009 by approximately
4,600 employees, or approximately 20%. Due to improvements in market
conditions and the pursuit of new business opportunities, future reduction in
employees may not occur. In 2008 and 2007, to reduce costs, the
Company implemented restructure initiatives including workforce reductions and
relocating and outsourcing certain of its operations. The following
table summarizes restructure charges (credits) resulting from the Company’s
restructure activities:
|
2009
|
2008
|
2007
|
||||||||||
|
Write-down
of equipment
|
$ | 152 | $ | -- | $ | -- | ||||||
|
Severance
and other employee costs
|
60 | 23 | 18 | |||||||||
|
Gain
from termination of NAND Flash supply agreement
|
(144 | ) | -- | -- | ||||||||
|
Other
|
2 | 10 | 1 | |||||||||
| $ | 70 | $ | 33 | $ | 19 | |||||||
Goodwill
Impairment
In the second quarter of 2009, the
Company’s imaging operations (part of All Other segments) experienced a severe
decline in sales, margins and profitability due to a significant decline in
demand for products as a result of the downturn in global economic
conditions. The drop in market demand resulted in significant
declines in average selling prices and unit sales. Due to these
market and economic conditions, the Company’s imaging operations and its
competitors experienced significant declines in market value. As a
result, the Company concluded that there were sufficient factual circumstances
for interim impairment analyses under SFAS No. 142 and it performed an
assessment of goodwill for impairment. Based on the results of the
impairment analysis, the Company wrote off all $58 million of goodwill relating
to its imaging operations in the second quarter of 2009.
In the first and second quarters of
2008, the Company experienced a sustained, significant decline in its stock
price. As a result of the decline in stock price, the Company’s
market capitalization fell significantly below the recorded value of its
consolidated net assets for most of the second quarter of 2008. The
reduced market capitalization reflected, in part, the Memory segment’s lower
average selling prices and expected continued weakness in pricing for the
Company’s Memory products. Due to these market and economic
conditions, the Company concluded that there were sufficient factual
circumstances for interim impairment analyses of its Memory segment under SFAS
No. 142 and it performed an assessment of goodwill for
impairment. Based on the results of the impairment analysis, the
Company wrote off all $463 million of goodwill relating to its Memory segment in
the second quarter of 2008.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information –
Goodwill.”)
Other
Operating (Income) Expense, Net
Other operating (income) expense
consisted of the following:
|
2009
|
2008
|
2007
|
||||||||||
|
(Gain)
loss on disposition of property, plant and equipment
|
$ | 54 | $ | (66 | ) | $ | (43 | ) | ||||
|
Loss
on sale of majority interest in Aptina
|
41 | -- | -- | |||||||||
|
Losses
from changes in currency exchange rates
|
30 | 25 | 14 | |||||||||
|
Other
|
(18 | ) | (50 | ) | (47 | ) | ||||||
| $ | 107 | $ | (91 | ) | $ | (76 | ) | |||||
8
In the table above, “Other” for 2008
included $38 million for receipts from the U.S. government in connection with
anti-dumping tariffs and for 2007, included $30 million from the sale of certain
intellectual property to Toshiba Corporation and $7 million in grants received
in connection with the Company’s operations in China.
Income
Taxes
Income taxes for 2009, 2008 and 2007
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2009, 2008 and 2007 was substantially
offset by changes in the valuation allowance. As of September 3,
2009, the Company had aggregate U.S. tax net operating loss carryforwards of
$4.2 billion and unused U.S. tax credit carryforwards of $212
million. The Company also had unused state tax net operating loss
carryforwards of $2.6 billion and unused state tax credits of $198 million as of
September 3, 2009. Substantially all of the net operating loss
carryforwards expire in 2022 to 2029 and substantially all of the tax credit
carryforwards expire in 2013 to 2029. Due to the expiration of
certain foreign statutes of limitations, the Company recognized approximately
$15 million of previously unrecognized tax benefits in 2008.
Equity
in Net Losses of Equity Method Investees
In connection with its DRAM partnering
arrangements with Nanya, the Company has investments in two Taiwan DRAM memory
companies accounted for as equity method investments: Inotera and
MeiYa. Inotera and MeiYa each have fiscal years that end on December
31. The Company recognizes its share of Inotera’s and MeiYa’s
quarterly earnings or losses for the calendar quarter that ends within the
Company’s fiscal quarter. This results in the recognition of the
Company’s share of earnings or losses from these entities for a period that lags
the Company’s fiscal periods by two months. The Company recognized
losses from these equity method investments of $140 million for
2009.
As a result of its sale of a 65%
interest in its Aptina subsidiary on July 10, 2009, the Company’s investment in
Aptina is accounted for as an equity method investment. The Company’s
shares in Aptina constitute 35% of Aptina’s total common and preferred stock and
64% of Aptina’s common stock. Under the equity method, the Company
recognizes its share of Aptina’s results of operations based on its 64% share of
Aptina’s common stock on a two-month lag beginning in 2010.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information – Equity Method
Investments.”)
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling interests for 2009, 2008
and 2007 primarily reflects the share of income or losses of the Company’s TECH
joint venture attributed to the noncontrolling interests in TECH. The
Company purchased $99 million of TECH shares on February 27, 2009, $99 million
of TECH shares on June 2, 2009, and $60 million of TECH shares on August 27,
2009. As a result, noncontrolling interests in TECH were reduced from
approximately 27% as of August 28, 2008 to approximately 15% in August
2009. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – TECH Semiconductor Singapore Pte.
Ltd.”)
Stock-based
Compensation
Total compensation cost for the
Company’s equity plans in 2009, 2008 and 2007 was $44 million, $48 million and
$44 million, respectively. Stock compensation expenses fluctuate
based on assessments of whether performance conditions will be achieved for the
Company’s performance-based stock grants. As of September 3, 2009,
$71 million of total unrecognized compensation cost related to non-vested awards
was expected to be recognized through the fourth quarter of 2013.
9
Liquidity
and Capital Resources
As of September 3, 2009, the Company
had cash and equivalents and short-term investments totaling $1,485 million
compared to $1,362 million as of August 28, 2008. The balance as of
September 3, 2009, included $114 million held at the Company’s IM Flash joint
ventures and $188 million held at the Company’s TECH joint
venture. The Company’s ability to access funds held by the joint
ventures to finance the Company’s other operations is subject to agreement by
the joint venture partners, debt covenants and contractual
limitations. Amounts held by TECH are not anticipated to be available
to finance the Company’s other operations.
The Company’s liquidity is highly
dependent on average selling prices for its products and the timing of capital
expenditures, both of which can vary significantly from period to
period. Depending on conditions in the semiconductor memory market,
the Company’s cash flows from operations and current holdings of cash and
investments may not be adequate to meet the Company’s needs for capital
expenditures and operations. Historically, the Company has used
external sources of financing to fund these needs. Due to conditions
in the credit markets, it may be difficult to obtain financing on terms
acceptable to the Company. The Company significantly reduced its
actual capital expenditures for 2009 and planned capital expenditures for
2010. In addition, the Company is considering further financing
alternatives, continuing to limit capital expenditures and implementing further
cost reduction initiatives.
Operating
activities: Net cash provided by operating activities was
$1,206 million in 2009 which reflected approximately $642 million generated from
the production and sales of the Company’s products and approximately $564
million provided from the management of working
capital. Specifically, the Company reduced the amount of working
capital as of September 3, 2009 invested in inventories by $304 million and
receivables by $126 million as compared to August 28, 2008.
Investing
activities: Net cash used for investing activities was $674
million in 2009, which included cash expenditures of $488 million for property,
plant and equipment and cash expenditures of $408 million for the acquisition of
a 35.5% interest in Inotera, partially offset by the net effect of maturities
and purchases of marketable investment securities of $124 million. A
significant portion of the capital expenditures related to IM Flash and TECH
operations. The Company believes that to develop new product and
process technologies, support future growth, achieve operating efficiencies and
maintain product quality, it must continue to invest in manufacturing
technologies, facilities and capital equipment and research and
development. The Company expects that capital spending will be
approximately $750 million to $850 million for 2010. As of September
3, 2009, the Company had commitments of approximately $276 million for the
acquisition of property, plant and equipment, most of which is expected to be
paid within one year.
Financing
activities: Net cash used for financing activities was $290
million in 2009, which primarily reflects $705 million of distributions to joint
venture partners, $429 million in debt payments and $144 million in payments on
equipment purchase contracts, partially offset by $716 million in proceeds from
borrowings and $276 million in net proceeds from the issuance of common
stock.
On April 15, 2009, the Company issued
69.3 million shares of common stock for $4.15 per share in a registered public
offering. The Company received net proceeds of $276 million after
deducting underwriting fees and other offering costs of $12
million.
On April 15, 2009, the Company issued
$230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25%
Senior Notes”). Issuance costs associated with the 4.25% Senior Notes
totaled $7 million. The initial conversion rate for the 4.25% Senior Notes is
196.7052 shares of common stock per $1,000 principal amount of the 4.25% Senior
Notes. This is equivalent to an initial conversion price of approximately $5.08
per share of common stock. Holders of the 4.25% Senior Notes may convert their
4.25% Senior Notes at any time prior to maturity, unless previously redeemed or
repurchased. The Company may not redeem the 4.25% Senior Notes prior
to April 20, 2012. On or after April 20, 2012, the Company may redeem
for cash all or part of the 4.25% Senior Notes if the closing price of its
common stock has been at least 135% of the conversion price for at least 20
trading days during a 30 consecutive trading day period.
10
Concurrent with the offering of the
4.25% Senior Notes, the Company also entered into capped call transactions (the
“2009 Capped Calls”) that have an initial strike price of approximately $5.08
per share, subject to certain adjustments, which was set to equal the initial
conversion price of the 4.25% Senior Notes. The 2009 Capped Calls
have a cap price of $6.64 per share and cover an approximate combined total of
45.2 million shares of common stock, and are subject to standard adjustments for
instruments of this type. The 2009 Capped Calls are intended to
reduce the potential dilution upon conversion of the 4.25% Senior
Notes. If, however, the market value per share of the common stock,
as measured under the terms of the 2009 Capped Calls, exceeds the applicable cap
price of the 2009 Capped Calls, there would be dilution to the extent that the
then market value per share of the common stock exceeds the cap
price. The 2009 Capped Calls expire in October and November of
2012. The Company paid approximately $25 million to purchase the 2009
Capped Calls.
On February 23, 2009, the Company
entered into a Singapore dollar-denominated term loan agreement with the
Singapore Economic Development Board (“EDB”) enabling the Company to borrow up
to $300 million Singapore dollars at 5.4% per annum. The terms of the
agreement require the Company to use the proceeds from any borrowings under the
agreement to make equity contributions to its TECH Company’s joint venture
subsidiary. The loan agreement further required that TECH use the
proceeds from the Company’s equity contributions to purchase production assets
and meet certain production milestones related to the implementation of advanced
process manufacturing. The loan contains a covenant that limits the
amount of indebtedness TECH can incur without approval from the
EDB. The loan is collateralized by the Company’s shares in TECH up to
a maximum of 66% of TECH’s outstanding shares. The Company drew $150
million Singapore dollars in the second quarter of 2009 and an additional $150
million Singapore dollar in the third quarter of 2009. The aggregate
$300 million Singapore dollars outstanding ($208 million U.S. dollars as of
September 3, 2009) is due in February 2012 with interest payable
quarterly.
In the first quarter of 2009, in
connection with its purchase of its interest in Inotera, the Company entered
into a two-year, variable rate term loan with Nan Ya Plastics and a six-month,
variable rate term loan with Inotera. The Company received loan
proceeds of $200 million from Nan Ya Plastics and $85 million from
Inotera. The Company repaid the $85 million Inotera loan in the third
quarter of 2009. Under the terms of the Nan Ya Plastics loan
agreement, interest is payable quarterly at LIBOR plus 2%. The
interest rate resets quarterly and was 2.4% per annum as of September 3,
2009. Based on imputed interest rate of 12.1%, the Company recorded
the Nan Ya Plastics loan net of a discount of $28 million, which is recognized
as interest expense over the life of the loan. The Nan Ya Plastics
loan is collateralized by a first priority security interest in the Inotera
shares owned by the Company (approximate carrying value of $229 million as of
September 3, 2009).
In 2008, the Company’s TECH joint
venture subsidiary drew $600 million under a credit facility at SIBOR plus
2.5%. The credit facility is collateralized by substantially all of
the assets of TECH (approximately $1,498 million as of September 3, 2009) and
contains covenants that, among other requirements, establish certain liquidity,
debt service coverage and leverage ratios, and restrict TECH’s ability to incur
indebtedness, create liens and acquire or dispose of assets. TECH
repaid $50 million of principal amounts in 2009 and remaining payments are due
in $50 million quarterly installments from September 2009 through May
2012. Under the terms of the credit facility, TECH held $30 million
in restricted cash as of September 3, 2009, which was increased to $60 million
in the first quarter of 2010. The Company has guaranteed
approximately 85% of the outstanding amount borrowed under TECH’s credit
facility and the Company’s guarantee could increase up to 100% of the
outstanding amount borrowed under the facility based on further increases in the
Company’s ownership interest in TECH and other conditions.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information –
Debt.”)
Joint
ventures: In 2009, IM Flash distributed $695 million to Intel
and the Company expects that it will make additional distributions to Intel in
2010. Timing of these distributions and any future contributions,
however, is subject to market conditions and approval of the
partners.
The Company purchased $99 million of
TECH shares on February 27, 2009, $99 million of TECH shares on June 2, 2009,
and $60 million of TECH shares on August 27, 2009. As a result, the
Company’s ownership interest in TECH increased from approximately 73% as of
August 28, 2008 to approximately 85% in August 2009. The Company expects to make
additional capital contributions to TECH in 2010 to support its continued
transition to 50nm wafer processing. The timing and amount of these
contributions is subject to market conditions.
11
Contractual
obligations: The following table summarizes the Company’s
significant contractual obligations at September 3, 2009, and the effect such
obligations are expected to have on the Company’s liquidity and cash flows in
future periods.
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
||||||||||||||||
|
Notes payable (1)
|
$ | 2,785 | $ | 337 | $ | 854 | $ | 1,594 | $ | -- | ||||||||||
|
Capital lease obligations (1)
|
650 | 188 | 323 | 42 | 97 | |||||||||||||||
|
Operating
leases
|
73 | 17 | 24 | 17 | 15 | |||||||||||||||
|
Purchase
obligations
|
642 | 469 | 146 | 9 | 18 | |||||||||||||||
|
Other long-term
liabilities
|
249 | -- | 111 | 35 | 103 | |||||||||||||||
|
Total
|
$ | 4,399 | $ | 1,011 | $ | 1,458 | $ | 1,697 | $ | 233 | ||||||||||
|
(1)
Includes interest
|
||||||||||||||||||||
The obligations disclosed above do not
include contractual obligations recorded on the Company’s balance sheet as
current liabilities except for the current portion of long-term
debt. The expected timing of payment amounts of the obligations
discussed above is estimated based on current information. Timing and
actual amounts paid may differ depending on the timing of receipt of goods or
services, market prices or changes to agreed-upon amounts for some
obligations.
Purchase obligations include all
commitments to purchase goods or services of either a fixed or minimum quantity
that meet any of the following criteria: (1) they are noncancelable, (2) the
Company would incur a penalty if the agreement was cancelled, or (3) the Company
must make specified minimum payments even if it does not take delivery of the
contracted products or services (“take-or-pay”). If the obligation to
purchase goods or services is noncancelable, the entire value of the contract
was included in the above table. If the obligation is cancelable, but
the Company would incur a penalty if cancelled, the dollar amount of the penalty
was included as a purchase obligation. Contracted minimum amounts
specified in take-or-pay contracts are also included in the above table as they
represent the portion of each contract that is a firm commitment.
Pursuant to the Inotera Supply
Agreement, the Company has an obligation to purchase up to 50% of Inotera’s
output of semiconductor memory components subject to specific terms and
conditions. As purchase quantities are based on qualified production
output, the Inotera Supply Agreement does not contain a fixed or minimum
purchase quantity and therefore the Company did not include its obligations
under the Inotera Supply Agreement in the contractual obligations table
above. The Company’s obligation under the Inotera Supply Agreement
also fluctuates due to pricing which is based on manufacturing costs and margins
associated with the resale of DRAM products. Pursuant to the
Company’s obligations under the Inotera Supply Agreement, the Company purchased
$46 million of trench DRAM products from Inotera in 2009.
Off-Balance
Sheet Arrangements
Concurrent with the offering of the
1.875% Convertible Notes in May 2007, the Company paid approximately $151
million for three Capped Call transactions (the “Capped Calls”). The
Capped Calls cover an aggregate of approximately 91.3 million shares of common
stock. The Capped Calls are in three equal tranches with cap prices
of $17.25, $20.13 and $23.00 per share, respectively, each with an initial
strike price of approximately $14.23 per share, subject to certain
adjustments. The Capped Calls expire on various dates between
November 2011 and December 2012. The Capped Calls are intended to
reduce potential dilution upon conversion of the Convertible Notes.
Concurrent with the offering of the
4.25% Senior Notes in April, 2009, the Company paid approximately $25 million
for three capped call instruments that have an initial strike price of
approximately $5.08 per share (the “2009 Capped Calls”). The 2009
Capped Calls have a cap price of $6.64 per share and cover an aggregate of
approximately 45.2 million shares of common stock. The Capped Calls
expire in October and November of 2012. The 2009 Capped Calls are
intended to reduce potential dilution upon conversion of the 4.25% Senior
Notes.
(See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information – Shareholders’
Equity – Capped Call Transactions.”)
12
Recently
Adopted Accounting Standards
In May 2008, the Financial Accounting
Standards Board (“FASB”) issued FSP No. APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement).” FSP No. APB 14-1 requires that issuers of
convertible debt instruments that may be settled in cash upon conversion
separately account for the liability and equity components of such instruments
in a manner such that interest cost will be recognized at the entity’s
nonconvertible debt borrowing rate in subsequent periods. The Company
adopted this standard as of the beginning of 2010 and retrospectively accounted
for its $1.3 billion of 1.875% convertible senior notes under the provisions of
FSP No. APB 14-1 from the May 2007 issuance date of the notes. As a
result, prior financial statement amounts were recast. (See
“Adjustment for Retrospective Application of New Accounting Standards”
note.)
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51.” SFAS No. 160 requires that (1) noncontrolling interests be
reported as a separate component of equity, (2) net income attributable to the
parent and to the noncontrolling interest be separately identified in the
statement of operations, (3) changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions
and (4) any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value. The Company
adopted SFAS No. 160 effective as of the beginning of 2010. As a
result of the retrospective adoption of the presentation and disclosure
requirements, prior financial statement amounts were recast. (See
“Adjustment for Retrospective Application of New Accounting Standards”
note.)
In February 2007, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities – Including an amendment of FASB Statement No.
115”. Under SFAS No. 159, an entity may elect to measure many
financial instruments and certain other items at fair value on an instrument by
instrument basis, subject to certain restrictions. The Company
adopted SFAS No. 159 effective as of the beginning of 2009. The
Company did not elect to measure any existing items at fair value upon the
adoption of SFAS No. 159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 (as amended by
subsequent FSP’s) defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. The Company adopted SFAS No. 157 effective
as of the beginning of 2009 for financial assets and financial
liabilities. The adoption did not have a significant impact on the
Company’s financial statements. SFAS No. 157 is also effective for
all other assets and liabilities of the Company as of the beginning of
2010. The Company does not expect the adoption to have a significant
impact on its financial statements as of the adoption date. The
impact to periods subsequent to the initial adoption of SFAS No. 157 for
nonfinancial assets and liabilities will depend on the nature and extent of
nonfinancial assets and liabilities measured at fair value after the beginning
of 2010.
Recently
Issued Accounting Standards
In June 2009, the FASB issued SFAS No.
167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”), which (1)
replaces the quantitative-based risks and rewards calculation for determining
whether an enterprise is the primary beneficiary in a variable interest entity
with an approach that is primarily qualitative, (2) requires ongoing assessments
of whether an enterprise is the primary beneficiary of a variable interest
entity and (3) requires
additional disclosures about an enterprise’s involvement in variable interest
entities. The Company is required to adopt SFAS No. 167 as of
the beginning of 2011. The Company is evaluating the impact the
adoption of SFAS No. 167 will have on its financial statements.
In December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which
establishes the principles and requirements for how an acquirer in a business
combination (1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interests in the acquiree, (2) recognizes and measures goodwill acquired in the
business combination or a gain from a bargain purchase and (3) determines what
information to disclose. SFAS No. 141(R) is effective for the Company
as of the beginning of 2010. The impact of the adoption of SFAS No.
141(R) will depend on the nature and extent of business combinations occurring
after the beginning of 2010.
13
Critical
Accounting Estimates
The preparation of financial statements
and related disclosures in conformity with U.S. GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Estimates and judgments
are based on historical experience, forecasted future events and various other
assumptions that the Company believes to be reasonable under the
circumstances. Estimates and judgments may vary under different
assumptions or conditions. The Company evaluates its estimates and
judgments on an ongoing basis. Management believes the accounting
policies below are critical in the portrayal of the Company’s financial
condition and results of operations and requires management’s most difficult,
subjective or complex judgments.
Acquisitions and
consolidations: Determination and the allocation of the
purchase price of acquired operations significantly influences the period in
which costs are recognized. Accounting for acquisitions and
consolidations requires the Company to estimate the fair value of the individual
assets and liabilities acquired as well as various forms of consideration given,
which involves a number of judgments, assumptions and estimates that could
materially affect the amount and timing of costs recognized. The
Company typically obtains independent third party valuation studies to assist in
determining fair values, including assistance in determining future cash flows,
appropriate discount rates and comparable market values. Determining
whether or not to consolidate a variable interest entity may require judgment in
assessing whether the Company is the entity’s primary beneficiary.
Contingencies: The
Company is subject to the possibility of losses from various
contingencies. Considerable judgment is necessary to estimate the
probability and amount of any loss from such contingencies. An
accrual is made when it is probable that a liability has been incurred or an
asset has been impaired and the amount of loss can be reasonably
estimated. The Company accrues a liability and charges operations for
the estimated costs of adjudication or settlement of asserted and unasserted
claims existing as of the balance sheet date.
Goodwill and
intangible assets: The Company tests goodwill for impairment
annually and whenever events or circumstances make it more likely than not that
an impairment may have occurred, such as a significant adverse change in the
business climate (including declines in selling prices for products) or a
decision to sell or dispose of a reporting unit. Goodwill is tested
for impairment using a two-step process. In the first step, the fair
value of each reporting unit is compared to the carrying value of the net assets
assigned to the unit. If the fair value of the reporting unit exceeds
its carrying value, goodwill is considered not impaired. If the
carrying value of the reporting unit exceeds its fair value, then the second
step of the impairment test must be performed in order to determine the implied
fair value of the reporting unit’s goodwill. Determining the implied
fair value of goodwill requires valuation of all of the Company’s tangible and
intangible assets and liabilities. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, then the Company would
record an impairment loss equal to the difference.
Determining when to test for
impairment, the Company’s reporting units, the fair value of a reporting unit
and the fair value of assets and liabilities within a reporting unit, requires
judgment and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market
comparables. The Company bases fair value estimates on assumptions it
believes to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those
estimates. In addition, judgments and assumptions are required to
allocate assets and liabilities to reporting units. In the second
quarter of 2009, the Company wrote off all $58 million of its goodwill related
to imaging operations (the primary component of All Other segments) based on the
results of its test for impairment. In the second quarter of 2008,
the Company wrote off all $463 million of its goodwill relating to its Memory
segment based on the results of its test for impairment.
The Company tests other identified
intangible assets with definite useful lives and subject to amortization when
events and circumstances indicate the carrying value may not be recoverable by
comparing the carrying amount to the sum of undiscounted cash flows expected to
be generated by the asset. The Company tests intangible assets with
indefinite lives annually for impairment using a fair value method such as
discounted cash flows. Estimating fair values involves significant
assumptions, especially regarding future sales prices, sales volumes, costs and
discount rates.
14
Income
taxes: The Company is required to estimate its provision for
income taxes and amounts ultimately payable or recoverable in numerous tax
jurisdictions around the world. Estimates involve interpretations of
regulations and are inherently complex. Resolution of income tax
treatments in individual jurisdictions may not be known for many years after
completion of any fiscal year. The Company is also required to
evaluate the realizability of its deferred tax assets on an ongoing basis in
accordance with U.S. GAAP, which requires the assessment of the Company’s
performance and other relevant factors when determining the need for a valuation
allowance with respect to these deferred tax assets. Realization of
deferred tax assets is dependent on the Company’s ability to generate future
taxable income.
Inventories: Inventories
are stated at the lower of average cost or market value and the Company recorded
charges of $603 million in aggregate for 2009 and $282 million in aggregate for
2008, to write down the carrying value of inventories of memory products to
their estimated market values. Cost includes labor, material and
overhead costs, including product and process technology
costs. Determining market value of inventories involves numerous
judgments, including projecting average selling prices and sales volumes for
future periods and costs to complete products in work in process
inventories. To project average selling prices and sales volumes, the
Company reviews recent sales volumes, existing customer orders, current contract
prices, industry analysis of supply and demand, seasonal factors, general
economic trends and other information. When these analyses reflect
estimated market values below the Company’s manufacturing costs, the Company
records a charge to cost of goods sold in advance of when the inventory is
actually sold. Differences in forecasted average selling prices used
in calculating lower of cost or market adjustments can result in significant
changes in the estimated net realizable value of product inventories and
accordingly the amount of write-down recorded. For example, a 5%
variance in the estimated selling prices would have changed the estimated market
value of the Company’s semiconductor memory inventory by approximately $75
million at September 3, 2009. Due to the volatile nature of the
semiconductor memory industry, actual selling prices and volumes often vary
significantly from projected prices and volumes and, as a result, the timing of
when product costs are charged to operations can vary
significantly.
U.S. GAAP provides for products to be
grouped into categories in order to compare costs to market
values. The amount of any inventory write-down can vary significantly
depending on the determination of inventory categories. The Company’s
inventories have been categorized as memory and imaging products. The
major characteristics the Company considers in determining inventory categories
are product type and markets.
Product and
process technology: Costs incurred to acquire product and
process technology or to patent technology developed by the Company are
capitalized and amortized on a straight-line basis over periods currently
ranging up to 10 years. The Company capitalizes a portion of costs
incurred based on its analysis of historical and projected patents issued as a
percent of patents filed. Capitalized product and process technology
costs are amortized over the shorter of (i) the estimated useful life of the
technology, (ii) the patent term or (iii) the term of the technology
agreement.
Property, plant
and equipment: The Company reviews the carrying value of
property, plant and equipment for impairment when events and circumstances
indicate that the carrying value of an asset or group of assets may not be
recoverable from the estimated future cash flows expected to result from its use
and/or disposition. In cases where undiscounted expected future cash
flows are less than the carrying value, an impairment loss is recognized equal
to the amount by which the carrying value exceeds the estimated fair value of
the assets. The estimation of future cash flows involves numerous
assumptions which require judgment by the Company, including, but not limited
to, future use of the assets for Company operations versus sale or disposal of
the assets, future selling prices for the Company’s products and future
production and sales volumes. In addition, judgment is required by
the Company in determining the groups of assets for which impairment tests are
separately performed.
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development as
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability. Subsequent to product qualification,
product costs are valued in inventory.
Stock-based
compensation: Under the provisions of SFAS No. 123(R),
stock-based compensation cost is estimated at the grant date based on the
fair-value of the award and is recognized as expense ratably over the requisite
service period of the award. For stock-based compensation awards with
graded vesting that were granted after 2005, the Company recognizes compensation
expense using the straight-line amortization method. For
performance-based stock awards, the expense recognized is dependent on the
probability of the performance measure being achieved. The Company
utilizes forecasts of future performance to assess these probabilities and this
assessment requires considerable judgment.
15
Determining
the appropriate fair-value model and calculating the fair value of stock-based
awards at the grant date requires considerable judgment, including estimating
stock price volatility, expected option life and forfeiture
rates. The Company develops its estimates based on historical data
and market information which can change significantly over time. A
small change in the estimates used can result in a relatively large change in
the estimated valuation. The Company uses the Black-Scholes option
valuation model to value employee stock awards. The Company estimates
stock price volatility based on an average of its historical volatility and the
implied volatility derived from traded options on the Company’s
stock.
16
EXHIBIT
99.4
Item
7A. Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk
As of September 3, 2009, $2,064 million
of the Company’s $2,803 million of debt was at fixed interest
rates. As a result, the fair value of the Company’s debt instruments
fluctuates based on changes in market interest rates. The estimated
fair value of the Company’s debt instruments was $2,868 million as of September
3, 2009 and was $2,167 million as of August 28, 2008. The Company
estimates that as of September 3, 2009, a 1% decrease in market interest rates
would change the fair value of the fixed-rate debt instruments by approximately
$55 million. As of September 3, 2009, $739 million of the Company’s
debt instruments had variable interest rates and an increase of 1% would
increase annual interest expense by approximately $8 million.
Foreign
Currency Exchange Rate Risk
The information in this section should
be read in conjunction with the information related to changes in the exchange
rates of foreign currency in “Item 1A. Risk Factors.” Changes in
foreign currency exchange rates could materially adversely affect the Company’s
results of operations or financial condition.
The functional currency for
substantially all of the Company’s operations is the U.S. dollar. The
Company held cash and other assets in foreign currencies valued at an aggregate
of U.S. $229 million as of September 3, 2009 and U.S. $425 million as of August
28, 2008. The Company also had foreign currency liabilities valued at
an aggregate of U.S. $742 million as of September 3, 2009, and U.S. $580 million
as of August 28, 2008. Significant components of the Company’s assets
and liabilities denominated in foreign currencies were as follows (in U.S.
dollar equivalents):
|
2009
|
2008
|
|||||||||||||||||||||||
|
Singapore
Dollars
|
Yen
|
Euro
|
Singapore
Dollars
|
Yen
|
Euro
|
|||||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||||||
|
Cash
and equivalents
|
$ | 7 | $ | 8 | $ | 21 | $ | 84 | $ | 130 | $ | 25 | ||||||||||||
|
Net
deferred tax assets
|
-- | 115 | 1 | -- | 85 | 2 | ||||||||||||||||||
|
Accounts
payable and accrued expenses
|
(68 | ) | (141 | ) | (99 | ) | (105 | ) | (127 | ) | (61 | ) | ||||||||||||
|
Debt
|
(289 | ) | (25 | ) | (4 | ) | (49 | ) | (108 | ) | (4 | ) | ||||||||||||
|
Other
liabilities
|
(6 | ) | (54 | ) | (38 | ) | (8 | ) | (45 | ) | (43 | ) | ||||||||||||
The Company estimates that, based on
its assets and liabilities denominated in currencies other than the U.S. dollar
as of September 3, 2009, a 1% change in the exchange rate versus the U.S. dollar
would result in foreign currency gains or losses of approximately U.S. $3
million for the Singapore dollar and U.S. $1 million for euro and the
yen. Historically, the Company has not used derivative instruments to
hedge its foreign currency exchange rate risk.
1
EXHIBIT
99.5
Item
8. Financial
Statements and Supplementary Data
Index
to Consolidated Financial Statements
|
Page
|
|
|
Consolidated
Financial Statements as of September 3, 2009 and August 28, 2008 and for
the fiscal years ended September 3, 2009, August 28, 2008 and August 30,
2007:
|
|
|
Consolidated Statements of
Operations
|
F-2
|
|
Consolidated Balance
Sheets
|
F-3
|
|
Consolidated Statements of
Changes in Equity
|
F-4
|
|
Consolidated Statements of Cash
Flows
|
F-5
|
|
Notes to Consolidated Financial
Statements
|
F-6
|
|
Report of Independent Registered
Public Accounting Firm
|
F-42
|
|
Financial
Statement Schedule:
|
|
|
Schedule II – Valuation and
Qualifying Accounts
|
F-43
|
F-
1
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
|
For
the year ended
|
September
3,
2009
|
August
28,
2008
|
August
30,
2007
|
|||||||||
|
Net
sales
|
$ | 4,803 | $ | 5,841 | $ | 5,688 | ||||||
|
Cost
of goods sold
|
5,243 | 5,896 | 4,610 | |||||||||
|
Gross margin
|
(440 | ) | (55 | ) | 1,078 | |||||||
|
Selling,
general and administrative
|
354 | 455 | 610 | |||||||||
|
Research
and development
|
647 | 680 | 805 | |||||||||
|
Restructure
|
70 | 33 | 19 | |||||||||
|
Goodwill
impairment
|
58 | 463 | -- | |||||||||
|
Other
operating (income) expense, net
|
107 | (91 | ) | (76 | ) | |||||||
|
Operating loss
|
(1,676 | ) | (1,595 | ) | (280 | ) | ||||||
|
Interest
income
|
22 | 79 | 143 | |||||||||
|
Interest
expense
|
(182 | ) | (118 | ) | (51 | ) | ||||||
|
Other
non-operating income (expense), net
|
(16 | ) | (13 | ) | 9 | |||||||
| (1,852 | ) | (1,647 | ) | (179 | ) | |||||||
|
Income
tax (provision)
|
(1 | ) | (18 | ) | (30 | ) | ||||||
|
Equity
in net losses of equity method investees, net of tax
|
(140 | ) | -- | -- | ||||||||
|
Net loss
|
(1,993 | ) | (1,665 | ) | (209 | ) | ||||||
|
Net
income (loss) attributable to noncontrolling interests
|
111 | 10 | (122 | ) | ||||||||
|
Net loss attributable to
Micron
|
$ | (1,882 | ) | $ | (1,655 | ) | $ | (331 | ) | |||
|
Loss
per share:
|
||||||||||||
|
Basic
|
$ | (2.35 | ) | $ | (2.14 | ) | $ | (0.43 | ) | |||
|
Diluted
|
(2.35 | ) | (2.14 | ) | (0.43 | ) | ||||||
|
Number
of shares used in per share calculations:
|
||||||||||||
|
Basic
|
800.7 | 772.5 | 769.1 | |||||||||
|
Diluted
|
800.7 | 772.5 | 769.1 | |||||||||
See
accompanying notes to consolidated financial statements.
F-
2
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value amounts)
|
As
of
|
September
3,
2009
|
August
28,
2008
|
||||||
|
Assets
|
||||||||
|
Cash
and equivalents
|
$ | 1,485 | $ | 1,243 | ||||
|
Short-term
investments
|
-- | 119 | ||||||
|
Receivables
|
798 | 1,032 | ||||||
|
Inventories
|
987 | 1,291 | ||||||
|
Other
current assets
|
74 | 94 | ||||||
|
Total current
assets
|
3,344 | 3,779 | ||||||
|
Intangible
assets, net
|
344 | 364 | ||||||
|
Property,
plant and equipment, net
|
7,089 | 8,819 | ||||||
|
Equity
method investments
|
315 | 84 | ||||||
|
Other
assets
|
367 | 386 | ||||||
|
Total assets
|
$ | 11,459 | $ | 13,432 | ||||
|
Liabilities
and equity
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 1,037 | $ | 1,111 | ||||
|
Deferred
income
|
209 | 114 | ||||||
|
Equipment
purchase contracts
|
222 | 98 | ||||||
|
Current
portion of long-term debt
|
424 | 275 | ||||||
|
Total current
liabilities
|
1,892 | 1,598 | ||||||
|
Long-term
debt
|
2,379 | 2,106 | ||||||
|
Other
liabilities
|
249 | 338 | ||||||
|
Total
liabilities
|
4,520 | 4,042 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Micron
shareholders’ equity:
|
||||||||
|
Common stock, $0.10 par value,
authorized 3,000 shares, issued and outstanding 848.7 million and 761.1
million shares, respectively
|
85 | 76 | ||||||
|
Additional
capital
|
7,257 | 6,960 | ||||||
|
Accumulated
deficit
|
(2,385 | ) | (503 | ) | ||||
|
Accumulated other comprehensive
(loss)
|
(4 | ) | (8 | ) | ||||
|
Total Micron shareholders’
equity
|
4,953 | 6,525 | ||||||
|
Noncontrolling
interests in subsidiaries
|
1,986 | 2,865 | ||||||
|
Total equity
|
6,939 | 9,390 | ||||||
|
Total liabilities and
equity
|
$ | 11,459 | $ | 13,432 | ||||
See
accompanying notes to consolidated financial statements.
F-
3
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(in
millions)
|
Micron
Shareholders
|
||||||||||||||||||||||||||||||||
|
Common
Stock
|
Additional
Capital
|
Retained
Earnings (Accumulated) Deficit
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
Micron
Shareholders’
Equity
|
Noncontrolling
Interests in Subsidiaries
|
Total
Equity
|
||||||||||||||||||||||||||
|
Number
of
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
Balance
at August 31, 2006
|
749.4 | $ | 75 | $ | 6,555 | $ | 1,486 | $ | (2 | ) | $ | 8,114 | $ | 1,568 | $ | 9,682 | ||||||||||||||||
|
Net
loss
|
(331 | ) | (331 | ) | 122 | (209 | ) | |||||||||||||||||||||||||
|
Stock
issued under stock plans
|
8.7 | 1 | 73 | 74 | 74 | |||||||||||||||||||||||||||
|
Stock-based
compensation expense
|
44 | 44 | 44 | |||||||||||||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(0.2 | ) | (2 | ) | (2 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||
|
Adjustment
to initially apply SFAS No. 158, net of tax benefit of $3
|
(5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||
|
Purchase
of capped calls
|
(151 | ) | (151 | ) | (151 | ) | ||||||||||||||||||||||||||
|
Issuance
of convertible debt
|
394 | 394 | 394 | |||||||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
1,249 | 1,249 | ||||||||||||||||||||||||||||||
|
Purchase
of shares from noncontrolling interests
|
(332 | ) | (332 | ) | ||||||||||||||||||||||||||||
|
Balance
at August 30, 2007
|
757.9 | $ | 76 | $ | 6,913 | $ | 1,153 | $ | (7 | ) | $ | 8,135 | $ | 2,607 | $ | 10,742 | ||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||
|
Net loss
|
(1,655 | ) | (1,655 | ) | (10 | ) | (1,665 | ) | ||||||||||||||||||||||||
|
Other comprehensive
(loss):
|
||||||||||||||||||||||||||||||||
|
Net change in unrealized (loss)
on investments, net of tax
|
(1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
|
Total comprehensive
(loss)
|
(1,656 | ) | (10 | ) | (1,666 | ) | ||||||||||||||||||||||||||
|
Stock
issued under stock plans
|
3.7 | 3 | 3 | 3 | ||||||||||||||||||||||||||||
|
Stock-based
compensation expense
|
48 | 48 | 48 | |||||||||||||||||||||||||||||
|
Adoption
of FIN 48
|
(1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(0.5 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(132 | ) | (132 | ) | ||||||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
-- | 400 | 400 | |||||||||||||||||||||||||||||
|
Balance
at August 28, 2008
|
761.1 | $ | 76 | $ | 6,960 | $ | (503 | ) | $ | (8 | ) | $ | 6,525 | $ | 2,865 | $ | 9,390 | |||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||
|
Net loss
|
(1,882 | ) | (1,882 | ) | (111 | ) | (1,993 | ) | ||||||||||||||||||||||||
|
Other comprehensive
(loss):
|
||||||||||||||||||||||||||||||||
|
Net change in unrealized gain on
investments, net of tax
|
12 | 12 | 12 | |||||||||||||||||||||||||||||
|
Net change in cumulative
translation adjustment, net of tax
|
(9 | ) | (9 | ) | (9 | ) | ||||||||||||||||||||||||||
|
Pension liability adjustment, net
of tax
|
1 | 1 | 1 | |||||||||||||||||||||||||||||
|
Total comprehensive
(loss)
|
(1,878 | ) | (111 | ) | (1,989 | ) | ||||||||||||||||||||||||||
|
Stock
issued under stock plans
|
4.0 | 1 | 1 | 1 | ||||||||||||||||||||||||||||
|
Stock-based
compensation expense
|
44 | 44 | 44 | |||||||||||||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(0.5 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||
|
Issuance
of common stock
|
69.3 | 7 | 269 | 276 | 276 | |||||||||||||||||||||||||||
|
Stock
issued for business acquisition
|
1.8 | 12 | 12 | 12 | ||||||||||||||||||||||||||||
|
Exercise
of Intel stock rights
|
13.0 | 1 | (1 | ) | -- | -- | ||||||||||||||||||||||||||
|
Purchase
of capped calls
|
(25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(705 | ) | (705 | ) | ||||||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
-- | 24 | 24 | |||||||||||||||||||||||||||||
|
Reduction
in noncontrolling interest from share purchase
|
-- | (87 | ) | (87 | ) | |||||||||||||||||||||||||||
|
Balance
at September 3, 2009
|
848.7 | $ | 85 | $ | 7,257 | $ | (2,385 | ) | $ | (4 | ) | $ | 4,953 | $ | 1,986 | $ | 6,939 | |||||||||||||||
See
accompanying notes to consolidated financial statements.
F-
4
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
|
For
the year ended
|
September
3,
2009
|
August
28,
2008
|
August
30,
2007
|
|||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
loss
|
$ | (1,993 | ) | $ | (1,665 | ) | $ | (209 | ) | |||
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation and
amortization
|
2,186 | 2,096 | 1,729 | |||||||||
|
Provision to write-down
inventories to estimated market values
|
603 | 282 | 20 | |||||||||
|
Noncash restructure
charges
|
156 | 7 | 5 | |||||||||
|
Equity in net losses of equity
method investees, net of tax
|
140 | -- | -- | |||||||||
|
Goodwill
impairment
|
58 | 463 | -- | |||||||||
|
(Gain) loss from disposition of
property, plant and equipment
|
54 | (66 | ) | (43 | ) | |||||||
|
Loss on sale of majority interest
in Aptina
|
41 | -- | -- | |||||||||
|
Change in operating assets and
liabilities:
|
||||||||||||
|
(Increase) decrease in
receivables
|
126 | (26 | ) | 5 | ||||||||
|
Increase in
inventories
|
(356 | ) | (40 | ) | (591 | ) | ||||||
|
Increase (decrease) in
accounts payable and accrued expenses
|
107 | (92 | ) | -- | ||||||||
|
Decrease in customer
prepayments
|
(63 | ) | (38 | ) | (4 | ) | ||||||
|
Increase in deferred
income
|
81 | 28 | 30 | |||||||||
|
Other
|
66 | 69 | (5 | ) | ||||||||
|
Net cash provided by operating
activities
|
1,206 | 1,018 | 937 | |||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Expenditures
for property, plant and equipment
|
(488 | ) | (2,529 | ) | (3,603 | ) | ||||||
|
Acquisition
of equity method investment
|
(408 | ) | (84 | ) | -- | |||||||
|
(Increase)
decrease in restricted cash
|
(56 | ) | -- | 14 | ||||||||
|
Purchases
of available-for-sale securities
|
(6 | ) | (283 | ) | (1,466 | ) | ||||||
|
Acquisition
of additional interest in TECH
|
-- | -- | (73 | ) | ||||||||
|
Proceeds
from maturities of available-for-sale securities
|
130 | 547 | 2,156 | |||||||||
|
Distributions
from equity method investments
|
41 | -- | -- | |||||||||
|
Proceeds
from sales of property, plant and equipment
|
26 | 187 | 94 | |||||||||
|
Proceeds
from sales of available-for-sale securities
|
-- | 24 | 540 | |||||||||
|
Other
|
87 | 46 | (53 | ) | ||||||||
|
Net cash used for investing
activities
|
(674 | ) | (2,092 | ) | (2,391 | ) | ||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from debt instruments
|
716 | 837 | 1,300 | |||||||||
|
Proceeds
from issuance of common stock, net of costs
|
276 | 4 | 69 | |||||||||
|
Contributions
from noncontrolling interests
|
24 | 400 | 1,249 | |||||||||
|
Proceeds
from equipment sale-leaseback transactions
|
4 | 111 | 454 | |||||||||
|
Distributions
to noncontrolling interests
|
(705 | ) | (132 | ) | -- | |||||||
|
Repayments
of debt
|
(429 | ) | (698 | ) | (193 | ) | ||||||
|
Payments
on equipment purchase contracts
|
(144 | ) | (387 | ) | (487 | ) | ||||||
|
Cash
paid for capped call transactions
|
(25 | ) | -- | (151 | ) | |||||||
|
Other
|
(7 | ) | (10 | ) | (26 | ) | ||||||
|
Net cash provided by (used for)
financing activities
|
(290 | ) | 125 | 2,215 | ||||||||
|
Net increase (decrease) in cash
and equivalents
|
242 | (949 | ) | 761 | ||||||||
|
Cash
and equivalents at beginning of year
|
1,243 | 2,192 | 1,431 | |||||||||
|
Cash
and equivalents at end of year
|
$ | 1,485 | $ | 1,243 | $ | 2,192 | ||||||
|
Supplemental
disclosures
|
||||||||||||
|
Income
taxes paid, net
|
$ | (43 | ) | $ | (36 | ) | $ | (41 | ) | |||
|
Interest
paid, net of amounts capitalized
|
(107 | ) | (84 | ) | (22 | ) | ||||||
|
Noncash
investing and financing activities:
|
||||||||||||
|
Equipment acquisitions on
contracts payable and capital leases
|
331 | 501 | 1,010 | |||||||||
See
accompanying notes to consolidated financial statements.
F-
5
MICRON
TECHNOLOGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(All
tabular amounts in millions except per share amounts)
Significant
Accounting Policies
Basis of
presentation: Micron Technology, Inc. and its consolidated
subsidiaries (hereinafter referred to collectively as the “Company”) is a global
manufacturer and marketer of semiconductor devices, principally DRAM and NAND
Flash memory. In addition, the Company manufactures semiconductor
components for CMOS image sensors and other semiconductor
products. The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America. All significant intercompany
transactions and balances have been eliminated.
In 2009, the Company had two reportable
segments, Memory and Imaging. In the first quarter of 2010, Imaging
no longer met the quantitative thresholds of a reportable segment and management
does not expect that Imaging will meet the quantitative thresholds in future
years. As a result, Imaging was no longer considered a reportable
segment and was included in the Company’s All Other nonreportable
segments. All amounts have been recast to reflect Imaging in All
Other. The Memory segment’s primary products are DRAM and NAND Flash
memory. Operating results of All Other primarily reflect activity of
Imaging and also include activity of the Company’s microdisplay and other
operations. (See “Segment Information.”)
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. The
Company’s fiscal 2009 contained 53 weeks and fiscal 2008 and 2007 each contained
52 weeks. All period references are to the Company’s fiscal periods
unless otherwise indicated.
Adjustment for Retrospective Application of
New Accounting Standards: Effective at the beginning of
2010, the Company adopted new accounting standards for noncontrolling interests
and certain convertible debt instruments. These new accounting
standards required retrospective application and the Company’s financial
statements contained herein have been adjusted to reflect the impact of adopting
these new accounting standards. (See “Adjustment for Retrospective
Application of New Accounting Standards.”)
Use of
estimates: The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. Estimates and judgments are based on historical
experience, forecasted events and various other assumptions that the Company
believes to be reasonable under the circumstances. Estimates and
judgments may differ under different assumptions or conditions. The
Company evaluates its estimates and judgments on an ongoing
basis. Actual results could differ from estimates.
Product
warranty: The Company generally provides a limited warranty
that its products are in compliance with Company specifications existing at the
time of delivery. Under the Company’s general terms and conditions of
sale, liability for certain failures of product during a stated warranty period
is usually limited to repair or replacement of defective items or return of, or
a credit with respect to, amounts paid for such items. Under certain
circumstances, the Company provides more extensive limited warranty coverage
than that provided under the Company’s general terms and
conditions. The Company’s warranty obligations are not
material.
Revenue
recognition: The Company recognizes product or license revenue
when persuasive evidence that a sales arrangement exists, delivery has occurred,
the price is fixed or determinable and collectability is reasonably
assured. Since the Company is unable to estimate returns and changes
in market price and therefore the price is not fixed or determinable,
for sales made under agreements allowing pricing protection or rights
of return (other than for product warranty), such sales are deferred until
customers have resold the product.
F-
6
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development as
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability. Subsequent to product qualification,
product costs are valued in inventory. Product design and other
research and development costs for NAND Flash are shared equally among the
Company and Intel Corporation (“Intel”). Charges from the
cost-sharing agreement to Intel are reflected as a reduction of research and
development expense. (See “Consolidated Variable Interest Entities –
NAND Flash joint ventures with Intel.”)
Stock-based
compensation: Stock-based compensation is measured at the
grant date, based on the fair value of the award, and is recognized as expense
over the requisite service period. For stock awards granted after the
beginning of 2006, expenses are amortized under the straight-line attribution
method. The Company issues new shares upon the exercise of stock
options or conversion of share units. (See “Equity
Plans.”)
Functional
currency: The U.S. dollar is the Company’s functional currency
for substantially all of its consolidated operations.
Earnings per
share: Basic earnings per share is computed based on the
weighted-average number of common shares and stock rights
outstanding. Diluted earnings per share is computed based on the
weighted-average number of common shares and stock rights outstanding plus the
dilutive effects of stock options, warrants and convertible
notes. Potential common shares that would increase earnings per share
amounts or decrease loss per share amounts are antidilutive and are, therefore,
excluded from diluted per share calculations.
Financial
instruments: Cash equivalents include highly liquid short-term
investments with original maturities to the Company of three months or less,
readily convertible to known amounts of cash. Investments with
original maturities greater than three months and remaining maturities less than
one year are included in short-term investments. Investments with
remaining maturities greater than one year are included in other noncurrent
assets. Securities classified as available-for-sale are stated at
market value. The carrying value of investment securities sold is
determined using the specific identification method.
Inventories: Inventories
are stated at the lower of average cost or market value. Cost
includes labor, material and overhead costs, including product and process
technology costs. Determining fair market values of inventories
involves numerous judgments, including projecting average selling prices and
sales volumes for future periods and costs to complete products in work in
process inventories. When fair market values are below the Company’s
costs, the Company records a charge to cost of goods sold to write down
inventories to their estimated market value in advance of when the inventories
are actually sold. The Company’s inventories have been categorized as
memory and imaging products for purposes of determining average cost and fair
market value. The major characteristics the Company considers in
determining categories are product type and markets.
Product and process
technology: Costs incurred to acquire product and process
technology or to patent technology developed by the Company are capitalized and
amortized on a straight-line basis over periods ranging up to 10
years. The Company capitalizes a portion of costs incurred based on
its analysis of historical and projected patents issued as a percent of patents
filed. Capitalized product and process technology costs are amortized
over the shorter of (i) the estimated useful life of the technology, (ii) the
patent term or (iii) the term of the technology
agreement. Fully-amortized assets are removed from product and
process technology and accumulated amortization.
Property, plant and
equipment: Property, plant and equipment are stated at cost
and depreciated using the straight-line method over estimated useful lives of 5
to 30 years for buildings, 2 to 20 years for equipment and 3 to 5 years for
software. Assets held for sale are carried at the lower of cost or
estimated fair value and are included in other noncurrent
assets. When property or equipment is retired or otherwise disposed
of, the net book value of the asset is removed from the Company’s accounts and
any gain or loss is included in the Company’s results of
operations.
The Company capitalizes interest on
borrowings during the active construction period of major capital
projects. Capitalized interest is added to the cost of the underlying
assets and is amortized over the useful lives of the assets. The
Company capitalized interest costs of $5 million, $21 million and $18 million in
2009, 2008 and 2007, respectively, in connection with various capital
projects.
F-
7
Recently adopted accounting
standards: In May 2008, the Financial Accounting Standards
Board (“FASB”) issued FSP No. APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” FSP No. APB 14-1 requires that issuers of convertible
debt instruments that may be settled in cash upon conversion separately account
for the liability and equity components of such instruments in a manner such
that interest cost will be recognized at the entity’s nonconvertible debt
borrowing rate in subsequent periods. The Company adopted this
standard as of the beginning of 2010 and retrospectively accounted for its $1.3
billion of 1.875% convertible senior notes under the provisions of FSP No. APB
14-1 from the May 2007 issuance date of the notes. As a result, prior
financial statement amounts were recast. (See “Adjustment for
Retrospective Application of New Accounting Standards” note.)
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51.” SFAS No. 160 requires that (1) noncontrolling interests be
reported as a separate component of equity, (2) net income attributable to the
parent and to the noncontrolling interest be separately identified in the
statement of operations, (3) changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions
and (4) any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value. The Company
adopted SFAS No. 160 effective as of the beginning of 2010. As a
result of the retrospective adoption of the presentation and disclosure
requirements, prior financial statement amounts were recast. (See
“Adjustment for Retrospective Application of New Accounting Standards”
note.)
In February 2007, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities – Including an amendment of FASB Statement No.
115”. Under SFAS No. 159, an entity may elect to measure many
financial instruments and certain other items at fair value on an instrument by
instrument basis, subject to certain restrictions. The Company
adopted SFAS No. 159 effective as of the beginning of 2009. The
Company did not elect to measure any existing items at fair value upon the
adoption of SFAS No. 159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 (as amended by
subsequent FSP’s) defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. The Company adopted SFAS No. 157 effective
as of the beginning of 2009 for financial assets and financial
liabilities. The adoption did not have a significant impact on the
Company’s financial statements. SFAS No. 157 is also effective for
all other assets and liabilities of the Company as of the beginning of
2010. The Company does not expect the adoption to have a significant
impact on its financial statements as of the adoption date. The
impact to periods subsequent to the initial adoption of SFAS No. 157 for
nonfinancial assets and liabilities will depend on the nature and extent of
nonfinancial assets and liabilities measured at fair value after the beginning
of 2010.
Recently issued accounting
standards: In June 2009, the FASB issued SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”), which (1)
replaces the quantitative-based risks and rewards calculation for determining
whether an enterprise is the primary beneficiary in a variable interest entity
with an approach that is primarily qualitative, (2) requires ongoing assessments
of whether an enterprise is the primary beneficiary of a variable interest
entity and (3) requires
additional disclosures about an enterprise’s involvement in variable interest
entities. The Company is required to adopt SFAS No. 167 as of
the beginning of 2011. The Company is evaluating the impact the
adoption of SFAS No. 167 will have on its financial statements.
In December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which
establishes the principles and requirements for how an acquirer in a business
combination (1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interests in the acquiree, (2) recognizes and measures goodwill acquired in the
business combination or a gain from a bargain purchase and (3) determines what
information to disclose. SFAS No. 141(R) is effective for the Company
as of the beginning of 2010. The impact of the adoption of SFAS No.
141(R) will depend on the nature and extent of business combinations occurring
after the beginning of 2010.
F-
8
Supplemental
Balance Sheet Information
|
Investment
Securities
|
2009
|
2008
|
||||||
|
Available-for-sale
securities:
|
||||||||
|
Certificates of
deposit
|
$ | 187 | $ | 198 | ||||
|
U.S. government and
agencies
|
-- | 289 | ||||||
|
Commercial paper
|
-- | 271 | ||||||
|
Other
|
22 | 28 | ||||||
| 209 | 786 | |||||||
|
Less cash
equivalents
|
(187 | ) | (641 | ) | ||||
|
Less investments included in
noncurrent assets
|
(22 | ) | (26 | ) | ||||
|
Short-term
investments
|
$ | -- | $ | 119 | ||||
In 2009 and 2008, the Company
recognized losses of $15 million and $8 million, respectively, for
other-than-temporary impairments of investment securities and in 2008 realized
losses of $5 million on sales of investment securities. As of
September 3, 2009, the Company had gross unrealized gains of $9 million in
accumulated other comprehensive income, substantially all of which related to
equity securities that had a fair value of $15 million. As of August
28, 2008, the Company had gross unrealized losses of $7 million in accumulated
other comprehensive income, substantially all of which related to investments in
commercial paper that had a fair value of $86 million and had been in an
unrealized loss position for less than one year.
|
Receivables
|
2009
|
2008
|
||||||
|
Trade receivables (net of
allowance for doubtful accounts of $5 million and $2 million,
respectively)
|
$ | 591 | $ | 741 | ||||
|
Related party
receivables
|
70 | -- | ||||||
|
Income and other
taxes
|
49 | 43 | ||||||
|
Other
|
88 | 248 | ||||||
| $ | 798 | $ | 1,032 | |||||
As of September 3, 2009, related party
receivables included $69 million due from Aptina Imaging Corporation under a
wafer supply agreement for image sensor products and $1 million due from Inotera
Memories, Inc. for reimbursement of expenses incurred under a technology
transfer agreement.
As of September 3, 2009 and August 28,
2008, other receivables included $29 million and $71 million, respectively, due
from Intel for amounts related to NAND Flash product design and process
development activities. Other receivables as of September 3, 2009 and
August 28, 2008 also included $40 million and $75 million, respectively, due
from settlement of litigation and $58 million, as of August 28, 2008, due from
settlements of pricing adjustments with certain suppliers.
|
Inventories
|
2009
|
2008
|
||||||
|
Finished goods
|
$ | 233 | $ | 444 | ||||
|
Work in process
|
649 | 671 | ||||||
|
Raw materials and
supplies
|
105 | 176 | ||||||
| $ | 987 | $ | 1,291 | |||||
The Company’s results of operations for
the second and first quarters of 2009 included charges of $234 million and $369
million, respectively, to write down the carrying value of work in process and
finished goods inventories of memory products (both DRAM and NAND Flash) to
their estimated market values. For the fourth, second and first
quarters of 2008, the Company recorded charges to write down the carrying value
of work in process and finished goods inventories by $205 million, $15 million
and $62 million, respectively.
F-
9
|
Intangible
Assets
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Gross
Amount
|
Accumulated
Amortization
|
Gross
Amount
|
Accumulated
Amortization
|
|||||||||||||
|
Product and process
technology
|
$ | 439 | $ | (181 | ) | $ | 577 | $ | (320 | ) | ||||||
|
Customer
relationships
|
127 | (50 | ) | 127 | (35 | ) | ||||||||||
|
Other
|
28 | (19 | ) | 29 | (14 | ) | ||||||||||
| $ | 594 | $ | (250 | ) | $ | 733 | $ | (369 | ) | |||||||
During 2009, the Company capitalized
$88 million for product and process technology with a weighted-average useful
life of 9 years. During 2008, the Company capitalized $43 million for
product and process technology with a weighted-average useful life of 10
years.
Amortization expense for intangible
assets was $75 million, $80 million and $75 million in 2009, 2008 and 2007,
respectively. Annual amortization expense for intangible assets is
estimated to be $66 million for 2010, $63 million for 2011, $54 million for
2012, $50 million for 2013 and $41 million for 2014.
|
Property,
Plant and Equipment
|
2009
|
2008
|
||||||
|
Land
|
$ | 96 | $ | 99 | ||||
|
Buildings (includes $184
million and $142 million, respectively, for capital
leases)
|
4,473 | 3,829 | ||||||
|
Equipment (includes $630
million and $755 million, respectively, for capital
leases)
|
11,834 | 13,591 | ||||||
|
Construction in
progress
|
47 | 619 | ||||||
|
Software
|
268 | 283 | ||||||
| 16,718 | 18,421 | |||||||
|
Accumulated depreciation
(includes $331 million and $327 million, respectively, for capital
leases)
|
(9,629 | ) | (9,602 | ) | ||||
| $ | 7,089 | $ | 8,819 | |||||
Depreciation expense was $2,039
million, $1,976 million and $1,644 million for 2009, 2008 and 2007,
respectively.
The Company, through its IM Flash joint
venture, has an unequipped wafer manufacturing facility in Singapore that has
been idle since it was completed in the first quarter of 2009. The
Company has been recording depreciation expense for the facility since it was
completed and its net book value was $624 million as of September 3,
2009. Utilization of the facility is dependent upon market
conditions, including, but not limited to, worldwide market supply of, and
demand for, semiconductor products, availability of financing, agreement between
the Company and its joint venture partner and the Company’s operations, cash
flows and alternative capacity utilization opportunities. (See
“Consolidated Variable Interest Entities – NAND Flash joint ventures with Intel”
note.)
As part of a restructure plan initiated
in 2009 to shut down 200mm manufacturing operations at its Boise, Idaho
facilities, the Company recorded impairment charges of $152 million in
2009. In connection therewith, assets with a carrying value of $34
million as of September 3, 2009 (original acquisition cost of $1,422 million)
were classified as held for sale and included in other noncurrent
assets. (See “Restructure” note.)
As of September 3, 2009, property,
plant and equipment with a carrying value of $1,176 million was collateral under
TECH’s credit facility and $86 million of property, plant and equipment was
collateral under the Company’s other notes payable. (See “Debt” and “TECH
Semiconductor Singapore Pte. Ltd.” notes.)
|
Goodwill
|
As of August 28, 2008, other noncurrent
assets included goodwill of $58 million, all of which related to the Company’s
imaging operations (the primary component of All Other segments). In
the second quarter of 2009, the Company wrote off the $58 million of goodwill
based on the results of its test for impairment. In the second
quarter of 2008, the Company wrote off the $463 million of goodwill relating to
its Memory segment based on the results of its test for impairment.
F-
10
SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires that goodwill be tested for impairment at a
reporting unit level. The Company has determined that its reporting
units are its Memory segment and its imaging operations based on its
organizational structure and the financial information provided to and reviewed
by management. The Company tests goodwill for impairment annually and
whenever events or circumstances make it more likely than not that an impairment
may have occurred. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of a reporting unit is
compared to its carrying value. If the carrying value of the net
assets assigned to a reporting unit exceeds the fair value of a reporting unit,
the second step of the impairment test is performed in order to determine the
implied fair value of the goodwill of a reporting unit. If the
carrying value of the goodwill of a reporting unit exceeds its implied fair
value, goodwill is deemed impaired and is written down to the extent of the
difference.
In the second quarter of 2009, the
Company’s imaging operations experienced a severe decline in sales, margins and
profitability due to a significant decline in demand as a result of the downturn
in global economic conditions. The drop in market demand resulted in
significant declines in average selling prices and unit sales. Due to
these market and economic conditions, the Company’s imaging operations and its
competitors experienced significant declines in market value. As a
result, the Company concluded that there were sufficient factual circumstances
for interim impairment analyses under SFAS No. 142. Accordingly, in
the second quarter of 2009, the Company performed an assessment of its imaging
operations goodwill for impairment.
In the first step of the impairment
analysis, the Company performed valuation analyses utilizing both income and
market approaches to determine the fair value of its reporting
units. Under the income approach, the Company determined the fair
value based on estimated future cash flows discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent
risk of the imaging operations and the rate of return an outside investor would
expect to earn. Estimated future cash flows were based on the
Company’s internal projection models, industry projections and other assumptions
deemed reasonable by management. Under the market-based approach, the
Company derived the fair value of its imaging operations based on revenue
multiples of comparable publicly-traded peer companies. In the second
step of the impairment analysis, the Company determined the implied fair value
of goodwill for imaging operations by allocating the fair value of the
operations to all of its assets and liabilities in accordance with SFAS No. 141,
“Business Combinations,” as if the imaging operations had been acquired in a
business combination and the price paid to acquire it was the fair
value.
Based on the results of the Company’s
assessment of goodwill for impairment, it was determined that the carrying value
of its imaging operations exceeded its estimated fair value as of the end of the
second quarter of 2009. Therefore, the Company performed the second
step of the impairment test to estimate the implied fair value of goodwill,
which indicated there would be no remaining implied value attributable to
goodwill for imaging operations. Accordingly, the Company wrote off
all the $58 million of goodwill associated with its imaging operations as of
March 5, 2009.
In the first and second quarters of
2008, the Company experienced a sustained, significant decline in its stock
price. As a result of the decline in stock prices, the Company’s
market capitalization fell significantly below the recorded value of its
consolidated net assets for most of the second quarter of 2008. The
reduced market capitalization at that time reflected, in part, the Memory
segment’s lower average selling prices and expected continued weakness in
pricing for the Company’s memory products. Accordingly, in the second
quarter of 2008, the Company performed an assessment of Memory segment goodwill
for impairment. In the first step of the impairment analysis,
the Company performed extensive valuation analyses utilizing both income and
market approaches to determine the fair value of its reporting units, which
indicated that the carrying value of the Memory segment exceeded its estimated
fair value. Therefore, the Company performed the second step of the
impairment test to determine the implied fair value of goodwill, which indicated
that there would be no remaining implied value attributable to goodwill in the
Memory segment and accordingly, the Company wrote off all $463 million of
goodwill associated with its Memory segment as of February 28,
2008.
|
Equity
Method Investments
|
The Company has partnered with Nanya
Technology Corporation (“Nanya”) in two Taiwan DRAM memory companies, Inotera
Memories, Inc. (“Inotera”) and MeiYa Technology Corporation (“MeiYa”), which are
accounted for as equity method investments. The Company also has an
equity method investment in Aptina Imaging Corporation (“Aptina”), a CMOS
imaging company.
F-
11
DRAM joint
ventures with Nanya: The Company has a partnering arrangement
with Nanya pursuant to which the Company and Nanya jointly develop process
technology and designs to manufacture stack DRAM products. In
addition, the Company has deployed and licensed certain intellectual property
related to the manufacture of stack DRAM products to Nanya and licensed certain
intellectual property from Nanya. As a result, the Company is to
receive an aggregate of $207 million from Nanya through 2010. The
Company recognized $105 million of license revenue in net sales from this
agreement in 2009, and since May 2008 through September 3, 2009, has recognized
$142 million of cumulative license revenue. In addition, the Company
expects to receive royalties in future periods from Nanya for sales of stack
DRAM products manufactured by or for Nanya.
The Company has concluded that both
Inotera and MeiYa are variable interest entities as defined in FIN 46(R),
“Consolidation of Variable Interest Entities – an interpretation of ARB No. 51,”
because of the Inotera and MeiYa supply agreements with Micron and
Nanya. Nanya and the Company are considered related parties under the
provisions of FIN 46(R). The Company reviewed several factors to
determine whether it is the primary beneficiary of Inotera and MeiYa, including
the size and nature of the entities’ operations relative to Nanya and the
Company, nature of the day-to-day operations and certain other
factors. Based on those factors, the Company determined that Nanya is
more closely associated with, and therefore the primary beneficiary of, Inotera
and MeiYa. The Company accounts for its interests using the equity
method of accounting and does not consolidate these entities.
Inotera and MeiYa each have fiscal
years that end on December 31. The Company recognizes its share of
Inotera’s and MeiYa’s quarterly earnings or losses for the calendar quarter that
ends within the Company’s fiscal quarter. As a result, the Company
recognizes its share of earnings or losses from these entities for a period that
lags the Company’s fiscal periods by two months.
Inotera: In the first quarter
of 2009, the Company acquired a 35.5% ownership interest in Inotera, a
publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for $398
million. The interest in Inotera was acquired for cash, a portion of which
was funded from loan proceeds of $200 million received from Nan Ya Plastics
Corporation, an affiliate of Nanya. A portion was also funded from
loan proceeds of $85 million received from Inotera, which the Company repaid
with accrued interest in the third quarter of 2009. The loans were
recorded at their fair values, which reflect an aggregate discount of $31
million from their face amounts. This aggregate discount was recorded as a
reduction of the Company’s basis in its investment in Inotera. The Company
also capitalized $10 million of costs and other fees incurred in connection with
the acquisition. As a result of the above transactions, the initial
carrying value of the Company’s investment in Inotera was $377 million. As
of the date of acquisition, the Company’s proportionate share of Inotera’s
shareholders’ equity was approximately $250 million higher than the Company’s
initial carrying value of $377 million. Substantially all of this
difference will be amortized over the estimated five-year weighted-average
remaining useful life of Inotera’s production equipment and facilities as of the
acquisition date (the “Inotera Amortization”). (See “Debt”
note.)
On August 3, 2009, Inotera finalized
the issuance of common shares in a public offering at a price equal to $16.02
New Taiwan dollars per common share (approximately $0.49 U.S. dollars at August
3, 2009). Inotera expects to use the net proceeds of approximately
$310 million to begin conversion to the Company’s 50nm stack DRAM
technology. As a result of the issuance, the Company’s interest in
Inotera decreased from 35.5% to 29.8% and the Company will recognize a gain of
$59 million in the first quarter of 2010. As of September 3, 2009,
the ownership of Inotera was held 29.9% by Nanya, 29.8% by the Company and the
balance was publicly held.
F-
12
In connection with the acquisition of
the shares in Inotera, the Company and Nanya entered into a supply agreement
with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will
sell trench and stack DRAM products to the Company and Nanya. The Company
has rights and obligations to purchase up to 50% of Inotera’s wafer production
capacity. Inotera’s actual wafer production will vary from time to
time based on market and other conditions. Inotera’s trench
production is expected to transition to the Company’s stack process
technology. Inotera charges the Company and Nanya for a portion of the
costs associated with its underutilized capacity, if any. The cost to the
Company of wafers purchased under the Inotera Supply Agreement is based on a
margin sharing formula among the Company, Nanya and Inotera. Under
such formula, all parties’ manufacturing costs related to wafers supplied by
Inotera, as well as the Company’s and Nanya’s selling prices for the resale of
products from wafers supplied by Inotera, are considered in determining costs
for wafers from Inotera. Under the Inotera Supply Agreement, the
Company’s purchase obligation includes purchasing Inotera’s trench DRAM capacity
(less any trench DRAM products sold to Qimonda pursuant to a separate supply
agreement between Inotera and Qimonda (the “Qimonda Supply Agreement”)).
Under the Qimonda Supply Agreement, Qimonda was obligated to purchase trench
DRAM products resulting from wafers started for it by Inotera through July 2009
in accordance with a ramp down schedule specified in the Qimonda Supply
Agreement. In the second quarter of 2009, Qimonda filed for bankruptcy
protection and defaulted on its obligations to purchase products from
Inotera. Pursuant to the Company’s obligations under the Inotera
Supply Agreement, the Company recorded $95 million of charges to cost of goods
sold in 2009 for underutilized capacity. For 2009, the Company
purchased $46 million of trench DRAM products from Inotera under the Inotera
Supply Agreement.
The Company’s results of operations for
2009 also include losses of $130 million for the Company’s share of Inotera’s
losses from the acquisition date through the second calendar quarter of
2009. The losses recorded by the Company are net of $38 million of the
Inotera Amortization as defined above. During the third quarter of 2009,
the Company received $50 million from Inotera pursuant to the terms of a
technology transfer agreement. In connection therewith, the Company
reduced its investment in Inotera by $18 million based on its 35.5% share in
Inotera. The technology transfer agreement with Inotera supplanted a
technology transfer agreement between the Company and MeiYa. License
fee revenue from the technology transfer agreements is being recognized through
the third quarter of 2010. The Company recognized $15 million and $4
million of revenue in 2009 and 2008, respectively, from the agreements with
Inotera and MeiYa. As of September 3, 2009, the Company had
unrecognized license fee revenue of $13 million related to the technology
transfer fee.
As of September 3, 2009, the carrying
value of the Company’s equity investment in Inotera was $229 million and is
included in equity method investments in the accompanying consolidated balance
sheet. As of September 3, 2009, the Company had recorded a loss of $3
million to accumulated other comprehensive income (loss) in the accompanying
consolidated balance sheets for cumulative translation adjustments on its
investment in Inotera. Based on the closing trading price of
Inotera’s shares in an active market on September 3, 2009, the market value of
the Company’s shares in Inotera was $694 million.
Summarized financial information for
Inotera as of June 30, 2009 and for the period from the Company’s initial
acquisition of Inotera shares on October 20, 2008 through June 30, 2009 (the
period that Inotera’s operating results are reflected in the Company’s 2009
operating results due to the two-month lag period), is as follows:
|
As
of June 30, 2009
|
||||
|
Current
assets
|
$ | 450 | ||
|
Noncurrent
assets (primarily property, plant and equipment)
|
3,315 | |||
|
Current
liabilities
|
1,789 | |||
|
Noncurrent
liabilities
|
740 | |||
|
For
the period October 20, 2008 to June 30, 2009
|
||||
|
Net
sales
|
$ | 607 | ||
|
Gross
margin
|
(370 | ) | ||
|
Loss
from operations
|
(462 | ) | ||
|
Net
loss
|
(534 | ) | ||
As of September 3, 2009, the Company’s
maximum exposure to loss on its investment in Inotera equaled the $232 million
recorded in the Company’s consolidated balance sheet for its investment in
Inotera including the $3 million loss in accumulated other comprehensive income
(loss). The Company may also incur losses in connection with its
obligations under the Inotera Supply Agreement to purchase up to 50% of
Inotera’s wafer production under a long-term pricing arrangement and charges
from Inotera for underutilized capacity.
F-
13
On May 1, 2009, Inotera entered into an
agreement with Nanya and MeiYa to lease a Nanya wafer fabrication facility that
Nanya had previously been leasing to MeiYa. The initial lease term is
from January 1, 2009 through December 31, 2018 and Inotera is entitled to renew
this lease for an unlimited number of additional five-year terms. In
addition, Inotera has an option to purchase the leased facility for $50 million
after December 31, 2023. Inotera’s initial lease obligations to Nanya
are $15 million annually for the first nine years. For the first
five-year renewal lease term, Inotera would pay $10 million annually and for
each subsequent renewal term, it would pay $2 million
annually. Concurrent with this agreement, Inotera purchased equipment
from MeiYa for approximately $78 million.
MeiYa: In
the fourth quarter of 2008, the Company and Nanya formed MeiYa to manufacture
stack DRAM products and sell such products exclusively to the Company and
Nanya. As of September 3, 2009, the ownership of MeiYa was held 50%
by Nanya and 50% by the Company. The carrying value of the Company’s
equity investment in MeiYa was $42 million and $84 million as of September 3,
2009 and August 28, 2008, respectively, and is included in equity method
investments in the accompanying consolidated balance sheets. As of
September 3, 2009, the Company had recorded a loss of $6 million to accumulated
other comprehensive income (loss) in the accompanying consolidated balance sheet
for cumulative translation adjustments on its investment in
MeiYa. The Company’s results of operations for 2009 include losses of
$10 million for its share of MeiYa’s results of operations for the twelve-month
period ended June 30, 2009. Losses recognized in 2008 were de
minimis.
Pursuant to a technology transfer
agreement, the Company received $50 million from MeiYa in the first quarter of
2009. The technology transfer agreement between the Company and MeiYa
was supplanted by a technology transfer agreement between the Company and
Inotera and the Company returned the $50 million with accrued interest to MeiYa
in the fourth quarter of 2009.
In connection with the purchase of its
ownership interest in Inotera, the Company entered into a series of agreements
with Nanya pursuant to which both parties ceased future funding of, and resource
commitments to, MeiYa. In the fourth quarter of 2009, the Company
received a distribution of $27 million from MeiYa. As of September 3, 2009, the
Company’s maximum exposure to loss on its MeiYa investment equaled the $48
million recorded in the Company’s consolidated balance sheet for its investment
in MeiYa, including the $6 million loss in accumulated other comprehensive
income (loss).
Aptina: On
July 10, 2009, the Company sold a 65% interest in Aptina, previously a
wholly-owned subsidiary of the Company and a significant component of the
Company’s All Other segments, to Riverwood Capital (“Riverwood”) and TPG Capital
(“TPG”). In connection with the transaction, the Company received
approximately $35 million in cash and retained a 35% interest in
Aptina. A portion of the 65% interest held by Riverwood and TPG are
convertible preferred shares and have a liquidation preference over the common
shares. As a result, the Company’s interest represents 64% of
Aptina’s common stock. The Company also retained all cash held by
Aptina and its subsidiaries. The Company recorded a loss of $41
million in connection with the sale. The carrying values of Aptina
assets and liabilities, prior to the effects of the transaction, were as
follows:
|
Receivables
|
$ | 50 | ||
|
Inventories
|
56 | |||
|
Other
current assets
|
20 | |||
|
Other
assets (primarily property, plant and equipment and intangible
assets)
|
63 | |||
|
Accounts
payable and accrued expenses
|
(68 | ) | ||
|
Other
liabilities
|
(1 | ) | ||
|
Net
carrying value
|
$ | 120 |
Under the equity method, the Company
will recognize its share of Aptina’s results of operations based on its 64%
share of Aptina’s common stock on a two-month lag beginning in
2010. As of September 3, 2009, the Company’s investment in Aptina was
$44 million. The Company continues to manufacture products for Aptina
under a wafer supply agreement and recognized $70 million of sales and $60
million of cost of goods sold from products sold to Aptina subsequent to July
10, 2009.
F-
14
|
Accounts
Payable and Accrued Expenses
|
2009
|
2008
|
||||||
|
Accounts
payable
|
$ | 526 | $ | 597 | ||||
|
Customer
advances
|
150 | 130 | ||||||
|
Salaries, wages and
benefits
|
147 | 244 | ||||||
|
Related party
payables
|
83 | -- | ||||||
|
Income and other
taxes
|
32 | 27 | ||||||
|
Other
|
99 | 113 | ||||||
| $ | 1,037 | $ | 1,111 | |||||
As of September 3, 2009, related party
payables consisted of amounts due to Inotera under the Inotera Supply Agreement
including $51 million for the purchase of trench DRAM products and $32 million
for underutilized capacity. (See “Equity Method Investments – DRAM joint
ventures with Nanya – Inotera” note.)
As of September 3, 2009 and August 28,
2008, customer advances included $142 million and $129 million, respectively,
for the Company’s obligation to provide certain NAND Flash memory products to
Apple Computer, Inc. (“Apple”) until December 31, 2010 pursuant to a prepaid
NAND Flash supply agreement. As of September 3, 2009 and August 28,
2008, other accounts payable and accrued expenses included $24 million and $16
million, respectively, for amounts due to Intel for NAND Flash product design
and process development and licensing fees pursuant to a product designs
development agreement.
|
Debt
|
2009
|
2008
|
||||||
|
Convertible senior notes, stated
interest rate of 1.875%, effective interest rate of 7.9%, net of discount
of $295 million and $345 million, respectively, due June
2014
|
$ | 1,005 | $ | 955 | ||||
|
TECH credit facility, effective
interest rates of 3.6% and 5.0% , respectively, net of discount of $2
million and $3 million, respectively, due in periodic installments through
May 2012
|
548 | 597 | ||||||
|
Capital lease obligations,
weighted-average imputed interest rate of 6.7% and 6.6%, respectively, due
in monthly installments through February 2023
|
559 | 657 | ||||||
|
Convertible senior notes, interest
rate of 4.25%, due October 2013
|
230 | -- | ||||||
|
EDB notes, interest rate of 5.4%,
due February 2012
|
208 | -- | ||||||
|
Nan Ya Plastics notes, effective
imputed interest rate of 12.1%, net of discount of $18 million, due
November 2010
|
182 | -- | ||||||
|
Convertible subordinated notes,
interest rate of 5.6%, due April 2010
|
70 | 70 | ||||||
|
Other notes, weighted-average
effective interest rates of 9.5% and 1.6%, respectively, due in periodic
installments through July 2015
|
1 | 102 | ||||||
| 2,803 | 2,381 | |||||||
|
Less current
portion
|
(424 | ) | (275 | ) | ||||
| $ | 2,379 | $ | 2,106 | |||||
F-
15
In May 2007, the Company issued $1.3
billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Convertible
Notes”). The issuance costs associated with the Convertible Notes
totaled $26 million and the net proceeds to the Company from the offering of the
Convertible Notes were $1,274 million. The initial conversion rate
for the Convertible Notes is 70.2679 shares of common stock per $1,000 principal
amount of Convertible Notes, equivalent to an initial conversion price of
approximately $14.23 per share of common stock. Holders may convert
the Convertible Notes prior to the close of business on the business day
immediately preceding the maturity date for the Convertible Notes only under the
following circumstances: (1) during any calendar quarter beginning after August
30, 2007 (and only during such calendar quarter), if the closing price of the
Company's common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the immediately preceding
calendar quarter is more than 130% of the then applicable conversion price per
share of the Convertible Notes; (2) if the Convertible Notes have been called
for redemption; (3) if specified distributions to holders of the Company's
common stock are made, or specified corporate events occur, as specified in the
indenture for the Convertible Notes; (4) during the five business days after any
five consecutive trading day period in which the trading price per $1,000
principal amount of Convertible Notes for each day of that period was less than
98% of the product of the closing price of the Company’s common stock and the
then applicable conversion rate of the Convertible Notes; or (5) at any time on
or after March 1, 2014. Upon conversion, the Company will have the
right to deliver, in lieu of shares of its common stock, cash or a combination
of cash and shares of common stock. If a holder elects to convert its
Convertible Notes in connection with a make-whole change in control, as defined
in the indenture, the Company will, in certain circumstances, pay a make-whole
premium by increasing the conversion rate for the Convertible Notes converted in
connection with such make-whole change in control. On or after June
6, 2011, the Company may redeem for cash all or part of the Convertible Notes if
the last reported sale price of its common stock has been at least 130% of the
conversion price then in effect for at least 20 trading days during any 30
consecutive trading day period ending within five trading days prior to the date
on which the Company provides notice of redemption. The redemption
price is 100% of the principal amount of the Convertible Notes to be redeemed,
plus accrued and unpaid interest. Upon a change in control or a
termination of trading, as defined in the indenture, the holders may require the
Company to repurchase for cash all or a portion of their Convertible Notes at a
repurchase price equal to 100% of the principal amount of the Convertible Notes,
plus accrued and unpaid interest, if any. In the first quarter of
2010, the Company adopted a new accounting standard for certain convertible
debt. The new standard was applicable to the Convertible Notes and
requires the liability and equity components to be stated
separately. (See “Adjustment for Retrospective Application of New
Accounting Standards” note.)
In 2008, the Company’s joint venture
subsidiary, TECH Semiconductor Singapore Pte. Ltd. (“TECH”), drew $600 million
under a credit facility at SIBOR plus 2.5%. The credit facility is
collateralized by substantially all of the assets of TECH (approximately $1,498
million as of September 3, 2009) and contains covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. TECH repaid $50 million of principal
amounts in 2009 and remaining payments are due in $50 million quarterly
installments from September 2009 through May 2012. Under the terms of
the credit facility, TECH held $30 million in restricted cash as of September 3,
2009, which was increased to $60 million in the first quarter of
2010. In the first quarter of 2010, TECH modified its debt
covenants. In connection with the modification, the Company has
guaranteed approximately 85% of the outstanding amount borrowed under TECH’s
credit facility and the Company’s guarantee could increase up to 100% of the
outstanding amount borrowed under the facility based on further increases in the
Company’s ownership interest in TECH and other conditions.
In 2009, the Company recorded $81
million in capital lease obligations with a weighted-average imputed interest
rate of 5.9%, payable in periodic installments through February
2023. In 2008, the Company received $111 million in proceeds from
sales-leaseback transactions and in connection with these transactions, recorded
capital lease obligations aggregating $110 million with a weighted-average
imputed interest rate of 6.7%, payable in periodic installments through June
2012. As of September 3, 2009, the Company had $46 million of capital
lease obligations with covenants that require minimum levels of tangible net
worth, cash and investments, and restricted cash of $26 million. The
covenants were modified in the second quarter of 2009, and the Company was in
compliance with these debt covenants as of September 3, 2009.
F-
16
On April 15, 2009, the Company issued
$230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25%
Senior Notes”). Issuance costs for the 4.25% Senior Notes totaled $7
million. The initial conversion rate for the 4.25% Senior Notes is
196.7052 shares of common stock per $1,000 principal amount, equivalent to
approximately $5.08 per share of common stock, and is subject to adjustment upon
the occurrence of certain events specified in the indenture for the 4.25% Senior
Notes. Holders of the 4.25% Senior Notes may convert them at any time
prior to October 15, 2013. If there is a change in control, as
defined in the indenture, in certain circumstances the Company may pay a
make-whole premium by increasing the conversion rate to holders that convert
their 4.25% Senior Notes in connection with such make-whole change in
control. The Company may not redeem the 4.25% Senior Notes prior to
April 20, 2012. On or after April 20, 2012, the Company may redeem
for cash all or part of the 4.25% Senior Notes if the closing price of its
common stock has been at least 135% of the conversion price for at least 20
trading days during a 30 consecutive trading day period. The
redemption price will equal 100% of the principal amount plus a make-whole
premium equal to the present value of the remaining interest payments from the
redemption date to the date of maturity of the 4.25% Senior
Notes. Upon a change in control or a termination of trading, as
defined in the indenture, the Company may be required to repurchase for cash all
or a portion of the 4.25% Senior Notes at a repurchase price equal to 100% of
the principal plus any accrued and unpaid interest to, but excluding, the
repurchase date.
On February 23, 2009, the Company
entered into a Singapore dollar-denominated term loan agreement with the
Singapore Economic Development Board (“EDB”) enabling the Company to borrow up
to $300 million Singapore dollars at 5.4% per annum. The terms of the
loan agreement required the Company to use the proceeds from any borrowings
under the agreement to make equity contributions to its TECH joint venture
subsidiary. The loan agreement also required that TECH use the
proceeds from the Company’s equity contributions to purchase production assets
and meet certain production milestones related to the implementation of advanced
process manufacturing. The loan contains a covenant that limits the
amount of indebtedness TECH can incur without approval from the
EDB. The loan is collateralized by the Company’s shares in TECH up to
a maximum of 66% of TECH’s outstanding shares. The Company drew $150
million Singapore dollars under the facility on February 27, 2009 and an
additional $150 million Singapore dollars on June 2, 2009. The
aggregate $300 million Singapore dollars outstanding ($208 million U.S. dollars
as of September 3, 2009) is due in February 2012 with interest payable
quarterly.
In the first quarter of 2009, in
connection with its purchase of its interest in Inotera, the Company entered
into a two-year, variable-rate term loan with Nan Ya Plastics, an affiliate of
Nanya, and received loan proceeds of $200 million. Under the terms of
the loan agreement, interest is payable quarterly at LIBOR plus
2%. The interest rate resets quarterly and was 2.4% per annum as of
September 3, 2009. Based on imputed interest rate of 12.1%, the
Company recorded the Nan Ya Plastics loan net of a discount of $28 million,
which is recognized as interest expense over the life of the
loan. The loan is collateralized by a first priority security
interest in the Inotera shares owned by the Company (approximate carrying value
of $229 million as of September 3, 2009). (See “Equity Method
Investments” note.)
In connection with the Company’s
acquisition of Lexar Media, Inc. (“Lexar”) in the fourth quarter of 2006, the
Company assumed Lexar’s $70 million 5.625% convertible notes due April 1, 2010
(the “Lexar Notes”). The Lexar Notes are convertible into the
Company’s common stock any time at the option of the holders of the Lexar Notes
at a price equal to approximately $11.28 per share and are subject to customary
covenants. The Lexar Notes became redeemable for cash at the
Company’s option on April 1, 2008 at a price equal to the principal amount plus
accrued interest plus the net present value of the remaining scheduled interest
payments through April 1, 2010. The Company may only redeem the Lexar
Notes if its common stock has exceeded 175% of the conversion price for at least
20 trading days in the 30 consecutive trading days prior to delivery of a notice
of redemption.
F-
17
As of September 3, 2009, maturities of
notes payable and future minimum lease payments under capital lease obligations
were as follows:
|
Notes
Payable
|
Capital
Lease
Obligations
|
|||||||
|
2010
|
$ | 270 | $ | 188 | ||||
|
2011
|
400 | 271 | ||||||
|
2012
|
358 | 52 | ||||||
|
2013
|
-- | 20 | ||||||
|
2014
|
1,530 | 21 | ||||||
|
2015
and thereafter
|
-- | 98 | ||||||
|
Discount
and interest, respectively
|
(314 | ) | (91 | ) | ||||
| $ | 2,244 | $ | 559 | |||||
Commitments
As of September 3, 2009, the Company
had commitments of approximately $276 million for the acquisition of property,
plant and equipment. The Company leases certain facilities and
equipment under operating leases. Total rental expense was $28
million, $39 million and $62 million for 2009, 2008 and 2007,
respectively. The Company also subleases certain facilities and
buildings under operating leases to Aptina and recognized $1 million of rental
income in 2009. Minimum future rental commitments and minimum future
sublease rentals to be received from Aptina under noncancelable subleases are as
follows:
|
Operating
Lease
Commitments
|
Operating
Sublease
Rentals
|
|||||||
|
2010
|
$ | 17 | $ | (3 | ) | |||
|
2011
|
14 | (2 | ) | |||||
|
2012
|
10 | (3 | ) | |||||
|
2013
|
10 | (3 | ) | |||||
|
2014
|
7 | (1 | ) | |||||
|
2015
and thereafter
|
15 | -- | ||||||
| $ | 73 | $ | (12 | ) | ||||
Contingencies
The Company has accrued a liability and
charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date,
including those described below. The Company is currently a party to
other legal actions arising out of the normal course of business, none of which
is expected to have a material adverse effect on the Company’s business, results
of operations or financial condition.
In the normal course of business, the
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party. It is not possible to predict
the maximum potential amount of future payments under these types of agreements
due to the conditional nature of the Company’s obligations and the unique facts
and circumstances involved in each particular
agreement. Historically, payments made by the Company under these
types of agreements have not had a material effect on the Company’s business,
results of operations or financial condition.
The Company is involved in the
following patent, antitrust and securities matters.
F-
18
Patent
matters: As is typical in the semiconductor and other high
technology industries, from time to time, others have asserted, and may in the
future assert, that the Company’s products or manufacturing processes infringe
their intellectual property rights. In this regard, the Company is
engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of
Rambus’ patents and certain of the Company’s claims and
defenses. Lawsuits between Rambus and the Company are pending in the
U.S. District Court for the District of Delaware, U.S. District Court for the
Northern District of California, Germany, France, and Italy. On
January 9, 2009, the Delaware Court entered an opinion in favor of the Company
holding that Rambus had engaged in spoliation and that the twelve Rambus patents
in the suit were unenforceable against the Company. Rambus
subsequently appealed the decision to the U.S. Court of Appeals for the Federal
Circuit. That appeal is pending. In the U.S. District
Court for the Northern District of California, trial on a patent phase of the
case has been stayed pending resolution of Rambus' appeal of the Delaware
spoliation decision or further order of the California Court.
On March 6, 2009, Panavision Imaging,
LLC filed suit against the Company and Aptina Imaging Corporation, then a
wholly-owned subsidiary of the Company (“Aptina”), in the U.S. District Court
for the Central District of California. The complaint alleges that
certain of the Company and Aptina’s image sensor products infringe four
Panavision Imaging U.S. patents and seeks injunctive relief, damages, attorneys’
fees, and costs.
On March 24, 2009, Accolade
Systems LLC filed suit against the Company and Aptina in the U.S. District Court
for the Eastern District of Texas alleging that certain of the Company and
Aptina’s image sensor products infringe one Accolade Systems U.S.
patent. The complaint seeks injunctive relief, damages, attorneys’
fees, and costs. Accolade Systems never served the complaint, and on
October 15, 2009, filed a motion to dismiss the complaint against the Company
and Aptina without prejudice.
Among other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM,
RLDRAM and image sensor products, which account for a significant portion of net
sales.
The Company is unable to predict the
outcome of assertions of infringement made against the Company and therefore
cannot estimate the range of possible loss. A court determination
that the Company’s products or manufacturing processes infringe the intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect
on the Company’s business, results of operations or financial
condition.
Antitrust
matters: At least sixty-eight purported class action
price-fixing lawsuits have been filed against the Company and other DRAM
suppliers in various federal and state courts in the United States and in Puerto
Rico on behalf of indirect purchasers alleging price-fixing in violation of
federal and state antitrust laws, violations of state unfair competition law,
and/or unjust enrichment relating to the sale and pricing of DRAM products
during the period from April 1999 through at least June 2002. The
complaints seek joint and several damages, trebled, in addition to restitution,
costs and attorneys’ fees. A number of these cases have been removed
to federal court and transferred to the U.S. District Court for the Northern
District of California for consolidated pre-trial proceedings. On
January 29, 2008, the Northern District of California court granted in part and
denied in part the Company’s motion to dismiss plaintiffs’ second amended
consolidated complaint. Plaintiffs subsequently filed a motion
seeking certification for interlocutory appeal of the decision. On
February 27, 2008, plaintiffs filed a third amended complaint. On
June 26, 2008, the United States Court of Appeals for the Ninth Circuit agreed
to consider plaintiffs’ interlocutory appeal.
F-
19
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Thereafter, three states, Ohio, New Hampshire, and Texas,
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware,
Kentucky, and Vermont subsequently voluntarily dismissed their
claims. The amended complaint alleges, among other things, violations
of the Sherman Act, Cartwright Act, and certain other states’ consumer
protection and antitrust laws and seeks joint and several damages, trebled, as
well as injunctive and other relief. Additionally, on July 13, 2006,
the State of New York filed a similar suit in the U.S. District Court for the
Southern District of New York. That case was subsequently transferred
to the U.S. District Court for the Northern District of California for pre-trial
purposes. The State of New York filed an amended complaint on October
1, 2007. On October 3, 2008, the California Attorney General filed a
similar lawsuit in California Superior Court, purportedly on behalf of local
California government entities, alleging, among other things, violations of the
Cartwright Act and state unfair competition law.
Three purported class action DRAM
lawsuits also have been filed against the Company in Quebec, Ontario, and
British Columbia, Canada, on behalf of direct and indirect purchasers, alleging
violations of the Canadian Competition Act. The substantive
allegations in these cases are similar to those asserted in the DRAM antitrust
cases filed in the United States. Plaintiffs’ motion for class
certification was denied in the British Columbia and Quebec cases in May and
June 2008, respectively. Plaintiffs subsequently filed an appeal of
each of those decisions. Those appeals are pending.
In February and March 2007, All
American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers
in the U.S. District Court for the Northern District of California after
opting-out of a direct purchaser class action suit that was
settled. The complaints allege, among other things, violations of
federal and state antitrust and competition laws in the DRAM industry, and seek
joint and several damages, trebled, as well as restitution, attorneys’ fees,
costs and injunctive relief.
Three purported class action lawsuits
alleging price-fixing of SRAM products have been filed in Canada, asserting
violations of the Canadian Competition Act. These cases assert claims
on behalf of a purported class of individuals and entities that purchased SRAM
products directly or indirectly from various SRAM suppliers.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers. The complaint
alleges various causes of action under California state law including conspiracy
to restrict output and fix prices of Rambus DRAM (“RDRAM”) and unfair
competition. Trial is currently scheduled to begin in January
2010. The complaint seeks joint and several damages, trebled,
punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining
the defendants from the conduct alleged in the complaint.
The Company is unable to predict the
outcome of these lawsuits and therefore cannot estimate the range of possible
loss. The final resolution of these alleged violations of antitrust
laws could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Securities
matters: On February 24, 2006, a putative class action
complaint was filed against the Company and certain of its officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of the Company’s stock
during the period from February 24, 2001 to September 18, 2002.
F-
20
In addition, on March 23, 2006, a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint was based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleged breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint sought
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint was derivative in nature and did not seek monetary damages from the
Company. On January 25, 2008, the Court granted the Company’s motion
to dismiss the second amended complaint without leave to amend. On
March 10, 2008, plaintiffs filed a notice of appeal to the Idaho Supreme
Court. On July 16, 2009, the Idaho Supreme Court issued an opinion
upholding the lower court’s dismissal of the complaint.
The Company is unable to predict the
outcome of these cases and therefore cannot estimate the range of possible
loss. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Shareholders’
Equity
Stock
rights: As of September 3, 2009 and August 28, 2008, Intel
held stock rights exchangeable into approximately 3.9 million and 16.9 million
shares, respectively, of the Company’s common stock. Shares issuable
pursuant to the stock rights are included in weighted-average common shares
outstanding in the computations of earnings per share.
Issuance of
common stock: On April 15, 2009, the
Company issued 69.3 million shares of common stock for $4.15 per share in a
public offering. The Company received net proceeds of $276 million,
net of underwriting fees and other offering costs of $12 million.
Capped call
transactions: In connection with the offering of the
Convertible Notes in May 2007, the Company entered into three capped call
transactions (the “Capped Calls”). The Capped Calls each have an
initial strike price of approximately $14.23 per share, subject to certain
adjustments, which matches the initial conversion price of the Convertible
Notes. The Capped Calls are in three equal tranches, have cap prices
of $17.25, $20.13 and $23.00 per share, and cover, subject to anti-dilution
adjustments similar to those contained in the Convertible Notes, an approximate
combined total of 91.3 million shares of common stock. The Capped
Calls expire on various dates between November 2011 and December
2012. The Capped Calls are intended to reduce the potential dilution
upon conversion of the Convertible Notes. Settlement of the Capped
Calls in cash on their respective expiration dates would result in the Company
receiving an amount ranging from zero if the market price per share of the
Company’s common stock is at or below $14.23 to a maximum of $538
million. The Company paid $151 million to purchase the Capped
Calls. The Capped Calls are considered capital transactions and the
related cost was recorded as a charge to additional capital.
Concurrent with the offering of the
4.25% Senior Notes on April 15, 2009, the Company entered into capped call
transactions (the “2009 Capped Calls”) that have an initial strike price of
approximately $5.08 per share, subject to certain adjustments, which was set to
equal initial conversion price of the 4.25% Senior Notes. The 2009
Capped Calls have a cap price of $6.64 per share and cover, subject to
anti-dilution adjustments similar to those contained in the 4.25% Senior
Notes, an approximate combined total of 45.2 million shares of common
stock, and are subject to standard adjustments for instruments of this
type. The 2009 Capped Calls expire in October and November of
2012. The 2009 Capped Calls are intended to reduce the potential
dilution upon conversion of the 4.25% Senior Notes. Settlement of the
Capped Calls in cash on their respective expiration dates would result in the
Company receiving an amount ranging from zero if the market price per share of
the Company’s common stock is at or below $5.08 to a maximum of $70
million. The Company paid $25 million to purchase the 2009 Capped
Calls. The 2009 Capped Calls are considered capital transactions and
the related cost was recorded as a charge to additional capital.
F-
21
Accumulated other
comprehensive income (loss): Accumulated other comprehensive
income (loss), net of tax, consisted of the following as of the end of the
periods shown below:
|
2009
|
2008
|
|||||||
|
Accumulated translation
adjustment, net
|
$ | (9 | ) | $ | -- | |||
|
Unrealized gain (loss) on
investments, net
|
10 | (3 | ) | |||||
|
Unrecognized pension
liability
|
(4 | ) | (5 | ) | ||||
|
Accumulated other comprehensive
income (loss)
|
$ | (3 | ) | $ | (8 | ) | ||
Adjustment
for Retrospective Application of New Accounting Standards
Effective at the beginning of 2010, the
Company adopted new accounting standards for noncontrolling interests and
certain convertible debt instruments. These new accounting standards
required retrospective application and the Company’s financial statements
contained herein have been adjusted to reflect the impact of adopting these new
accounting standards. The impact of the retrospective adoption is
summarized below.
Noncontrolling
interests in subsidiaries: Under the new standard,
noncontrolling interests in subsidiaries is (1) reported as a separate component
of equity in the consolidated balance sheets and (2) included in net
income in the statement of operations.
Convertible debt
instruments: The new standard applies to convertible debt
instruments that may be fully or partially settled in cash upon conversion and
is applicable to the Company’s 1.875% convertible senior notes with an aggregate
principal amount of $1.3 billion issued in May 2007 (the “Convertible
Notes”). The standard requires the liability and equity components of
the Convertible Notes to be stated separately. The liability
component recognized at the issuance of the Convertible Notes equals the
estimated fair value of a similar liability without a conversion option and the
remainder of the proceeds received at issuance was allocated to
equity. In connection therewith, at the May 2007 issuance of the
Convertible Notes there was a $402 million decrease in debt, a $394 million
increase in additional capital, and an $8 million decrease in deferred debt
issuance costs (included in other noncurrent assets). The fair value
of the liability was determined using an interest rate for similar
nonconvertible debt issued as of the original May 2007 issuance date by entities
with credit ratings comparable to the Company’s credit rating at the time of
issuance. In subsequent periods, the liability component recognized
at issuance is increased to the principal amount of the Convertible Notes
through the amortization of interest costs. Through 2009, $107 million of
interest was amortized. Information related to equity and debt
components is as follows:
|
As of
|
September
3,
2009
|
August
28,
2008
|
||||||
|
Carrying amount of the equity
component
|
$ | 394 | $ | 394 | ||||
|
Principal amount of the
Convertible Notes
|
1,300 | 1,300 | ||||||
|
Unamortized
discount
|
295 | 345 | ||||||
|
Net carrying amount of the
Convertible Notes
|
1,005 | 955 | ||||||
The unamortized discount as of
September 3, 2009, will be recognized as interest expense over approximately 4.7
years through June 2014, the maturity date of the Convertible
Notes.
Information related to interest rates
and expenses is as follows:
|
Year
Ended
|
2009
|
2008
|
2007
|
|||||||||
|
Effective interest
rate
|
7.9 | % | 7.9 | % | 7.9 | % | ||||||
|
Interest costs related to
contractual interest coupon
|
25 | 24 | 7 | |||||||||
|
Interest costs related to
amortization of discount and issuance costs
|
52 | 47 | 12 | |||||||||
F-
22
Effect of
adjustment for retrospective application of new accounting standards on
financial statements: The following tables set forth the
financial statement line items affected by retrospective application of the new
accounting standards for noncontrolling interests and certain convertible debt
as of and for the periods indicated:
|
Consolidated
Statement of Operations
|
||||||||||||||||
|
As
Previously Reported
|
Effect
of Adoption
|
As
Retrospectively Adjusted
|
||||||||||||||
|
Noncontrolling
Interests
|
Convertible
Debt
|
|||||||||||||||
|
Year
Ended September 3, 2009:
|
||||||||||||||||
|
Cost
of goods sold
|
$ | 5,242 | $ | -- | $ | 1 | $ | 5,243 | ||||||||
|
Interest
expense
|
(135 | ) | -- | (47 | ) | (182 | ) | |||||||||
|
Income
tax (provision)
|
(2 | ) | -- | 1 | (1 | ) | ||||||||||
|
Net loss
|
(1,835 | ) | (111 | ) | (47 | ) | (1,993 | ) | ||||||||
|
Net loss attributable to
Micron
|
-- | (1,835 | ) | (47 | ) | (1,882 | ) | |||||||||
|
Net
loss per share:
|
||||||||||||||||
|
Basic and
diluted
|
(2.29 | ) | -- | (0.06 | ) | (2.35 | ) | |||||||||
|
Year
Ended August 28, 2008:
|
||||||||||||||||
|
Interest
expense
|
$ | (82 | ) | $ | -- | $ | (36 | ) | $ | (118 | ) | |||||
|
Net loss
|
(1,619 | ) | (10 | ) | (36 | ) | (1,665 | ) | ||||||||
|
Net loss attributable to
Micron
|
-- | (1,619 | ) | (36 | ) | (1,655 | ) | |||||||||
|
Net
loss per share:
|
||||||||||||||||
|
Basic and
diluted
|
(2.10 | ) | -- | (0.04 | ) | (2.14 | ) | |||||||||
|
Year
Ended August 30, 2007:
|
||||||||||||||||
|
Interest
expense
|
$ | (40 | ) | $ | -- | $ | (11 | ) | $ | (51 | ) | |||||
|
Net loss
|
(320 | ) | 122 | (11 | ) | (209 | ) | |||||||||
|
Net loss attributable to
Micron
|
-- | (320 | ) | (11 | ) | (331 | ) | |||||||||
|
Net
loss per share:
|
||||||||||||||||
|
Basic and
diluted
|
(0.42 | ) | -- | (0.01 | ) | (0.43 | ) | |||||||||
|
Consolidated
Balance Sheet
|
||||||||||||||||
|
As
Previously Reported
|
Effect
of Adoption
|
As
Retrospectively Adjusted
|
||||||||||||||
|
As
of September 3, 2009
|
Noncontrolling
Interests
|
Convertible
Debt
|
||||||||||||||
|
Assets
|
||||||||||||||||
|
Property,
plant and equipment, net
|
$ | 7,081 | $ | -- | $ | 8 | $ | 7,089 | ||||||||
|
Other
assets
|
371 | -- | (4 | ) | 367 | |||||||||||
|
Total assets
|
11,455 | -- | 4 | 11,459 | ||||||||||||
|
Liabilities
and equity
|
||||||||||||||||
|
Long-term
debt
|
$ | 2,674 | $ | -- | $ | (295 | ) | $ | 2,379 | |||||||
|
Total
liabilities
|
4,815 | -- | (295 | ) | 4,520 | |||||||||||
|
Micron
shareholders’ equity
|
||||||||||||||||
|
Additional
capital
|
6,863 | -- | 394 | 7,257 | ||||||||||||
|
Accumulated
deficit
|
(2,291 | ) | -- | (94 | ) | (2,385 | ) | |||||||||
|
Accumulated other comprehensive
(loss)
|
(3 | ) | -- | (1 | ) | (4 | ) | |||||||||
|
Total equity of Micron
shareholders
|
-- | 4,654 | 299 | 4,953 | ||||||||||||
|
Total equity
|
4,654 | 1,986 | 299 | 6,939 | ||||||||||||
|
Total liabilities and
equity
|
11,455 | -- | 4 | 11,459 | ||||||||||||
F-
23
|
Consolidated
Balance Sheet
|
||||||||||||||||
|
As
Previously Reported
|
Effect
of Adoption
|
As
Retrospectively Adjusted
|
||||||||||||||
|
As
of August 28, 2008
|
Noncontrolling
Interests
|
Convertible
Debt
|
||||||||||||||
|
Assets
|
||||||||||||||||
|
Property,
plant and equipment, net
|
$ | 8,811 | $ | -- | $ | 8 | $ | 8,819 | ||||||||
|
Other
assets
|
392 | -- | (6 | ) | 386 | |||||||||||
|
Total assets
|
13,430 | -- | 2 | 13,432 | ||||||||||||
|
Liabilities
and equity
|
||||||||||||||||
|
Long-term
debt
|
$ | 2,451 | $ | -- | $ | (345 | ) | $ | 2,106 | |||||||
|
Total
liabilities
|
4,387 | -- | (345 | ) | 4,042 | |||||||||||
|
Micron
shareholders’ equity
|
||||||||||||||||
|
Additional
capital
|
6,566 | -- | 394 | 6,960 | ||||||||||||
|
Accumulated
deficit
|
(456 | ) | -- | (47 | ) | (503 | ) | |||||||||
|
Total equity of Micron
shareholders
|
-- | 6,178 | 347 | 6,525 | ||||||||||||
|
Total equity
|
6,178 | 2,865 | 347 | 9,390 | ||||||||||||
|
Total liabilities and
equity
|
13,430 | -- | 2 | 13,432 | ||||||||||||
F-
24
|
Consolidated
Statement of Change in Equity
|
||||||||||||||||||||||||
|
Additional
Capital
|
Retained
Earnings (Accumulated Deficit)
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
Micron
Shareholders’
Equity
|
Noncontrolling
Interests in Subsidiaries
|
Total
Equity
|
|||||||||||||||||||
|
As
Previously Reported:
|
||||||||||||||||||||||||
|
Balance at August 31, 2006
|
$ | 6,555 | $ | 1,486 | $ | (2 | ) | $ | 8,114 | $ | -- | $ | -- | |||||||||||
|
Net
loss
|
(320 | ) | (320 | ) | ||||||||||||||||||||
|
Issuance
of convertible debt
|
||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
||||||||||||||||||||||||
|
Purchase
shares from noncontrolling interests
|
||||||||||||||||||||||||
|
Balance at August 30, 2007
|
$ | 6,519 | $ | 1,164 | $ | (7 | ) | $ | 7,752 | $ | -- | $ | -- | |||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(1,619 | ) | (1,619 | ) | ||||||||||||||||||||
|
Total comprehensive
(loss)
|
(1,620 | ) | ||||||||||||||||||||||
|
Distributions
to noncontrolling interests
|
||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
||||||||||||||||||||||||
|
Balance at August 28, 2008
|
$ | 6,566 | $ | (456 | ) | $ | (8 | ) | $ | 6,178 | $ | -- | $ | -- | ||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(1,835 | ) | (1,835 | ) | ||||||||||||||||||||
|
Net change in unrealized gain
on investments, net of tax
|
13 | 13 | ||||||||||||||||||||||
|
Total comprehensive
(loss)
|
(1,830 | ) | ||||||||||||||||||||||
|
Distributions
to noncontrolling interests
|
||||||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
||||||||||||||||||||||||
|
Reduction
in noncontrolling interests from share purchase
|
||||||||||||||||||||||||
|
Balance at September 3,
2009
|
$ | 6,863 | $ | (2,291 | ) | $ | (3 | ) | $ | 4,654 | $ | -- | $ | -- | ||||||||||
|
Effect
of Adoption of Noncontrolling Interests and Convertible
Debt:
|
||||||||||||||||||||||||
|
Balance at August 31, 2006
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 1,568 | $ | 9,682 | ||||||||||||
|
Net
loss
|
(11 | ) | (11 | ) | 122 | (209 | ) | |||||||||||||||||
|
Issuance
of convertible debt
|
394 | 394 | 394 | |||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
1,249 | 1,249 | ||||||||||||||||||||||
|
Purchase
shares from noncontrolling interests
|
(332 | ) | (332 | ) | ||||||||||||||||||||
|
Balance at August 30, 2007
|
$ | 394 | $ | (11 | ) | $ | -- | $ | 383 | $ | 2,607 | $ | 10,742 | |||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(36 | ) | (36 | ) | (10 | ) | (1,665 | ) | ||||||||||||||||
|
Total comprehensive
(loss)
|
(36 | ) | (10 | ) | (1,666 | ) | ||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(132 | ) | (132 | ) | ||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
400 | 400 | ||||||||||||||||||||||
|
Balance at August 28, 2008
|
$ | 394 | $ | (47 | ) | $ | -- | $ | 347 | $ | 2,865 | $ | 9,390 | |||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(47 | ) | (47 | ) | (111 | ) | (1,993 | ) | ||||||||||||||||
|
Net change in unrealized gain
on investments, net of tax
|
(1 | ) | (1 | ) | 12 | |||||||||||||||||||
|
Total comprehensive
(loss)
|
(48 | ) | (111 | ) | (1,989 | ) | ||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(705 | ) | (705 | ) | ||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
24 | 24 | ||||||||||||||||||||||
|
Reduction
in noncontrolling interests from share purchase
|
(87 | ) | (87 | ) | ||||||||||||||||||||
|
Balance at September 3,
2009
|
$ | 394 | $ | (94 | ) | $ | (1 | ) | $ | 299 | $ | 1,986 | $ | 6,939 | ||||||||||
|
As
Retrospectively Adjusted:
|
||||||||||||||||||||||||
|
Balance at August 31, 2006
|
$ | 6,555 | $ | 1,486 | $ | (2 | ) | $ | 8,114 | $ | 1,568 | $ | 9,682 | |||||||||||
|
Net
loss
|
(331 | ) | (331 | ) | 122 | (209 | ) | |||||||||||||||||
|
Issuance
of convertible debt
|
394 | 394 | 394 | |||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
1,249 | 1,249 | ||||||||||||||||||||||
|
Purchase
shares from noncontrolling interests
|
(332 | ) | (332 | ) | ||||||||||||||||||||
|
Balance at August 30, 2007
|
$ | 6,913 | $ | 1,153 | $ | (7 | ) | $ | 8,135 | $ | 2,607 | $ | 10,742 | |||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(1,655 | ) | (1,655 | ) | (10 | ) | (1,665 | ) | ||||||||||||||||
|
Total comprehensive
(loss)
|
(1,656 | ) | (10 | ) | (1,666 | ) | ||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(132 | ) | (132 | ) | ||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
400 | 400 | ||||||||||||||||||||||
|
Balance at August 28, 2008
|
$ | 6,960 | $ | (503 | ) | $ | (8 | ) | $ | 6,525 | $ | 2,865 | $ | 9,390 | ||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net loss
|
(1,882 | ) | (1,882 | ) | (111 | ) | (1,993 | ) | ||||||||||||||||
|
Net change in unrealized gain
on investments, net of tax
|
12 | 12 | 12 | |||||||||||||||||||||
|
Total comprehensive
(loss)
|
(1,878 | ) | (111 | ) | (1,989 | ) | ||||||||||||||||||
|
Distributions
to noncontrolling interests
|
(705 | ) | (705 | ) | ||||||||||||||||||||
|
Contributions
from noncontrolling interests
|
24 | 24 | ||||||||||||||||||||||
|
Reduction
in noncontrolling interests from share purchase
|
(87 | ) | (87 | ) | ||||||||||||||||||||
|
Balance at September 3,
2009
|
$ | 7,257 | $ | (2,385 | ) | $ | (4 | ) | $ | 4,953 | $ | 1,986 | $ | 6,939 | ||||||||||
F-
25
|
Consolidated
Statement of Cash Flows
|
||||||||||||||||
|
As
Previously Reported
|
Effect
of Adoption
|
As
Retrospectively Adjusted
|
||||||||||||||
|
Noncontrolling
Interests
|
Convertible
Debt
|
|||||||||||||||
|
Year
Ended September 3, 2009:
|
||||||||||||||||
|
Cash flows from operating
activities
|
||||||||||||||||
|
Net
loss
|
$ | (1,835 | ) | $ | (111 | ) | $ | (47 | ) | $ | (1,993 | ) | ||||
|
Depreciation
and amortization
|
2,139 | -- | 47 | 2,186 | ||||||||||||
|
Noncontrolling
interests in net income (loss)
|
(111 | ) | 111 | -- | -- | |||||||||||
|
Year
Ended August 28, 2008:
|
||||||||||||||||
|
Cash flows from operating
activities
|
||||||||||||||||
|
Net
loss
|
$ | (1,619 | ) | $ | (10 | ) | $ | (36 | ) | $ | (1,665 | ) | ||||
|
Depreciation
and amortization
|
2,060 | -- | 36 | 2,096 | ||||||||||||
|
Noncontrolling
interests in net income (loss)
|
(10 | ) | 10 | -- | -- | |||||||||||
|
Year
Ended August 30, 2007:
|
||||||||||||||||
|
Cash flows from operating
activities
|
||||||||||||||||
|
Net
loss
|
$ | (320 | ) | $ | 122 | $ | (11 | ) | $ | (209 | ) | |||||
|
Depreciation
and amortization
|
1,718 | -- | 11 | 1,729 | ||||||||||||
|
Noncontrolling
interests in net income (loss)
|
122 | (122 | ) | -- | -- | |||||||||||
Fair
Value Measurements
SFAS No. 157 establishes three levels
of inputs that may be used to measure fair value: quoted prices in active
markets for identical assets or liabilities (referred to as Level 1), observable
inputs other than Level 1 that are observable for the asset or liability either
directly or indirectly (referred to as Level 2) and unobservable inputs to the
valuation methodology that are significant to the measurement of fair value of
assets or liabilities (referred to as Level 3).
Fair value
measurements on a recurring basis: Assets measured at fair value on a
recurring basis as of September 3, 2009 were as follows:
|
Level
1
|
Level
2
|
Total
|
||||||||||
|
Money
market(1)
|
$ | 1,184 | $ | -- | $ | 1,184 | ||||||
|
Certificates
of deposit(2)
|
-- | 217 | 217 | |||||||||
|
Marketable
equity investments(3)
|
15 | -- | 15 | |||||||||
| $ | 1,199 | $ | 217 | $ | 1,416 | |||||||
|
(1)Included in cash and
equivalents
|
||||||||||||
|
(2)$187 million included in
cash and equivalents and $30 million
included in other noncurrent assets
|
||||||||||||
|
(3)Included in other noncurrent
assets
|
||||||||||||
Level 2 assets are valued using
observable inputs in active markets for similar assets or alternative pricing
sources and models utilizing market observable inputs. In 2009, the
Company recognized impairment charges of $7 million for other-than-temporary
declines in the value of marketable equity instruments.
F-
26
As of September 3, 2009, the estimated
fair value of the Company’s convertible debt instruments was $1,410 million
compared to their carrying value of $1,305 million in debt (the carrying value
excludes the equity component of the Convertible Notes which is classified in
equity). As of August 28, 2008, the estimated fair value of the Company’s
convertible debt instruments was $844 million compared to their carrying value
of $1,025 million in debt (the carrying value excludes the equity component of
the Convertible Notes which is classified in equity). The fair value of
the convertible debt instruments is based on quoted market prices in active
markets (Level 1). As of September 3, 2009 and August 28, 2008, the fair
value of other long-term debt instruments was $1,458 million and $1,323 million,
respectively, as compared to their carrying value of $1,498 million and $1,356
million, respectively. The fair value of other long-term debt instruments
was estimated based on discounted cash flows using inputs that are observable in
the market or that could be derived from or corroborated with observable market
data, as well as significant unobservable inputs (level 3), including interest
rates based on yield curves of similar debt issues from parties with similar
credit ratings as the Company.
Amounts reported as cash and
equivalents, short-term investments, receivables, other assets, accounts payable
and accrued expenses and equipment purchase contracts approximate their fair
values.
Fair value
measurements on a nonrecurring basis: In the first quarter of 2010, the
Company determined the fair value of the liability component of its Convertible
Notes using a market interest rate for similar nonconvertible debt issued as of
the original issuance date by entities with credit ratings comparable to the
Company’s (Level 2). The fair value of the liability component was
retrospectively applied as of the inception date of the Convertible
Notes. (See “Adjustment for Retrospective Application of New
Accounting Standards” note.)
As of September 3, 2009, non-marketable
equity investments of $6 million were valued using Level 3
inputs. During 2009, the Company identified events and circumstances
that indicated the fair value of certain non-marketable equity investments
sustained other-than-temporary declines in values and recognized charges of $8
million to write down the carrying values of these investments to their
estimated fair values. The fair value measurements were determined
using present value techniques of estimated future cash flows based on inputs
which were classified as Level 3 as they were unobservable and required
management’s judgment.
During 2009, the Company recorded loans
with Nan Ya Plastics and Inotera at fair value because the stated interest rates
were substantially lower than the prevailing rates for loans with comparable
terms and collateral and for borrowers with similar credit
ratings. The Company repaid the loan to Inotera in the third quarter
of 2009. During 2009, the Company also recorded other noncurrent
contractual liabilities at fair values of $36 million (net of $39 million of
discounts) based on prevailing rates for comparable obligations. The
fair values of these obligations were determined based on discounted cash flows
using inputs that are observable in the market or that could be derived from or
corroborated with observable market data, as well as significant unobservable
inputs (Level 3), including interest rates based on published rates for
transactions involving parties with similar credit ratings as the
Company. (See “Debt” note.)
Equity
Plans
As of September 3, 2009, under its
equity plans, the Company had an aggregate of 195.1 million shares of its common
stock reserved for issuance for stock options and restricted stock awards, of
which 125.9 million shares were subject to outstanding awards and 69.2 million
shares were available for future awards. Awards are subject to terms
and conditions as determined by the Company’s Board of Directors.
Stock
options: Stock options granted by the Company are generally
exercisable in increments of 25% per year beginning one year from the date of
grant. Stock options issued after September 22, 2004 generally expire
six years from the date of grant. All other options expire ten years
from the grant date.
F-
27
Option activity for 2009 is summarized
as follows:
|
Number
of shares
|
Weighted-average
exercise price per share
|
Weighted-average
remaining contractual life
(in
years)
|
Aggregate
intrinsic value
|
|||||||||||||
|
Outstanding
at August 28, 2008
|
112.9 | $ | 19.24 | |||||||||||||
|
Granted
|
21.6 | 2.97 | ||||||||||||||
|
Exercised
|
(0.0 | ) | 4.90 | |||||||||||||
|
Cancelled
or expired
|
(18.0 | ) | 19.12 | |||||||||||||
|
Outstanding
at September 3, 2009
|
116.5 | 16.25 | 2.90 | $ | 96 | |||||||||||
|
Exercisable
at September 3, 2009
|
86.2 | $ | 20.20 | 2.24 | $ | 3 | ||||||||||
|
Expected
to vest after September 3, 2009
|
26.8 | 5.09 | 4.74 | 81 | ||||||||||||
The following table summarizes
information about options outstanding as of September 3, 2009:
|
Outstanding
options
|
Exercisable
options
|
|||||||||||||||||||
|
Range
of exercise prices
|
Number
of
shares
|
Weighted-
average
remaining
contractual
life
(in years)
|
Weighted-
average
exercise
price
per
share
|
Number
of
shares
|
Weighted-
average
exercise
price
per
share
|
|||||||||||||||
|
$
0.85 - $
9.79
|
29.0 | 4.96 | $ | 3.96 | 3.2 | $ | 7.15 | |||||||||||||
|
10.00 -
14.01
|
43.1 | 2.79 | 12.51 | 39.1 | 12.47 | |||||||||||||||
|
14.06 -
22.83
|
21.9 | 2.54 | 19.05 | 21.4 | 19.15 | |||||||||||||||
|
23.25 -
39.94
|
19.5 | 0.77 | 31.76 | 19.5 | 31.76 | |||||||||||||||
|
40.57 -
96.56
|
3.0 | 1.11 | 66.47 | 3.0 | 66.47 | |||||||||||||||
| 116.5 | 2.90 | 16.25 | 86.2 | 20.20 | ||||||||||||||||
The weighted-average grant-date fair
value per share was $1.71, $2.52 and $4.87 for options granted during 2009, 2008
and 2007, respectively. The total intrinsic value was de minimis, $1
million and $32 million for options exercised during 2009, 2008 and 2007,
respectively.
Changes in the Company’s nonvested
options for 2009 are summarized as follows:
|
Number
of shares
|
Weighted-
average grant date fair value
per
share
|
|||||||
|
Nonvested
at August 28, 2008
|
17.1 | $ | 4.21 | |||||
|
Granted
|
21.6 | 1.71 | ||||||
|
Vested
|
(6.5 | ) | 4.76 | |||||
|
Cancelled
|
(1.9 | ) | 3.33 | |||||
|
Nonvested
at September 3, 2009
|
30.3 | 2.36 | ||||||
As of September 3, 2009, $43 million of
total unrecognized compensation cost related to nonvested awards was expected to
be recognized through the fourth quarter of 2013, resulting in a
weighted-average period of 1.3 years. The Company’s nonvested options
as of September 3, 2009 have a weighted-average exercise price of $4.98, a
weighted-average remaining contractual life of 4.77 years and an aggregate
intrinsic value of $93 million.
F-
28
The fair values of option awards were
estimated as of the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable and requires the input of subjective assumptions, including
the expected stock price volatility and estimated option life. The
expected volatilities utilized by the Company were based on implied volatilities
from traded options on the Company’s stock and on historical
volatility. The expected lives of options granted in 2009 were based,
in part, on historical experience and on the terms and conditions of the
options. The expected lives of options granted prior to 2009 were
based on the simplified method provided by the Securities and Exchange
Commission. The risk-free interest rates utilized by the Company were
based on the U.S. Treasury yield in effect at the time of the
grant. No dividends were assumed in the Company’s estimated option
values. Assumptions used in the Black-Scholes model are presented
below:
|
2009
|
2008
|
2007
|
||||||||||
|
Average
expected life in years
|
4.92 | 4.25 | 4.25 | |||||||||
|
Weighted-average
volatility
|
73 | % | 47 | % | 39 | % | ||||||
|
Weighted-average
risk-free interest rate
|
1.9 | % | 2.9 | % | 4.7 | % | ||||||
Restricted stock
and restricted stock units (“Restricted Stock Awards”): As of
September 3, 2009, there were 9.4 million shares of Restricted Stock Awards
outstanding, of which 4.0 million were performance-based Restricted Stock
Awards. For service-based Restricted Stock Awards, restrictions
generally lapse either in one-fourth or one-third increments during each year of
employment after the grant date. For performance-based Restricted
Stock Awards, vesting is contingent upon meeting certain Company-wide
performance goals, none of which were achieved or deemed probable to achieve as
of September 3, 2009. Restricted Stock Awards activity for 2009 is
summarized as follows:
|
Number
of shares
|
Weighted-average
remaining contractual life (in
years)
|
Aggregate
intrinsic value
|
||||||||||
|
Outstanding
at August 28, 2008
|
9.2 | |||||||||||
|
Granted
|
3.6 | |||||||||||
|
Restrictions
lapsed
|
(2.2 | ) | ||||||||||
|
Cancelled
|
(1.2 | ) | ||||||||||
|
Outstanding
at September 3, 2009
|
9.4 | 1.77 | $ | 67 | ||||||||
|
Expected
to vest after September 3, 2009
|
5.2 | 2.11 | $ | 37 | ||||||||
The weighted-average grant-date fair
value for restricted stock awards granted during 2009, 2008 and 2007 was $4.40,
$8.41 and $14.91 per share, respectively. The aggregate value at the
lapse date of awards for which restrictions lapsed during 2009, 2008 and 2007
was $8 million, $12 million and $11 million, respectively. As of
September 3, 2009, there was $28 million of total unrecognized compensation
cost, net of estimated forfeitures, related to nonvested restricted stock
awards, which is expected to be recognized through the second quarter of 2013,
resulting in a weighted-average period of 1.0 years.
Stock purchase
plan: The Company’s 1989 Employee Stock Purchase Plan (“ESPP”) plan was
suspended during 2008 and expired during 2009.
F-
29
Stock-based
compensation expense: Total compensation costs for the
Company’s equity plans were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Stock-based
compensation expense by caption:
|
||||||||||||
|
Cost of goods
sold
|
$ | 16 | $ | 15 | $ | 11 | ||||||
|
Selling, general and
administrative
|
16 | 19 | 21 | |||||||||
|
Research and
development
|
13 | 14 | 12 | |||||||||
|
Other operating (income)
expense
|
(1 | ) | -- | -- | ||||||||
| $ | 44 | $ | 48 | $ | 44 | |||||||
|
Stock-based
compensation expense by type of award:
|
||||||||||||
|
Stock options
|
$ | 29 | $ | 26 | $ | 26 | ||||||
|
Restricted stock
awards
|
15 | 22 | 18 | |||||||||
| $ | 44 | $ | 48 | $ | 44 | |||||||
Stock-based compensation expense of $3
million was capitalized and remained in inventory as of September 3, 2009 and
August 28, 2008. As of September 3, 2009, $71 million of total
unrecognized compensation costs, net of estimated forfeitures, related to
non-vested awards was expected to be recognized through the fourth quarter of
2013, resulting in a weighted-average period of 1.2
years. Stock-based compensation expense in the above presentation
does not reflect any significant income tax benefits, which is consistent with
the Company’s treatment of income or loss from its U.S.
operations. (See “Income Taxes” note.)
Employee
Benefit Plans
The Company has employee retirement
plans at its U.S. and international sites. Details of the more
significant plans are discussed as follows:
Employee savings
plan for U.S. employees: The Company has a 401(k) retirement
plan (“RAM Plan”) under which U.S. employees may contribute up to 45% of their
eligible pay (subject to IRS annual contribution limits) to various savings
alternatives, none of which include direct investment in the Company’s common
stock. Under the RAM plan, the Company matched in cash eligible
contributions from employees up to 4% of the employee’s annual eligible earnings
or $2,000, whichever was greater. In 2009, the Company suspended its
match under in the RAM plan. Contribution expense for the Company’s
RAM Plan was $16 million, $32 million and $31 million in 2009, 2008 and 2007,
respectively.
Retirement
plans: The Company has
pension plans in various countries worldwide. The pension plans are
only available to local employees and are generally government
mandated. Upon adoption of FAS 158 as of August 30, 2007, the Company
increased its liability by $8 million related to the unfunded pension
liabilities of the plans.
Restructure
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, the Company
initiated restructure plans in 2009 primarily within the Company’s Memory
segment. In the first quarter of 2009, IM Flash, a joint venture
between the Company and Intel, terminated its agreement with the Company to
obtain NAND Flash memory supply from the Company’s Boise facility, reducing the
Company’s NAND Flash production by approximately 35,000 200mm wafers per
month. In connection with the termination of the NAND Flash memory
supply agreement, Intel paid the Company $208 million in 2009. The
Company and Intel agreed to suspend tooling and the ramp of NAND Flash
production at IM Flash’s Singapore wafer fabrication facility. In
addition, the Company phased out all remaining 200mm DRAM wafer manufacturing
operations in Boise, Idaho in the second half of 2009. As a result of
these restructure plans, the Company reduced employment in 2009 by approximately
4,600 employees, or approximately 20%. Due to improvements in market
conditions and the pursuit of new business opportunities, future reduction in
employees may not occur. As of September 3, 2009, the Company expects
to incur additional restructure costs in 2010 of approximately $2 million,
excluding any gains or additional losses from disposition of
equipment. In 2008 and 2007, to reduce costs, the Company implemented
restructure initiatives including workforce reductions and relocating and
outsourcing certain of its operations. The following table summarizes
restructure charges (credits) resulting from the Company’s restructure
activities:
F-
30
|
2009
|
2008
|
2007
|
||||||||||
|
Write-down
of equipment
|
$ | 152 | $ | -- | $ | -- | ||||||
|
Severance
and other employee costs
|
60 | 23 | 18 | |||||||||
|
Gain
from termination of NAND Flash supply agreement
|
(144 | ) | -- | -- | ||||||||
|
Other
|
2 | 10 | 1 | |||||||||
| $ | 70 | $ | 33 | $ | 19 | |||||||
During 2009 the Company made cash
payments of $63 million for severance and other termination
benefits. Substantially all of the charges in 2008 and 2007 were paid
in those years. As of September 3, 2009 and August 28, 2008, $5
million and $6 million, respectively, of restructure costs, primarily related to
severance and other termination benefits, remained unpaid and were included in
accounts payable and accrued expenses.
Other
Operating (Income) Expense, Net
Other operating (income) expense
consisted of the following:
|
2009
|
2008
|
2007
|
||||||||||
|
(Gain)
loss on disposition of property, plant and equipment
|
$ | 54 | $ | (66 | ) | $ | (43 | ) | ||||
|
Loss
on sale of majority interest in Aptina
|
41 | -- | -- | |||||||||
|
Losses
from changes in currency exchange rates
|
30 | 25 | 14 | |||||||||
|
Other
|
(18 | ) | (50 | ) | (47 | ) | ||||||
| $ | 107 | $ | (91 | ) | $ | (76 | ) | |||||
In the table above, “Other” for 2008
included $38 million for receipts from the U.S. government in connection with
anti-dumping tariffs and for 2007, included $30 million from the sale of certain
intellectual property to Toshiba Corporation and $7 million in grants received
in connection with the Company’s operations in China. (See “Equity
Method Investments – Aptina” note.)
Income
Taxes
The Company’s loss before taxes,
noncontrolling interests in net (income) loss and equity in net losses of equity
method investees has been adjusted to reflect the retrospective application of
new accounting standards for noncontrolling interest and certain convertible
debt instruments. Additionally, the Company’s reconciliation of the
U.S. federal statutory rate to its income tax (provision), valuation allowance
and deferred tax liabilities have also been adjusted to reflect the application
of these standards.
F-
31
The Company’s income tax (provision)
and loss before taxes, noncontrolling interests in net (income) loss and equity
in net losses of equity method investees consisted of the
following:
|
2009
|
2008
|
2007
|
||||||||||
|
Loss before taxes, noncontrolling
interests in net (income) loss and equity in net losses of equity method
investees:
|
||||||||||||
|
U.S.
|
$ | (1,425 | ) | $ | (1,749 | ) | $ | (582 | ) | |||
|
Foreign
|
(427 | ) | 102 | 403 | ||||||||
| $ | (1,852 | ) | $ | (1,647 | ) | $ | (179 | ) | ||||
|
Income tax (provision)
benefit:
|
||||||||||||
|
Current:
|
||||||||||||
|
U.S. federal
|
$ | 12 | $ | (7 | ) | $ | (5 | ) | ||||
|
State
|
-- | -- | -- | |||||||||
|
Foreign
|
(12 | ) | (17 | ) | (39 | ) | ||||||
| -- | (24 | ) | (44 | ) | ||||||||
|
Deferred:
|
||||||||||||
|
U.S. federal
|
-- | -- | -- | |||||||||
|
State
|
-- | -- | -- | |||||||||
|
Foreign
|
(1 | ) | 6 | 14 | ||||||||
| (1 | ) | 6 | 14 | |||||||||
|
Income tax
(provision)
|
$ | (1 | ) | $ | (18 | ) | $ | (30 | ) | |||
The Company’s income tax (provision)
computed using the U.S. federal statutory rate reconciled to the Company’s
income tax (provision) follows:
|
2009
|
2008
|
2007
|
||||||||||
|
U.S. federal income tax
(provision) at statutory rate
|
$ | 648 | $ | 577 | $ | 63 | ||||||
|
State taxes, net of federal
benefit
|
39 | 39 | 3 | |||||||||
|
Tax credits
|
18 | 8 | 25 | |||||||||
|
Change in valuation
allowance
|
(572 | ) | (460 | ) | (223 | ) | ||||||
|
Foreign operations
|
(135 | ) | (21 | ) | 93 | |||||||
|
Goodwill
impairment
|
-- | (155 | ) | -- | ||||||||
|
Other
|
1 | (6 | ) | 9 | ||||||||
|
Income tax
(provision)
|
$ | (1 | ) | $ | (18 | ) | $ | (30 | ) | |||
State taxes reflect investment tax
credits of $7 million, $12 million and $10 million for 2009, 2008 and 2007,
respectively.
Deferred income taxes reflect the net
tax effects of temporary differences between the bases of assets and liabilities
for financial reporting and income tax purposes. The Company’s
deferred tax assets and liabilities consist of the following as of the end of
the periods shown below:
F-
32
|
2009
|
2008
|
|||||||
|
Deferred tax
assets:
|
||||||||
|
Net operating loss and credit
carryforwards
|
$ | 1,965 | $ | 1,358 | ||||
|
Inventories
|
197 | 235 | ||||||
|
Basis differences in investments
in joint ventures
|
106 | 200 | ||||||
|
Deferred income
|
78 | 155 | ||||||
|
Accrued salaries, wages and
benefits
|
74 | 76 | ||||||
|
Other
|
27 | 48 | ||||||
|
Gross deferred tax
assets
|
2,447 | 2,072 | ||||||
|
Less valuation
allowance
|
(2,006 | ) | (1,440 | ) | ||||
|
Deferred tax assets, net of
valuation allowance
|
441 | 632 | ||||||
|
Deferred tax
liabilities:
|
||||||||
|
Debt discount
|
(112 | ) | (129 | ) | ||||
|
Unremitted earnings on certain
subsidiaries
|
(87 | ) | (114 | ) | ||||
|
Product and process
technology
|
(47 | ) | (48 | ) | ||||
|
Intangible assets
|
(41 | ) | (51 | ) | ||||
|
Receivables
|
(15 | ) | (43 | ) | ||||
|
Excess tax over book
depreciation
|
(12 | ) | (141 | ) | ||||
|
Other
|
(6 | ) | (16 | ) | ||||
|
Deferred tax
liabilities
|
(320 | ) | (542 | ) | ||||
|
Net deferred tax
assets
|
$ | 121 | $ | 90 | ||||
|
Reported as:
|
||||||||
|
Current deferred tax assets
(included in other current assets)
|
$ | 18 | $ | 25 | ||||
|
Noncurrent deferred tax assets
(included in other assets)
|
107 | 74 | ||||||
|
Noncurrent deferred tax
liabilities (included in other liabilities)
|
(4 | ) | (9 | ) | ||||
|
Net deferred tax
assets
|
$ | 121 | $ | 90 | ||||
The Company has a valuation allowance
against substantially all of its U.S. net deferred tax assets. As of
September 3, 2009, the Company had aggregate U.S. tax net operating loss
carryforwards of $4.2 billion and unused U.S. tax credit carryforwards of $212
million. The Company also has unused state tax net operating loss
carryforwards of $2.6 billion and unused state tax credits of $198 million as of
September 3, 2009. Substantially all of the net operating loss
carryforwards expire in 2022 to 2029 and substantially all of the tax credit
carryforwards expire in 2013 to 2029. As a consequence of prior
business acquisitions, utilization of the tax benefits for some of the tax
carryforwards is subject to limitations imposed by Section 382 of the Internal
Revenue Code and some portion or all of these carryforwards may not be available
to offset any future taxable income.
The changes in valuation allowance of
$566 million and $442 million in 2009 and 2008, respectively, are primarily due
to uncertainties of realizing certain U.S. net operating losses and certain tax
credit carryforwards.
Provision has been made for deferred
taxes on undistributed earnings of non-U.S. subsidiaries to the extent that
dividend payments from such companies are expected to result in additional tax
liability. During 2008 a decision was made to not be indefinitely
reinvested in certain foreign jurisdictions. For the year ended
August 28, 2008, $322 million of earnings that in prior years had been
considered indefinitely reinvested in foreign operations were determined to no
longer be indefinitely reinvested. This decision resulted in no
impact to the consolidated statement of operations as the Company has a full
valuation allowance against its net U.S. deferred tax
assets. Remaining undistributed earnings of $410 million as of
September 3, 2009 have been indefinitely reinvested; therefore, no provision has
been made for taxes due upon remittance of these
earnings. Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not practicable.
F-
33
Below is a reconciliation of the
beginning and ending amount of unrecognized tax benefits:
|
2009
|
2008
|
|||||||
|
Beginning
unrecognized tax benefits
|
$ | 1 | $ | 16 | ||||
|
Expiration
of foreign statutes of limitations
|
(1 | ) | (15 | ) | ||||
|
Other
|
1 | -- | ||||||
|
Ending
unrecognized tax benefits
|
$ | 1 | $ | 1 | ||||
The balance at September 3, 2009 and
August 28, 2008 represents unrecognized income tax benefits, which if
recognized, would affect the Company’s effective tax rate. As of
September 3, 2009, accrued interest and penalties related to uncertain tax
positions was $2 million.
The Company and its subsidiaries file
income tax returns with the United States federal government, various U.S.
states and various foreign jurisdictions throughout the world. The
Company’s U.S. federal and state tax returns remain open to examination for 2005
through 2009 and 2004 through 2009, respectively. In addition, tax
years open to examination in multiple foreign taxing jurisdictions range from
2002 to 2009. The Company is currently undergoing audits in foreign
jurisdictions for years 2005 through 2009.
Earnings
Per Share
|
2009
|
2008
|
2007
|
||||||||||
|
Net loss available to common
shareholders
|
$ | (1,882 | ) | $ | (1,655 | ) | $ | (331 | ) | |||
|
Weighted-average common shares
outstanding
|
800.7 | 772.5 | 769.1 | |||||||||
|
Loss per share:
|
||||||||||||
|
Basic
|
$ | (2.35 | ) | $ | (2.14 | ) | $ | (0.43 | ) | |||
|
Diluted
|
(2.35 | ) | (2.14 | ) | (0.43 | ) | ||||||
Listed below are the potential common
shares, as of the end of the periods shown below, that could dilute basic
earnings per share in the future that were not included in the computation of
diluted earnings per share because to do so would have been
antidilutive:
|
2009
|
2008
|
2007
|
||||||||||
|
Employee stock
plans
|
126.0 | 122.1 | 124.8 | |||||||||
|
Convertible
notes
|
142.8 | 97.6 | 97.6 | |||||||||
|
Common stock
warrants
|
-- | -- | 29.1 | |||||||||
Consolidated
Variable Interest Entities
NAND Flash joint
ventures with Intel (“IM Flash”): The Company has formed two
joint ventures with Intel (IM Flash Technologies, LLC formed January 2006 and IM
Flash Singapore LLP formed February 2007) to manufacture NAND Flash memory
products for the exclusive benefit of the partners. IMFT and IMFS are
each governed by a Board of Managers, with Micron and Intel initially appointing
an equal number of managers to each of the boards. The number of
managers appointed by each party adjusts depending on the parties’ ownership
interests. These ventures will operate until 2016 but are subject to
prior termination under certain terms and conditions. IMFT and IMFS
are aggregated as IM Flash in the following disclosure due to the similarity of
their ownership structure, function, operations and the way the Company’s
management reviews the results of their operations. At inception and
through September 3, 2009, the Company owned 51% and Intel owned 49% of IM
Flash.
F-
34
IM Flash is a variable interest entity
as defined by FIN 46(R) because all costs of IM Flash are passed to the Company
and Intel through product purchase agreements. IM Flash is dependent
upon the Company and Intel for any additional cash requirements. The
Company and Intel are also considered related parties under the provisions of
FIN 46(R) due to restrictions on transfers of ownership interests. As
a result, the primary beneficiary of IM Flash is the entity that is most closely
associated with IM Flash. The Company considered several factors to
determine whether it or Intel is more closely associated with IM Flash,
including the size and nature of IM Flash’s operations relative to the Company
and Intel, and which entity had the majority of economic exposure under the
purchase agreements. Based on those factors, the Company determined
that it is more closely associated with IM Flash and is therefore the primary
beneficiary. Accordingly, the financial results of IM Flash are
included in the Company’s consolidated financial statements and all amounts
pertaining to Intel’s interests in IM Flash are reported as noncontrolling
interests in subsidiaries. (See “Significant Accounting Policies”
note.)
IM Flash manufactures NAND Flash memory
products using designs developed by the Company and Intel. Product
design and other research and development (“R&D”) costs for NAND Flash are
generally shared equally between the Company and Intel. As a result
of reimbursements received from Intel under a NAND Flash R&D cost-sharing
arrangement, the Company’s R&D expenses were reduced by $107 million, $148
million and $240 million in 2009, 2008 and 2007, respectively.
IM Flash sells products to the joint
venture partners generally in proportion to their ownership at long-term
negotiated prices approximating cost. IM Flash sales to Intel were
$886 million, $1,037 million and $497 million for 2009, 2008 and 2007,
respectively. As of September 3, 2009 and August 28, 2008, IM Flash
had receivables from Intel primarily for sales of NAND Flash products of $95
million and $144 million, respectively. In addition, as of September
3, 2009 and August 28, 2008, the Company had receivables from Intel of $29
million and $71 million, respectively, related to NAND Flash product design and
process development activities. As of September 3, 2009 and August
28, 2008, IM Flash had payables to Intel of $3 million and $4 million,
respectively, for various services.
Under the terms of a wafer supply
agreement, the Company manufactured wafers for IM Flash in its Boise, Idaho
facility. In the first quarter of 2009, the Company and Intel agreed
to discontinue production of NAND flash memory for IM Flash at the Boise
facility. Pursuant to the termination agreement, Intel paid the
Company $208 million in 2009. Also in the first quarter of 2009, IM
Flash substantially completed construction of a new 300mm wafer fabrication
facility structure in Singapore and the Company and Intel agreed to suspend
tooling and the ramp of production at this facility.
IM Flash distributed $695 million and
$132 million to Intel in 2009 and 2008, respectively, and $723 million and $137
million to the Company in 2009 and 2008, respectively. Intel
contributed $24 million, $393 million and $1,238 million to IM Flash in 2009,
2008 and 2007, respectively. The Company contributed $25 million and
$409 million and $1,017 million to IM Flash in 2009, 2008 and 2007,
respectively. Intel’s contributions in 2007 included $261 million as
part of its initial obligations from the formation of IM Flash in January
2006. The Company’s ability to access IM Flash’s cash and marketable
investment securities ($114 million as of September 3, 2009) to finance the
Company’s other operations is subject to agreement by the joint venture
partners.
F-
35
Total IM
Flash assets and liabilities included in the Company’s consolidated balance
sheets are as follows:
|
As
of
|
September
3,
2009
|
August
28,
2008
|
||||||
|
Assets
|
||||||||
|
Cash
and equivalents
|
$ | 114 | $ | 393 | ||||
|
Receivables
|
111 | 169 | ||||||
|
Inventories
|
161 | 225 | ||||||
|
Other
current assets
|
8 | 14 | ||||||
|
Total current
assets
|
394 | 801 | ||||||
|
Property,
plant and equipment, net
|
3,377 | 3,998 | ||||||
|
Other
assets
|
63 | 58 | ||||||
|
Total assets
|
$ | 3,834 | $ | 4,857 | ||||
|
Liabilities
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 93 | $ | 166 | ||||
|
Deferred
income
|
137 | 67 | ||||||
|
Equipment
purchase contracts
|
1 | 18 | ||||||
|
Current
portion of long-term debt
|
6 | 5 | ||||||
|
Total current
liabilities
|
237 | 256 | ||||||
|
Long-term
debt
|
66 | 38 | ||||||
|
Other
liabilities
|
4 | 5 | ||||||
|
Total
liabilities
|
$ | 307 | $ | 299 | ||||
|
Amounts exclude intercompany
balances that are eliminated in the Company’s consolidated balance sheets.
IMFT and IMFS are
aggregated as IM Flash in this disclosure due to the similarity of their
ownership structure, function, operations and the way the Company’s
management reviews the results of their operations.
|
||||||||
The creditors of IM Flash have recourse
only to the assets of IM Flash and do not have recourse to any other assets of
the Company.
MP Mask
Technology Center, LLC (“MP Mask”): In 2006, the Company
formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce
photomasks for leading-edge and advanced next generation
semiconductors. At inception and through September 3, 2009, the
Company owned 50.01% and Photronics owned 49.99% of MP Mask. The
Company purchases a substantial majority of the reticles produced by MP Mask
pursuant to a supply arrangement. In connection with the formation of
the joint venture, the Company received $72 million in 2006 in exchange for
entering into a license agreement with Photronics, which is being recognized
over the term of the 10-year agreement. As of September 3, 2009,
deferred income and other noncurrent liabilities included an aggregate of $48
million related to this agreement. MP Mask made distributions to both
the Company and Photronics of $10 million each in 2009. Photronics
contributed $8 million and $11 million to MP Mask in 2008 and 2007,
respectively. The Company contributed $4 million to MP Mask in
2007.
MP Mask is a variable interest entity
as defined by FIN 46(R) because all costs of MP Mask are passed on to the
Company and Photronics through product purchase agreements and MP
Mask is dependent upon the Company and Photronics for any additional cash
requirements. The Company and Photronics are also considered related
parties under the provisions of FIN 46(R) due to restrictions on transfers of
ownership interests. As a result, the primary beneficiary of MP Mask
is the entity that is more closely associated with MP Mask. The
Company considered several factors to determine whether it or Photronics is more
closely associated with the joint venture. The most important factor
was the nature of the joint venture’s operations relative to the Company and
Photronics. Based on those factors, the Company determined that it is
more closely associated with the joint venture and therefore is the primary
beneficiary. Accordingly, the financial results of MP Mask are
included in the Company’s consolidated financial statements and all amounts
pertaining to Photonics’ interest in MP Mask are reported as noncontrolling
interests in subsidiaries.
F-
36
Total MP
Mask assets and liabilities included in the Company’s consolidated balance
sheets are as follows:
|
As
of
|
September
3,
2009
|
August
28,
2008
|
||||||
|
Current
assets
|
$ | 25 | $ | 27 | ||||
|
Noncurrent
assets (primarily property, plant and equipment)
|
97 | 121 | ||||||
|
Current
liabilities
|
8 | 11 | ||||||
|
Amounts
exclude intercompany balances that are eliminated in the Company’s
consolidated balance sheets.
|
||||||||
The creditors of MP Mask have recourse
only to the assets of MP Mask and do not have recourse to any other assets of
the Company.
In 2008, the Company completed the
construction of a facility to produce photomasks and sold the facility to
Photronics under a build to suit lease agreement, with quarterly payments
through January 2013. On May 19, 2009, the Company and Photronics
entered into an agreement whereby the Company repurchased the facility from
Photronics for $50 million and leased the facility to Photronics under an
operating lease providing for quarterly lease payments aggregating $41 million
through October 2014.
TECH
Semiconductor Singapore Pte. Ltd.
Since 1998, the Company has
participated in TECH Semiconductor Singapore Pte. Ltd. (“TECH”), a semiconductor
memory manufacturing joint venture in Singapore among the Company, Canon Inc.
and Hewlett-Packard Company (“HP”).
The
financial results of TECH are included in the Company’s consolidated financial
statements and all amounts pertaining to Canon Inc. and HP are reported as
noncontrolling interests in subsidiaries. The Company began
consolidating TECH’s financial results in 2006.
The shareholders’ agreement for the
TECH joint venture expires in April 2011, but automatically extends for 10 years
unless one or more of the shareholders provides a non-extension
notification. In the first quarter of 2010, TECH received a notice
from HP that it does not intend to extend the TECH joint venture beyond April
2011. The Company is working with HP and Canon to reach a resolution
of the matter. The parties’ inability to reach a resolution of this
matter prior to April 2011 could result in the dissolution of TECH.
In the second quarter of 2009, the
Company entered into a term loan agreement with the EDB that enabled the Company
to borrow up to $300 million Singapore dollars at 5.4%. The Company
was required to use the proceeds from any borrowings under the facility to make
equity contributions to TECH. On February 27, 2009, the Company drew
$150 million Singapore dollars under the facility and used the proceeds to
purchase shares of TECH for $99 million. On June 2, 2009, the Company
drew the remaining $150 million Singapore dollars under the facility and
purchased additional shares of TECH for $99 million. Additionally, on
August 27, 2009, the Company purchased shares of TECH for $60
million. As a result, the Company’s interest in TECH increased from
approximately 73% as of August 28, 2008 to approximately 85% in August
2009. As a result of these share purchases, the Company reduced
noncontrolling interests by $87 million during 2009. Because the cost
of the noncontrolling interest acquired was below carrying value, the Company’s
carrying value for TECH’s property, plant and equipment was also reduced $87
million. (See “Debt” note.)
In March 2007, the Company acquired all
of the shares of TECH common stock held by the Singapore Economic Development
Board for approximately $290 million, increasing the Company’s ownership
interest in TECH from 43% to 73%.
F-
37
TECH’s cash and marketable investment
securities ($188 million as of September 3, 2009) are not anticipated to be
available to pay dividends of the Company or finance its other
operations. As of September 3, 2009, TECH had $548 million
outstanding under a credit facility which is collateralized by substantially all
of the assets of TECH (carrying value of approximately $1,498 million as of
September 3, 2009) and contains covenants that, among other requirements,
establish certain liquidity, debt service coverage and leverage ratios, and
restrict TECH’s ability to incur indebtedness, create liens and acquire or
dispose of assets. As of September 3, 2009, the Company was in
compliance with these covenants. In the first quarter of 2010, TECH
modified its debt covenants. In connection with the modification, the
Company has guaranteed approximately 85% of the outstanding amount borrowed
under TECH’s credit facility and the Company’s guarantee could increase up to
100% of the outstanding amount borrowed under the facility based on further
increases in the Company’s ownership interest in TECH and other
conditions. (See “Debt” note.)
Acquisition
of Avago Technologies Limited Image Sensor Business (“Avago”)
On December 11, 2006, the Company
acquired the CMOS image sensor business of Avago. The acquisition
provided the Company with an experienced imaging team, select imaging products
and intellectual property relating to Avago’s image sensor
business. The Company acquired Avago for $63 million in
cash. The Company recorded total assets of $64 million (including
intangible assets of $17 million and goodwill of $46 million) and total
liabilities of $1 million. The acquired goodwill is not deductible
for tax purposes. The Company’s results of operations subsequent to
the acquisition date include the CMOS image sensor business acquired from Avago
which is included in All Other segments. Mercedes Johnson, a member
of the Company’s Board of Directors, was the Senior Vice President, Finance and
Chief Financial Officer of Avago at the time of the transaction. Ms.
Johnson recused herself from all deliberations of the Company’s Board of
Directors concerning this transaction.
Segment
Information
In 2009, the Company had two reportable
segments, Memory and Imaging. In the first quarter of 2010, Imaging
no longer met the quantitative thresholds of a reportable segment and management
does not expect that Imaging will meet the quantitative thresholds in future
years. As a result, Imaging was no longer considered a reportable
segment and was included in the Company’s All Other nonreportable
segments. All amounts have been recast to reflect Imaging in All
Other. The Memory segment’s primary products are DRAM and NAND Flash
memory. Operating results of All Other primarily reflect activity of
Imaging and also include activity of the Company’s microdisplay and other
operations. Subsequent to the sale of a 65% interest in Aptina on
July 10, 2009, the Company continues to manufacture products for Aptina under a
wafer supply agreement and also provides services to Aptina. The
results of this continuing Imaging activity are reflected in All
Other. Segment information reported below is consistent with how it
is reviewed and evaluated by the Company’s chief operating decision makers and
is based on the nature of the Company’s operations and products offered to
customers. The Company does not identify or report depreciation and
amortization, capital expenditures or assets by segment. (See “Equity
Method Investments – Aptina” note.)
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales:
|
||||||||||||
|
Memory
|
$ | 4,290 | $ | 5,188 | $ | 5,001 | ||||||
|
All Other
|
513 | 653 | 687 | |||||||||
|
Total consolidated net
sales
|
$ | 4,803 | $ | 5,841 | $ | 5,688 | ||||||
|
Operating
income (loss):
|
||||||||||||
|
Memory
|
$ | (1,500 | ) | $ | (1,564 | ) | $ | (288 | ) | |||
|
All Other
|
(176 | ) | (31 | ) | 8 | |||||||
|
Total consolidated operating
income (loss)
|
$ | (1,676 | ) | $ | (1,595 | ) | $ | (280 | ) | |||
F-
38
Certain
Concentrations
Approximately 30% of the Company’s net
sales for 2009 were to the computing market, including desktop PCs, servers,
notebooks and workstations. Sales to Intel were 20% of the Company’s
net sales in 2009 and were included in the Memory segment. Sales of
DRAM, NAND Flash and CMOS image sensor products constituted 50%, 39% and 11%,
respectively, of the Company’s net sales for 2009. Certain components
used by the Company in manufacturing semiconductor products are available from a
limited number of suppliers.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
cash, investment securities and trade receivables. The Company
invests through high-credit-quality financial institutions and, by policy,
generally limits the concentration of credit exposure by restricting investments
with any single obligor. A concentration of credit risk may exist
with respect to receivables as a substantial portion of the Company’s customers
are affiliated with the computing industry. The Company performs
ongoing credit evaluations of customers worldwide and generally does not require
collateral from its customers. Historically, the Company has not
experienced significant losses on receivables. The Company’s Capped
Call instruments expose the Company to credit risk to the extent that the
counter parties may be unable to meet the terms of the agreement. The
Company seeks to mitigate such risk by limiting its counter parties to major
financial institutions and by spreading the risk across several major financial
institutions. In addition, the potential risk of loss with any one
counter party resulting from this type of credit risk is monitored on an ongoing
basis. (See “Shareholders’ Equity – Capped call transactions”
note.)
Geographic
Information
Geographic net sales based on customer
ship-to location were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
China
|
$ | 1,242 | $ | 1,372 | $ | 1,064 | ||||||
|
Asia
Pacific (excluding China, Malaysia and Taiwan)
|
990 | 1,660 | 1,448 | |||||||||
|
United
States
|
928 | 1,486 | 1,719 | |||||||||
|
Malaysia
|
542 | 173 | 215 | |||||||||
|
Europe
|
470 | 559 | 666 | |||||||||
|
Taiwan
|
447 | 304 | 309 | |||||||||
|
Other
|
184 | 287 | 267 | |||||||||
| $ | 4,803 | $ | 5,841 | $ | 5,688 | |||||||
Net property, plant and equipment by
geographic area were as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
United
States
|
$ | 4,679 | $ | 6,012 | $ | 6,546 | ||||||
|
Singapore
|
2,066 | 2,345 | 1,212 | |||||||||
|
Italy
|
180 | 259 | 268 | |||||||||
|
Japan
|
112 | 171 | 226 | |||||||||
|
Other
|
52 | 32 | 27 | |||||||||
| $ | 7,089 | $ | 8,819 | $ | 8,279 | |||||||
F-
39
Quarterly
Financial Information (Unaudited)
(in
millions except per share amounts)
|
2009
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||||
|
Net sales
|
$ | 1,402 | $ | 993 | $ | 1,106 | $ | 1,302 | ||||||||
|
Gross margin
|
(449 | ) | (267 | ) | 107 | 169 | ||||||||||
|
Operating loss
|
(672 | ) | (709 | ) | (246 | ) | (49 | ) | ||||||||
|
Net loss
|
(731 | ) | (814 | ) | (334 | ) | (114 | ) | ||||||||
|
Net loss attributable to
Micron
|
(718 | ) | (763 | ) | (301 | ) | (100 | ) | ||||||||
|
Diluted loss per
share
|
$ | (0.93 | ) | $ | (0.99 | ) | $ | (0.37 | ) | $ | (0.12 | ) | ||||
|
2008
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
||||||||||||
|
Net sales
|
$ | 1,535 | $ | 1,359 | $ | 1,498 | $ | 1,449 | ||||||||
|
Gross margin
|
5 | (43 | ) | 48 | (65 | ) | ||||||||||
|
Operating loss
|
(260 | ) | (772 | ) | (225 | ) | (338 | ) | ||||||||
|
Net loss
|
(269 | ) | (781 | ) | (252 | ) | (363 | ) | ||||||||
|
Net loss attributable to
Micron
|
(272 | ) | (787 | ) | (244 | ) | (352 | ) | ||||||||
|
Diluted loss per
share
|
$ | (0.35 | ) | $ | (1.02 | ) | $ | (0.32 | ) | $ | (0.46 | ) | ||||
The following adjustments have been
applied to the tables above to reflect the retrospective application of new
accounting standards for noncontrolling interests and certain convertible debt
instruments. (See “Adjustments for Retrospective Application of New
Accounting Standards” note.)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
As Previously Reported:
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
Gross margin
|
$ | (449 | ) | $ | (267 | ) | $ | 107 | $ | 170 | ||||||
|
Operating loss
|
(672 | ) | (708 | ) | (246 | ) | (49 | ) | ||||||||
|
Net loss
|
(706 | ) | (751 | ) | (290 | ) | (88 | ) | ||||||||
|
Net loss attributable to
Micron
|
-- | -- | -- | -- | ||||||||||||
|
Diluted loss per
share
|
(0.91 | ) | (0.97 | ) | (0.36 | ) | (0.10 | ) | ||||||||
|
2008
|
||||||||||||||||
|
Net loss
|
(262 | ) | (777 | ) | (236 | ) | (344 | ) | ||||||||
|
Net loss attributable to
Micron
|
-- | -- | -- | -- | ||||||||||||
|
Diluted loss per
share
|
$ | (0.34 | ) | $ | (1.01 | ) | $ | (0.30 | ) | $ | (0.45 | ) | ||||
|
Effect of Adoption of Noncontrolling Interests and
Convertible Debt:
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
Gross margin
|
$ | -- | $ | -- | $ | -- | $ | (1 | ) | |||||||
|
Operating loss
|
-- | (1 | ) | -- | -- | |||||||||||
|
Net loss
|
(25 | ) | (63 | ) | (44 | ) | (26 | ) | ||||||||
|
Net loss attributable to
Micron
|
(718 | ) | (763 | ) | (301 | ) | (100 | ) | ||||||||
|
Diluted loss per
share
|
(0.02 | ) | (0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||||
|
2008
|
||||||||||||||||
|
Net loss
|
(7 | ) | (4 | ) | (16 | ) | (19 | ) | ||||||||
|
Net loss attributable to
Micron
|
(272 | ) | (787 | ) | (244 | ) | (352 | ) | ||||||||
|
Diluted loss per
share
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
The results of operations for the
second quarters of 2009 and 2008 included charges of $58 million and $463
million, respectively, to write off all the goodwill associated with the
Company’s All Other and Memory segments, respectively.
F-
40
The Company’s results of operations for
the second and first quarters of 2009 included charges of $234 million and $369
million, respectively, to write down the carrying value of work in process and
finished goods inventories of memory products (both DRAM and NAND Flash) to
their estimated market values. The Company’s results of operations
for the fourth, second and first quarters of 2008 included charges of $205
million, $15 million and $62 million, respectively, to write down the carrying
value of work in process and finished goods inventories of memory products to
their estimated market values. As charges to write down inventories
are recorded in advance of when inventories are sold, gross margins in
subsequent periods are higher than they otherwise would be.
In the fourth quarter of 2009, the
Company sold a 65% interest in its Aptina business. In connection
therewith, in the third quarter of fiscal 2009, the Company recorded a charge of
$53 million for the sale and in the fourth quarter, recorded a credit of $12
million to adjust the estimated loss to the final loss of $41
million.
In the fourth quarter of 2008, costs of
goods sold benefited by $70 million due to settlements of pricing adjustments
with certain suppliers.
F-
41
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
of Micron
Technology, Inc.
In our opinion, the consolidated
financial statements listed in the accompanying index appearing under Item 8
present fairly, in all material respects, the financial position of Micron
Technology, Inc. and its subsidiaries at September 3, 2009 and August 28, 2008,
and the results of their operations and their cash flows for each of the three
years in the period ended September 3, 2009 in conformity with accounting
principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index appearing under Item 8 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of September 3, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting (not presented
herein) appearing under Item 9A of the Company's 2009 Annual Report on Form
10-K. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As discussed in the Adjustment for
Retrospective Application of New Accounting Standards note to the consolidated
financial statements, the Company changed the manner in which it accounts for
certain convertible debt instruments and the manner in which it accounts for
noncontrolling interests effective September 4, 2009.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
San Jose,
California
October
28, 2009, except with respect to our opinion on the consolidated financial
statements insofar as it relates to the effects of the change in accounting for
convertible debt instruments and noncontrolling interests discussed in the
Adjustment for Retrospective Application of New Accounting Standards note, as to
which the date is March 4, 2010.
F-
42
MICRON
TECHNOLOGY, INC.
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
(in
millions)
|
Balance
at
Beginning
of
Year
|
Debt
Discount and Business Acquisitions
|
Charged
(Credited)
to
Costs
and
Expenses
|
Deductions/
Write-Offs
|
Balance
at
End of
Year
|
||||||||||||||||
|
Allowance
for Doubtful Accounts
|
||||||||||||||||||||
|
Year ended September 3,
2009
|
$ | 2 | $ | -- | $ | 5 | $ | (2 | ) | $ | 5 | |||||||||
|
Year ended August 28,
2008
|
4 | -- | (1 | ) | (1 | ) | 2 | |||||||||||||
|
Year ended August 30,
2007
|
4 | -- | 1 | (1 | ) | 4 | ||||||||||||||
|
Deferred
Tax Asset Valuation Allowance
|
||||||||||||||||||||
|
Year ended September 3,
2009
|
$ | 1,440 | $ | -- | $ | 572 | $ | (6 | ) | $ | 2,006 | |||||||||
|
Year ended August 28,
2008
|
998 | -- | 460 | (18 | ) | 1,440 | ||||||||||||||
|
Year ended August 30,
2007
|
915 | (160 | ) | 223 | 20 | 998 | ||||||||||||||
F-
43