Micron Technology, Inc.
MICRON TECHNOLOGY INC (Form: 10-Q, Received: 01/08/2016 13:57:34)


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 3, 2015

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number 1-10658

Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
75-1618004
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 
 
 
8000 S. Federal Way, Boise, Idaho
83716-9632
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code
(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x    No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company o

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

The number of outstanding shares of the registrant's common stock as of January 7, 2016, was 1,037,455,896 .

 
 
 
 
 




Definitions of Commonly Used Terms

As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:

Term
 
Definition
 
Term
 
Definition
2031B Notes
 
1.875% Convertible Senior Notes due 2031
 
MMJ
 
Micron Memory Japan, Inc.
2032 Notes
 
2032C and 2032D Notes
 
MMJ Companies
 
MAI and MMJ
2032C Notes
 
2.375% Convertible Senior Notes due 2032
 
MMJ Group
 
MMJ and its subsidiaries
2032D Notes
 
3.125% Convertible Senior Notes due 2032
 
MMT
 
Micron Memory Taiwan Co., Ltd.
2033 Notes
 
2033E and 2033F Notes
 
MP Mask
 
MP Mask Technology Center, LLC
2033E Notes
 
1.625% Convertible Senior Notes due 2033
 
MTI
 
Micron Technology, Inc.
2033F Notes
 
2.125% Convertible Senior Notes due 2033
 
Nanya
 
Nanya Technology Corporation
2043G Notes
 
3.00% Convertible Senior Notes due 2043
 
Photronics
 
Photronics, Inc.
Elpida
 
Elpida Memory, Inc.
 
PSRAM
 
Pseudo-static DRAM
IMFT
 
IM Flash Technologies, LLC
 
Qimonda
 
Qimonda AG
Inotera
 
Inotera Memories, Inc.
 
R&D
 
Research and Development
Intel
 
Intel Corporation
 
RLDRAM
 
Reduced Latency DRAM
Japan Court
 
Tokyo District Court
 
SG&A
 
Selling, General and Administration
LPDRAM
 
Mobile Low-Power DRAM
 
SSD
 
Solid-State Drive
MAI
 
Micron Akita, Inc.
 
Tera Probe
 
Tera Probe, Inc.
MCP
 
Multi-Chip Package
 
TLC
 
Triple-Level Cell
Micron
 
Micron Technology, Inc. (Parent Company)
 
VIE
 
Variable Interest Entity
MLC
 
Multi-Level Cell
 
 
 
 


Additional Information

Micron, Lexar, Crucial, SpecTek, Elpida, JumpDrive, any associated logos, and all other Micron trademarks are the
property of Micron. 3D XPoint is a trademark of Intel in the U.S. and/or other countries. Other product names or trademarks
that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarks of their
respective owners.


1



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICRON TECHNOLOGY, INC.

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

Quarter ended
 
December 3,
2015
 
December 4,
2014
Net sales
 
$
3,350

 
$
4,573

Cost of goods sold
 
2,501

 
2,935

Gross margin
 
849

 
1,638

 
 
 
 
 
Selling, general, and administrative
 
179

 
193

Research and development
 
421

 
376

Other operating (income) expense, net
 
17

 
(16
)
Operating income
 
232

 
1,085

 
 
 
 
 
Interest income
 
11

 
7

Interest expense
 
(96
)
 
(90
)
Other non-operating income (expense), net
 
(4
)
 
(49
)
 
 
143

 
953

 
 
 
 
 
Income tax (provision) benefit
 
4

 
(75
)
Equity in net income of equity method investees
 
59

 
124

Net income
 
206

 
1,002

 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 

 
1

Net income attributable to Micron
 
$
206

 
$
1,003

 
 
 
 
 
Earnings per share:
 
 

 
 

Basic
 
$
0.20

 
$
0.94

Diluted
 
0.19

 
0.84

 
 
 
 
 
Number of shares used in per share calculations:
 
 
 
 
Basic
 
1,035

 
1,070

Diluted
 
1,085

 
1,195













See accompanying notes to consolidated financial statements.

2



MICRON TECHNOLOGY, INC.

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

Quarter ended
 
December 3,
2015
 
December 4,
2014
Net income
 
$
206

 
$
1,002

 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustments
 
(90
)
 
(24
)
Pension liability adjustments
 
(6
)
 
19

Gain (loss) on derivatives, net
 
(4
)
 
(16
)
Gain (loss) on investments, net
 
(3
)
 

Other comprehensive income (loss)
 
(103
)
 
(21
)
Total comprehensive income
 
103

 
981

Comprehensive (income) loss attributable to noncontrolling interests
 

 
1

Comprehensive income attributable to Micron
 
$
103

 
$
982





































See accompanying notes to consolidated financial statements.

3



MICRON TECHNOLOGY, INC.

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

As of
 
December 3,
2015
 
September 3,
2015
Assets
 
 
 
 
Cash and equivalents
 
$
2,605

 
$
2,287

Short-term investments
 
1,036

 
1,234

Receivables
 
2,223

 
2,507

Inventories
 
2,435

 
2,340

Other current assets
 
211

 
228

Total current assets
 
8,510

 
8,596

Long-term marketable investments
 
1,771

 
2,113

Property, plant, and equipment, net
 
11,060

 
10,554

Equity method investments
 
1,351

 
1,379

Intangible assets, net
 
536

 
449

Deferred tax assets
 
595

 
597

Other noncurrent assets
 
565

 
455

Total assets
 
$
24,388

 
$
24,143

 
 
 
 
 
Liabilities and equity
 
 
 
 
Accounts payable and accrued expenses
 
$
2,784

 
$
2,611

Deferred income
 
190

 
205

Current debt
 
1,051

 
1,089

Total current liabilities
 
4,025

 
3,905

Long-term debt
 
6,326

 
6,252

Other noncurrent liabilities
 
720

 
698

Total liabilities
 
11,071

 
10,855

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Redeemable convertible notes
 
42

 
49

 
 
 
 
 
Micron shareholders' equity:
 
 
 
 
Common stock, $0.10 par value, 3,000 shares authorized; 1,087 shares issued and outstanding (1,084 as of September 3, 2015)
 
109

 
108

Additional capital
 
7,500

 
7,474

Retained earnings
 
5,788

 
5,588

Treasury stock, 52 shares held (45 as of September 3, 2015)
 
(1,006
)
 
(881
)
Accumulated other comprehensive income (loss)
 
(90
)
 
13

Total Micron shareholders' equity
 
12,301

 
12,302

Noncontrolling interests in subsidiaries
 
974

 
937

Total equity
 
13,275

 
13,239

Total liabilities and equity
 
$
24,388

 
$
24,143





See accompanying notes to consolidated financial statements.

4



MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Quarter ended
 
December 3,
2015
 
December 4,
2014
Cash flows from operating activities
 
 
 
 
Net income
 
$
206

 
$
1,002

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

 
 

Depreciation expense and amortization of intangible assets
 
737

 
643

Amortization of debt discount and other costs
 
33

 
38

Stock-based compensation
 
46

 
35

Loss on restructure of debt
 
1

 
30

Equity in net income of equity method investees
 
(59
)
 
(124
)
Change in operating assets and liabilities:
 
 

 
 

Receivables
 
297

 
252

Inventories
 
(95
)
 
7

Accounts payable and accrued expenses
 
2

 
(321
)
Deferred income taxes, net
 
(1
)
 
126

Other
 
(47
)
 
(96
)
Net cash provided by operating activities
 
1,120

 
1,592

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Expenditures for property, plant, and equipment
 
(990
)
 
(669
)
Purchases of available-for-sale securities
 
(510
)
 
(668
)
Payments to settle hedging activities
 
(46
)
 
(66
)
Proceeds from sales and maturities of available-for-sale securities
 
1,044

 
330

Other
 
(158
)
 
(3
)
Net cash provided by (used for) investing activities
 
(660
)
 
(1,076
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Repayments of debt
 
(197
)
 
(786
)
Cash paid to acquire treasury stock
 
(135
)
 
(26
)
Proceeds from issuance of debt
 
174

 

Contributions from noncontrolling interests
 
37

 
20

Proceeds from issuance of stock under equity plans
 
15

 
18

Other
 
(34
)
 
(32
)
Net cash provided by (used for) financing activities
 
(140
)
 
(806
)
 
 
 
 
 
Effect of changes in currency exchange rates on cash and equivalents
 
(2
)
 
(96
)
 
 
 
 
 
Net increase (decrease) in cash and equivalents
 
318

 
(386
)
Cash and equivalents at beginning of period
 
2,287

 
4,150

Cash and equivalents at end of period
 
$
2,605

 
$
3,764







See accompanying notes to consolidated financial statements.

5



MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
(Unaudited)

Business and Basis of Presentation

We are a global leader in advanced semiconductor systems. Our broad portfolio of high-performance memory technologies, including DRAM, NAND Flash, and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded, and automotive applications. The accompanying consolidated financial statements include the accounts of MTI and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended September 3, 2015 . In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal year 2016 contains 52 weeks and the first quarter of fiscal 2016, which ended on December 3, 2015 , contained 13 weeks. Fiscal year 2015 contained 53 weeks and the first quarter of fiscal 2015, which ended on December 4, 2014 , contained 14 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended September 3, 2015 .


Variable Interest Entities

We have interests in entities that are VIEs. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgments.

Unconsolidated VIEs

Inotera: Inotera is a VIE because of the terms of its supply agreement with us. We have determined that we do not have the power to direct the activities of Inotera that most significantly impact its economic performance, primarily due to limitations on our governance rights that require the consent of other parties for key operating decisions and due to Inotera's dependence on Nanya for financing and the ability of Inotera to operate in Taiwan. Therefore, we do not consolidate Inotera and we account for our interest under the equity method. (See "Equity Method Investments – Inotera" note.)

EQUVO: EQUVO HK Limited ("EQUVO") is a special purpose entity created to facilitate an equipment sale-leaseback financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities have an equity interest in EQUVO. EQUVO is a VIE because its equity is not sufficient to permit it to finance its activities without additional support from the financing entities and because the third-party equity holder lacks characteristics of a controlling financial interest. By design, the arrangement with EQUVO is merely a financing vehicle and we do not bear any significant risks from variable interests with EQUVO. Therefore, we have determined that we do not have the power to direct the activities of EQUVO that most significantly impact its economic performance and we do not consolidate EQUVO.


6



SC Hiroshima Energy Corporation: SC Hiroshima Energy Corporation ("SCHE") is an entity created to construct and operate a cogeneration, electrical power plant to support our wafer manufacturing facility in Hiroshima, Japan. SCHE is a VIE due to the nature of its tolling agreements with us and our purchase and call options for SCHE's assets. We do not have an equity ownership interest in SCHE. We do not control the operation and maintenance of the plant, which we have determined are the activities of SCHE that most significantly impact its economic performance. Therefore, we do not consolidate SCHE.

Consolidated VIEs

IMFT: IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase agreements and because IMFT is dependent upon us or Intel for additional cash requirements.  The primary activities of IMFT are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct its key activities.  In addition, IMFT manufactures certain products exclusively for us using our technology. We consolidate IMFT because we have the power to direct the activities of IMFT that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it.

MP Mask: MP Mask is a VIE because substantially all of its costs are passed to us and its other member, Photronics, through product purchase agreements and MP Mask is dependent upon us or Photronics for additional cash requirements.  We have tie-breaking voting rights over key operating decisions and nearly all key MP Mask activities are driven by our supply needs.  We consolidate MP Mask because we have the power to direct the activities of MP Mask that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to it.

(See "Equity – Noncontrolling Interests in Subsidiaries" note.)


Recently Issued Accounting Standards

In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities , which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities.  This ASU will be effective for us beginning in our first quarter of 2019.  We are evaluating the effects of the adoption of this ASU on our financial statements.

In November 2015, the FASB issued ASU 2015-17 – Balance Sheet Classification of Deferred Taxes, which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent. This ASU will be effective for us beginning in our first quarter of 2018 and early adoption is permitted. We are evaluating the timing of our adoption of this ASU. We do not expect this adoption to have a material impact on our financial statements.

In September 2015, the FASB issued ASU 2015-16 – Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. Instead, the cumulative impact of measurement period adjustments, including the impact on prior periods, is required to be recognized in the reporting period in which the adjustment is identified. This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted. We are evaluating the timing of our adoption and the effects of the adoption of this ASU on our financial statements.

In April 2015, the FASB issued ASU 2015-05 – Customer's Accounting for Fees Paid in a Cloud Computing Arrangement , which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under ASU 2015-05, if a cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. ASU 2015-05 also removes the requirement to analogize to ASC 840-10 Leases, to determine the asset acquired in a software licensing arrangement. This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted.  We are evaluating the timing of our adoption and the effects of the adoption of this ASU on our financial statements.


7



In February 2015, the FASB issued ASU 2015-02 – Amendments to the Consolidation Analysis , which amends the consolidation requirements in Accounting Standards Codification 810 Consolidation .  ASU 2015-02 makes targeted amendments to the current consolidation guidance for VIEs, which could change consolidation conclusions.  This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted.  We are evaluating the timing of our adoption and the effects of the adoption of this ASU on our financial statements.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers , which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the U.S.  The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  Including the one-year extension of this ASU provided by ASU 2015-14, we are required to adopt this ASU beginning in our first quarter of 2019; however, we are permitted to adopt this ASU as early as our first quarter of 2018. This ASU allows for either full retrospective or modified retrospective adoption. We are evaluating the timing of our adoption, the transition method we will elect, and the effects of the adoption of this ASU on our financial statements.


Planned Acquisition of Inotera and License Agreement with Nanya

Acquisition of Remaining Inotera Shares

On December 14, 2015, we entered into an agreement with Inotera (the "Framework Agreement"), pursuant to which we will acquire 100% of the issued and outstanding shares of Inotera for 30 New Taiwan dollars per share (or the equivalent of approximately $0.92 , assuming 32.7 New Taiwan dollars per U.S. dollar). As of December 3, 2015 , we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. We estimate that, based on the shares outstanding and the exchange rate as of December 14, 2015, the aggregate consideration payable for the Inotera shares not already owned by us would be approximately $4.1 billion .

The Framework Agreement provides that we and Inotera will cooperate in good faith to negotiate and execute a further definitive agreement (the "Definitive Agreement") by February 12, 2016. We or Inotera may terminate the Framework Agreement if the Definitive Agreement is not executed by that date. Under the Framework Agreement, the consummation of the acquisition of the Inotera shares is subject to various conditions, including but not limited to:

the receipt of necessary regulatory approvals from authorities in Taiwan;
the adoption and approval of the acquisition by the shareholders of Inotera, which requires the affirmative vote of holders of at least two-thirds of the issued and outstanding Inotera shares (including the shares held by us and the shares held by Nanya and its affiliates);
the consummation and funding of the Private Placement (defined below); and
the consummation and funding of debt financing of at least 80 billion New Taiwan dollars (or the equivalent of approximately $2.5 billion , assuming 32.7 New Taiwan dollars per U.S. dollar), on terms that are satisfactory to us.

In addition, the Framework Agreement contains, and the Definitive Agreement, if executed, will contain, certain termination rights, including:

termination by either us or Inotera if we have not completed the purchase of the remaining shares of Inotera by November 30, 2016; or
termination by us if we have not obtained debt commitment letters for at least 80 billion New Taiwan dollars by May 1, 2016.

Voting and Support Agreements : In December 2015, we also entered into voting and support agreements with Nanya and certain of Nanya's affiliates, representing approximately 32% of Inotera's shares, pursuant to which the parties agreed to (1) cause their respective boards of directors to vote in favor of and approve the transaction and (2) vote their Inotera shares in favor of and approve shareholder actions relevant to the transaction. Pursuant to the voting and support agreements, the parties have further agreed not to transfer any of their Inotera shares so long as the voting and support agreements are in effect. These agreements will terminate automatically upon the termination of either the Framework Agreement or the Definitive Agreement.


8



Issuance of Micron Shares to Nanya : On December 14, 2015, we also entered into an agreement with Nanya pursuant to which we have the option to issue shares of our common stock (the "Micron Shares") to Nanya in an amount of up to 31.5 billion New Taiwan dollars (or the equivalent of approximately $1.0 billion , assuming 32.7 New Taiwan dollars per U.S. dollar)(the "Private Placement"), which will be used to fund a portion of the consideration payable in the transaction. The per-share purchase price for the Micron Shares will be equal to the New Taiwan dollar equivalent of the average of the closing price of Micron common stock during the 30 consecutive trading-day period ending 30 days prior to the consummation of the Private Placement and the transaction. The consummation of the issuance of the Micron Shares is subject to regulatory approval and various other conditions.

License Agreement with Nanya

On December 14, 2015, we entered into an agreement with Nanya to use reasonable best efforts to execute further definitive technology transfer and license agreements by February 12, 2016 pursuant to which Nanya would have the option to require us to transfer to Nanya certain technology and deliverables related to the next DRAM process node generation after the 20nm process node (the "1X Process Node") and the next DRAM process node generation after the 1X Process Node for Nanya's use. Under the terms of the further definitive agreements, Nanya would pay royalties to us for a license to the transferred technology based on revenues from products implementing the technology, subject to an agreed cap, and we would receive an equity interest in Nanya upon the achievement of certain milestones. We may terminate the agreement if we and Nanya do not execute the definitive technology transfer and license agreements by February 12, 2016.


Cash and Investments

Cash and the fair values of available-for-sale investments, which approximated amortized costs, were as follows:

As of
 
December 3, 2015
 
September 3, 2015
 
 
Cash and Equivalents
 
Short-term Investments
 
Long-term Marketable Investments (3)
 
Total Fair Value
 
Cash and Equivalents
 
Short-term Investments
 
Long-term Marketable Investments (3)
 
Total Fair Value
Cash
 
$
2,005

 
$

 
$

 
$
2,005

 
$
1,684

 
$

 
$

 
$
1,684

Level 1 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
278

 

 

 
278

 
168

 

 

 
168

Level 2 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 

 
701

 
1,006

 
1,707

 
2

 
616

 
1,261

 
1,879

Asset-backed securities
 

 
8

 
522

 
530

 

 
8

 
575

 
583

Government securities
 
10

 
246

 
226

 
482

 
58

 
391

 
254

 
703

Certificates of deposit
 
284

 
17

 
17

 
318

 
311

 
28

 
23

 
362

Commercial paper
 
28

 
64

 

 
92

 
64

 
191

 

 
255

 
 
$
2,605

 
$
1,036

 
$
1,771

 
$
5,412

 
$
2,287

 
$
1,234

 
$
2,113

 
$
5,634

(1)  
The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(2)  
The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. As of December 3, 2015 , no adjustments were made to such pricing information.
(3)  
The maturities of long-term marketable investments generally range from one to four years.

Proceeds from sales of available-for-sale securities for the first quarters of 2016 and 2015 were $407 million and $233 million , respectively. Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented. As of December 3, 2015 , there were no available-for-sale securities that had been in a loss position for longer than 12 months.



9



Receivables

As of
 
December 3,
2015
 
September 3,
2015
Trade receivables
 
$
1,939

 
$
2,188

Income and other taxes
 
87

 
116

Other
 
197

 
203

 
 
$
2,223

 
$
2,507


As of December 3, 2015 and September 3, 2015 , other receivables included $91 million and $120 million , respectively, due from Intel for amounts related to product design and process development activities under cost-sharing agreements for NAND Flash memory and 3D XPoint TM memory.  (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)


Inventories

As of
 
December 3,
2015
 
September 3,
2015
Finished goods
 
$
779

 
$
785

Work in process
 
1,422

 
1,315

Raw materials and supplies
 
234

 
240

 
 
$
2,435

 
$
2,340



Property, Plant, and Equipment

 
 
September 3,
2015
 
Additions
 
Retirements and Other
 
December 3,
2015
Land
 
$
88

 
$

 
$

 
$
88

Buildings
 
5,358

 
114

 
(4
)
 
5,468

Equipment (1)
 
21,020

 
918

 
(118
)
 
21,820

Construction in progress (2)
 
436

 
194

 
(13
)
 
617

Software
 
373

 
15

 

 
388

 
 
27,275

 
1,241

 
(135
)
 
28,381

Accumulated depreciation
 
(16,721
)
 
(706
)
 
106

 
(17,321
)
 
 
$
10,554

 
$
535

 
$
(29
)
 
$
11,060

(1)  
Included costs related to equipment not placed into service of $887 million and $928 million as of December 3, 2015 and September 3, 2015 , respectively.
(2)  
Included building-related construction and tool installation costs on assets not placed into service.

Depreciation expense was $706 million and $613 million for the first quarters of 2016 and 2015 , respectively.




10



Equity Method Investments

As of
 
December 3, 2015
 
September 3, 2015
 
 
Investment Balance
 
Ownership Percentage
 
Investment Balance
 
Ownership Percentage
Inotera (1)
 
$
1,296

 
33
%
 
$
1,332

 
33
%
Tera Probe
 
41

 
40
%
 
38

 
40
%
Other
 
14

 
Various

 
9

 
Various

 
 
$
1,351

 
 

 
$
1,379

 
 

(1)  
Entity is a variable interest entity.

As of December 3, 2015 , substantially all of our maximum exposure to loss from our VIEs that were not consolidated was the $1.30 billion carrying value of our investment in Inotera.  We may also incur losses in connection with our rights and obligations to purchase all of Inotera's wafer production capacity under our supply agreements with Inotera.

We recognize our share of earnings or losses from our equity method investees generally on a two-month lag.  Equity in net income (loss) of equity method investees, net of tax, included the following:

Quarter ended
 
December 3,
2015
 
December 4,
2014
Inotera
 
$
52

 
$
129

Tera Probe
 
3

 
(7
)
Other
 
4

 
2

 
 
$
59

 
$
124


Inotera

We have partnered with Nanya in Inotera, a Taiwan DRAM memory company, since 2009.  As of December 3, 2015 , we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. On December 14, 2015, we entered into an agreement to acquire the remaining interest in Inotera. (See "Planned Acquisition of Inotera and License Agreement with Nanya – Acquisition of Remaining Inotera Shares" note.)

As of December 3, 2015 , the market value of our equity interest in Inotera was $1.55 billion based on the closing trading price of 23.70 New Taiwan dollars per share in an active market. As of December 3, 2015 and September 3, 2015 , there were losses of $77 million and gains of $13 million , respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera.

From January 2013 through December 2015, we purchased all of Inotera's DRAM output under a supply agreement at prices reflecting discounts from market prices for our comparable components. We purchased $379 million and $729 million of DRAM products from Inotera in the first quarters of 2016 and 2015, respectively, at costs higher than the costs of similar products manufactured in our wholly-owned facilities. The supply agreement with Inotera (as extended in December 2015, subsequent to the end of our first quarter of 2016) has an initial three-year term, followed by a three-year wind-down period. Upon termination of the initial three-year term, the share of Inotera's capacity we would purchase would decline over the wind-down period. Effective beginning on January 1, 2016, the price for DRAM products sold to us is based on a formula that equally shares margin between Inotera and us.


11



Tera Probe

In 2013, we acquired a 40% interest in Tera Probe, which provides semiconductor wafer testing and probe services to us and others. The initial net carrying value of our investment was less than our proportionate share of Tera Probe's equity and the difference is being amortized as a credit to our earnings through equity in net income (loss) of equity method investees (the "Tera Probe Amortization"). As of December 3, 2015 , the remaining balance of the Tera Probe Amortization was $23 million and is expected to be amortized over a weighted-average period of seven years. Based on closing trading prices, the market value of our equity interest in Tera Probe was $38 million as of December 3, 2015 and $31 million as of September 30, 2015. We evaluated our investment in Tera Probe and concluded that the decline in the market value below our carrying value did not indicate an other-than-temporary impairment primarily because of the market value improvement subsequent to September 30, 2015, the limited amount of time the market value was below carrying value, and historical volatility of Tera Probe's stock price. We incurred manufacturing costs for the first quarters of 2016 and 2015 of $21 million and $25 million , respectively, for services performed by Tera Probe.


Intangible Assets and Goodwill

 As of
 
December 3, 2015
 
September 3, 2015
 
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Amortizing assets
 
 
 
 
 
 
 
 
Product and process technology
 
$
850

 
$
(423
)
 
$
864

 
$
(416
)
Other
 
1

 

 
2

 
(1
)
 
 
851

 
(423
)
 
866

 
(417
)
Non-amortizing assets
 
 
 
 
 
 
 
 
In-process R&D
 
108

 

 

 

 
 
 
 
 
 
 
 
 
 
 
$
959

 
$
(423
)
 
$
866

 
$
(417
)
 
 
 
 
 
 
 
 
 
Goodwill (1)
 
$
104

 
 
 
$
23

 
 
(1)  
Included in other noncurrent assets.

During the first quarters of 2016 and 2015 , we capitalized $9 million and $12 million , respectively, for product and process technology with weighted-average useful lives of nine years and eight years, respectively. Amortization expense was $31 million and $30 million for the first quarters of 2016 and 2015 , respectively.  The expected annual amortization expense for intangible assets held as of December 3, 2015 is $120 million for 2016 , $104 million for 2017 , $92 million for 2018 , $44 million for 2019 , and $28 million for 2020 .

On October 2, 2015, we acquired Tidal Systems, Ltd., a developer of PCIe NAND Flash storage controllers, to enhance our NAND Flash controller technology for $148 million . In connection therewith, we recognized $108 million of in-process R&D; $81 million of goodwill, which was derived from other expected cost reductions and synergies and was assigned to our Storage Business Unit; and $41 million of deferred tax liabilities, which, in aggregate, represented substantially all of the purchase price. The in-process R&D was valued using a replacement cost approach, which included inputs of reproduction cost, including developer's profit, and opportunity cost. We will begin amortizing the in-process R&D when development is complete, which is estimated to be in 2017, and will amortize it over its then estimated useful life. The goodwill is not expected to be deductible for tax purposes.




12



Accounts Payable and Accrued Expenses

As of
 
December 3,
2015
 
September 3,
2015
Accounts payable
 
$
1,014

 
$
1,020

Property, plant, and equipment payables
 
803

 
577

Salaries, wages, and benefits
 
335

 
321

Related party payables
 
261

 
338

Income and other taxes
 
84

 
85

Other
 
287

 
270

 
 
$
2,784

 
$
2,611


As of December 3, 2015 and September 3, 2015 , related party payables included $253 million and $327 million , respectively, due to Inotera primarily for the purchase of DRAM products. As of December 3, 2015 and September 3, 2015 , related party payables also included $8 million and $11 million , respectively, due to Tera Probe for probe services performed. (See "Equity Method Investments" note.)


Debt

 
 
 
 
 
 
December 3, 2015
 
September 3, 2015
Instrument (1)
 
Stated Rate
 
Effective Rate
 
Current
 
Long-Term
 
Total
 
Current
 
Long-Term
 
Total
MMJ creditor installment payments
 
N/A

 
6.25
%
 
$
160

 
$
695

 
$
855

 
$
161

 
$
701

 
$
862

Capital lease obligations (2)
 
N/A

 
N/A

 
273

 
436

 
709

 
326

 
466

 
792

1.258% notes
 
1.258
%
 
1.97
%
 
87

 
219

 
306

 
87

 
217

 
304

2022 senior notes
 
5.875
%
 
6.14
%
 

 
589

 
589

 

 
589

 
589

2023 senior notes
 
5.250
%
 
5.43
%
 

 
989

 
989

 

 
988

 
988

2024 senior notes
 
5.250
%
 
5.38
%
 

 
545

 
545

 

 
545

 
545

2025 senior notes
 
5.500
%
 
5.56
%
 

 
1,138

 
1,138

 

 
1,138

 
1,138

2026 senior notes
 
5.625
%
 
5.73
%
 

 
446

 
446

 

 
446

 
446

2032C convertible senior notes (3)
 
2.375
%
 
5.95
%
 

 
199

 
199

 

 
197

 
197

2032D convertible senior notes (3)
 
3.125
%
 
6.33
%
 

 
151

 
151

 

 
150

 
150

2033E convertible senior notes (3)
 
1.625
%
 
4.50
%
 
165

 

 
165

 
217

 

 
217

2033F convertible senior notes (3)
 
2.125
%
 
4.93
%
 
266

 

 
266

 
264

 

 
264

2043G convertible senior notes
 
3.000
%
 
6.76
%
 

 
647

 
647

 

 
644

 
644

Other notes payable
 
2.462
%
 
2.65
%
 
100

 
272

 
372

 
34

 
171

 
205

 
 
 
 
 
 
$
1,051

 
$
6,326

 
$
7,377

 
$
1,089

 
$
6,252

 
$
7,341

(1)  
We have either the obligation or the option to pay cash for the principal amount due upon conversion for all of our convertible notes. Since it is our current intent to settle in cash the principal amount of all of our convertible notes upon conversion, the dilutive effect of such notes on earnings per share is computed under the treasury stock method.
(2)  
Weighted-average imputed rate of 3.8% and 3.7% as of December 3, 2015 and September 3, 2015 , respectively.
(3)  
Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ending on September 30, 2015 exceeded 130% of the conversion price per share, holders had the right to convert their notes at any time during the calendar quarter ended December 31, 2015. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2015; therefore, these notes are convertible by the holders through March 31, 2016. The 2033 Notes are classified as current because the terms of these notes also require us to pay cash for the principal amount of any converted notes.


13



2016 Debt Restructure

During the first quarter of 2016, we repurchased portions of our 2033E Notes. The liability and equity components of the repurchased notes had previously been stated separately within debt and equity in our consolidated balance sheet. As a result, our accounting for the repurchased notes affected debt and equity. The following table presents the effect of the repurchases:

 
 
Decrease in Principal
 
Decrease in Carrying Value
 
Decrease in Cash
 
Decrease in Equity
 
Loss (1)
Repurchases of 2033E Notes
 
$
(57
)
 
$
(54
)
 
$
(94
)
 
$
(38
)
 
$
(1
)
(1)  
Included in other non-operating expense.

2015 Debt Restructure

Throughout 2015, we consummated a number of transactions to restructure our debt, including conversions and settlements, repurchases of convertible notes, and the early repayment of a note. The following table presents the effect of each of the actions in the first quarter of 2015:

 
 
Decrease in Principal
 
Decrease in Carrying Value
 
Decrease in Cash
 
Decrease in Equity
 
Loss (1)
Conversions and settlements
 
$
(120
)
 
$
(367
)
 
$
(407
)
 
$
(14
)
 
$
(22
)
Repurchases
 
(36
)
 
(30
)
 
(125
)
 
(92
)
 
(3
)
Early repayment
 
(121
)
 
(115
)
 
(122
)
 

 
(5
)
 
 
$
(277
)
 
$
(512
)
 
$
(654
)
 
$
(106
)
 
$
(30
)
(1)  
Included in other non-operating expense.

Conversions and Settlements : Holders of substantially all of our remaining 2031B Notes with an aggregate principal amount of $114 million converted their notes in August 2014. As a result of our election to settle the conversion amounts entirely in cash, the settlement obligations became derivative debt liabilities, increasing the carrying value of the 2031B Notes by $275 million in 2014 before being settled in 2015 for an aggregate of $389 million in cash. Additionally, a holder converted $6 million principal amount of our 2033E Notes and we settled the conversion in cash for $18 million .
Repurchases : Repurchased $36 million in aggregate principal amount of our 2032C and 2032D Notes for an aggregate of $125 million .
Early Repayment : Repaid a note with a principal amount of $121 million prior to its scheduled maturity.

Capital Lease Obligations

In the first quarter of 2016, we recorded capital lease obligations aggregating $20 million at a weighted-average effective interest rate of 5.0% , payable in periodic installments through August 2031. In December 2015, subsequent to our first quarter of 2016, we recorded capital lease obligations aggregating $424 million related to equipment sale-leaseback transactions at a weighted-average effective interest rate of 2.7% , payable in periodic installments through December 2020.


14



Convertible Senior Notes

As of December 3, 2015 , the trading price of our common stock was higher than the initial conversion prices of our 2032 Notes and our 2033 Notes. As a result, the conversion values were in excess of principal amounts for such notes. The following table summarizes our convertible notes outstanding as of December 3, 2015 :

 
 
Holder Put Date (1)
 
Outstanding Principal
 
Underlying Shares
 
Conversion Price Per Share
 
Conversion Price Per Share Threshold (2)
 
Conversion Value in Excess of Principal (3)
2032C Notes
 
May 2019
 
$
224

 
23

 
$
9.63

 
$
12.52

 
$
138

2032D Notes
 
May 2021
 
177

 
18

 
9.98

 
12.97

 
100

2033E Notes
 
February 2018
 
176

 
16

 
10.93

 
14.21

 
75

2033F Notes
 
February 2020
 
297

 
27

 
10.93

 
14.21

 
127

2043G Notes (4)
 
November 2028
 
1,025

 
35

 
29.16

 
37.91

 

 
 
 
 
$
1,899

 
119

 
 
 
 
 
$
440

(1)  
The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date prior to the contractual maturity at a price equal to the principal amount thereof plus accrued interest.
(2)  
Holders have the right to convert all or a portion of their notes at a date prior to the contractual maturity if, during any calendar quarter, the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price. The closing price of our common stock exceeded the thresholds for the calendar quarter ended September 30, 2015 for our 2032 Notes and 2033 Notes; therefore, those notes were convertible by the holders through December 31, 2015. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2015; therefore, these notes are convertible by the holders through March 31, 2016.
(3)  
Based on our closing share price of $15.61 as of December 3, 2015 .
(4)  
The original principal amount of $820 million accretes up to $917 million in November 2028 and $1.03 billion at maturity in 2043.

Other Facilities

On December 1, 2015, we drew the remaining $174 million under our term loan agreement entered into on May 28, 2015. Amounts drawn are collateralized by certain property, plant, and equipment and are subject to a three -year loan with equal quarterly principal payments beginning December 2015 and accrue interest at a variable rate equal to the three -month LIBOR plus a margin not to exceed 2.2% . As of December 3, 2015 , the outstanding balance was $213 million .

Maturities of Notes Payable and Future Minimum Lease Payments

The following presents, as of December 3, 2015 , maturities of notes payable (including the MMJ Creditor Installment Payments) and future minimum lease payments under capital lease obligations. Maturities for the 2033 Notes are presented in 2018 and 2020 based on the earliest date that the holders can put them to us even though they were classified in our accompanying balance sheets as current, which was based on their convertibility.

 
 
Notes Payable
 
Capital Lease Obligations
Remainder of 2016
 
$
329

 
$
241

2017
 
348

 
176

2018
 
507

 
129

2019
 
502

 
91

2020
 
695

 
32

2021 and thereafter
 
4,844

 
110

Unamortized amounts and interest, respectively
 
(557
)
 
(70
)
 
 
$
6,668

 
$
709



15




Contingencies

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

Patent Matters

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

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

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

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

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

Qimonda

On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), which represents approximately 55% of our total shares in Inotera as of December 3, 2015, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.

Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the Court issued judgments:  (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying Qimonda's claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things:  (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.

16




We are unable to predict the outcome of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition.  As of December 3, 2015, the Inotera Shares had a carrying value in equity method investments of $664 million and a market value of $855 million.

Other

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


Redeemable Convertible Notes

Under the terms of the indentures governing the 2033 Notes, upon conversion, we would be required to pay cash equal to the lesser amount of (1) the aggregate principal amount or (2) the conversion value of the notes being converted. To the extent the conversion value exceeds the principal amount, we could pay cash, shares of common stock, or a combination thereof, at our option, for the amount of such excess. The 2033 Notes were convertible at the option of the holders as of December 3, 2015 and September 3, 2015 . Therefore, the 2033 Notes were classified as current debt and the aggregate difference between the principal amount and the carrying value of $42 million as of December 3, 2015 and $49 million as of September 3, 2015 was classified as redeemable convertible notes in the accompanying consolidated balance sheets. (See "Debt" note.)


Equity

Changes in the components of equity were as follows:

 
 
Quarter Ended December 3, 2015
 
Quarter Ended December 4, 2014
 
 
Attributable to Micron
 
Noncontrolling Interests
 
Total Equity
 
Attributable to Micron
 
Noncontrolling Interests
 
Total Equity
Beginning balance
 
$
12,302

 
$
937

 
$
13,239

 
$
10,771

 
$
802

 
$
11,573

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
206

 

 
206

 
1,003

 
(1
)
 
1,002

Other comprehensive income (loss)
 
(103
)
 

 
(103
)
 
(21
)
 

 
(21
)
Comprehensive income (loss)
 
103

 

 
103

 
982

 
(1
)
 
981

 
 
 
 
 
 
 
 
 
 
 
 
 
Contributions from noncontrolling interests
 

 
37

 
37

 

 
20

 
20

Distributions to noncontrolling interests
 

 

 

 

 
(6
)
 
(6
)
Capital and other transactions attributable to Micron
 
(104
)
 

 
(104
)
 
(75
)
 

 
(75
)
Ending balance
 
$
12,301

 
$
974

 
$
13,275

 
$
11,678

 
$
815

 
$
12,493



17



Micron Shareholders' Equity

Common Stock Repurchases:   Since the first quarter of 2015, our Board of Directors has authorized the discretionary repurchase of up to  $1.25 billion  of our outstanding common stock, $250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately-negotiated transactions, or derivative transactions. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash. During the first quarter of 2016, we repurchased 7 million  shares for  $125 million  (including commissions) through open-market transactions, which were recorded as treasury stock. Since the beginning of 2015, we have repurchased a total of 49 million  shares for  $956 million  (including commissions).

Issued and Outstanding Capped Calls: We have capped calls (with strike prices that range from $9.50 to $10.93 and cap prices that range from $13.17 to $16.04 ), which were intended to reduce the effect of potential dilution from our convertible notes.  The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above strike prices on various dates ranging from January 2016 to February 2020, the expiration dates of the capped calls. The amounts receivable vary based on the trading price of our stock, up to cap prices. The dollar value of the cash or shares that we would receive from the capped calls upon their expiration date ranges from $0 if the trading price of our stock is below the strike prices for all of the capped calls to $814 million if the trading price of our stock is at or above the cap price for all of the capped calls.

Accumulated Other Comprehensive Income (Loss): Changes in accumulated other comprehensive income (loss) by component for the quarter ended December 3, 2015 , were as follows:

 
 
Cumulative Foreign Currency Translation Adjustments
 
Gains (Losses) on Derivative Instruments, Net
 
Gains (Losses) on Investments, Net
 
Pension Liability Adjustments
 
Total
Balance as of September 3, 2015
 
$

 
$
(5
)
 
$
(3
)
 
$
21

 
$
13

Other comprehensive income (loss) before reclassifications
 
(90
)
 
(4
)
 
(3
)
 
(8
)
 
(105
)
Amount reclassified out of accumulated other comprehensive income
 

 
(1
)
 

 

 
(1
)
Tax effects
 

 
1

 

 
2

 
3

Other comprehensive income (loss)
 
(90
)
 
(4
)
 
(3
)
 
(6
)
 
(103
)
Balance as of December 3, 2015
 
$
(90
)
 
$
(9
)
 
$
(6
)
 
$
15

 
$
(90
)

Noncontrolling Interests in Subsidiaries

As of
 
December 3, 2015
 
September 3, 2015
 
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
IMFT (1)
 
$
866

 
49
%
 
$
829

 
49
%
MP Mask (1)
 
93

 
50
%
 
93

 
50
%
Other
 
15

 
Various

 
15

 
Various

 
 
$
974

 
 
 
$
937

 
 
(1)  
Entity is a variable interest entity.


18



IMFT: Since inception in 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacture NAND Flash and 3D XPoint memory products for the exclusive use of the members. IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights.  On January 5, 2016, we amended the Second Amended and Restated Operating Agreement with Intel related to the IMFT joint venture to change the dates of those buy-sell rights.  Pursuant to this amendment, commencing in January 2016, Intel can put to us, and commencing in January 2019, we can call from Intel, Intel's interest in IMFT, in either case, for an amount equal to the noncontrolling interest balance attributable to Intel at such time. If Intel elects to sell to us, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date.

IMFT manufactures memory products using designs and technology we develop with Intel. We generally share with Intel the costs of product design and process development activities for NAND Flash and 3D XPoint memory. Our R&D expenses were reduced by reimbursements from Intel of $46 million and $54 million for the first quarters of 2016 and 2015 , respectively.

We sell a portion of our products to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. Sales of products to Intel under this arrangement were $115 million and $108 million for the first quarters of 2016 and 2015 , respectively. Receivables from Intel as of December 3, 2015 and September 3, 2015 were $75 million and $67 million , respectively, for these sales.

The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:

As of
 
December 3,
2015
 
September 3,
2015
Assets
 
 
 
 
Cash and equivalents
 
$
140

 
$
134

Receivables
 
88

 
79

Inventories
 
64

 
65

Other current assets
 
6

 
7

Total current assets
 
298

 
285

Property, plant, and equipment, net
 
1,777

 
1,768

Other noncurrent assets
 
53

 
49

Total assets
 
$
2,128

 
$
2,102

 
 
 
 
 
Liabilities
 
 

 
 

Accounts payable and accrued expenses
 
$
139

 
$
182

Deferred income
 
10

 
9

Current debt
 
20

 
22

Total current liabilities
 
169

 
213

Long-term debt
 
45

 
49

Other noncurrent liabilities
 
96

 
100

Total liabilities
 
$
310

 
$
362

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

Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets.


19



The following table presents IMFT's distributions to and contributions from its shareholders:

Quarter ended
 
December 3,
2015
 
December 4,
2014
IMFT distributions to Micron
 
$

 
$
6

IMFT distributions to Intel
 

 
6

Micron contributions to IMFT
 
38

 
21

Intel contributions to IMFT
 
37

 
20


MP Mask: In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation semiconductors.  On March 24, 2015, we notified Photronics of our election to terminate MP Mask effective in May 2016. Upon termination, we have the right to acquire Photronics' interest in MP Mask for an amount equal to the noncontrolling interest balance. Since its inception, we and Photronics have each owned approximately 50% of MP Mask.  We purchase a substantial majority of the photomasks produced by MP Mask pursuant to a supply arrangement.

The assets and liabilities of MP Mask included in our consolidated balance sheets were as follows:

As of
 
2016
 
2015
Current assets
 
$
23

 
$
21

Noncurrent assets (primarily property, plant, and equipment)
 
171

 
180

Current liabilities
 
13

 
21

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

Creditors of MP Mask have recourse only to MP Mask's assets and do not have recourse to any other of our assets.

Restrictions on Net Assets

As a result of the reorganization proceedings of the MMJ Companies initiated on March 23, 2012, and for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. In addition, our ability to access IMFT's cash and other assets through dividends, loans, or advances, including to finance our other operations, is subject to agreement by Intel. As a result, our total restricted net assets (net assets less intercompany balances and noncontrolling interests) as of December 3, 2015 were $2.96 billion for the MMJ Group and $952 million for IMFT, which included cash and equivalents of $951 million for the MMJ Group and $140 million for IMFT.

As of December 3, 2015 , our retained earnings included undistributed earnings from our equity method investees of $291 million .


Fair Value Measurements

Accounting standards establish 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), 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).

All of our marketable debt and equity investments (excluding equity method investments) were classified as available-for-sale and carried at fair value. In addition to the fair value measurements disclosed in "Cash and Investments" as of December 3, 2015 and September 3, 2015 , we had certificates of deposit classified as restricted cash (included in other noncurrent assets) of $51 million and $45 million , respectively, valued using Level 2 fair value measurements.

In connection with our repurchases of debt in the first quarter of 2016, we determined the fair value of the debt components of our convertible notes as if they were stand-alone instruments, using interest rates for similar nonconvertible debt issued by entities with credit ratings comparable to ours (Level 2).


20



Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and carrying value of debt instruments (carrying value excludes the equity and mezzanine equity components of our convertible notes) were as follows:

As of
 
December 3, 2015
 
September 3, 2015
 
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes and MMJ creditor installment payments
 
$
5,169

 
$
5,240

 
$
5,020

 
$
5,077

Convertible notes
 
2,360

 
1,428

 
2,508

 
1,472


The fair values of our convertible notes were determined based on inputs that were observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).  The fair value of our other debt instruments was estimated based on discounted cash flows using inputs that were observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).


Derivative Instruments

We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in cash. We do not use derivative instruments for speculative purpose.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: To hedge our exposures of monetary assets and liabilities to changes in currency exchange rates, we generally utilize a rolling hedge strategy with currency forward contracts that mature within 35 days.  At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market.  Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). To mitigate the risk of the yen strengthening against the U.S. dollar on the MMJ creditor installment payments due in December 2014 and December 2015, we entered into forward contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarters of 2016 and 2015, we paid $21 million and $33 million , respectively, upon settlement of the forward contracts.

Realized and unrealized gains and losses on currency derivatives without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense), net.

Convertible Notes Settlement Obligations: In the first quarter of 2015, we settled conversions of our remaining outstanding 2031B notes and holders elected to convert a portion of the 2033E Notes. As a result of our elections to settle the amounts due upon conversion in cash, each of the settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment for a period of approximately 30 days, beginning on the dates we notified the holders of our intention to settle the obligations in cash through the settlement dates. The fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2 fair value measurements). The Black-Scholes model requires the input of assumptions, including the stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurements and final settlement amounts of our convertible note settlement obligations were based on the volume-weighted average stock price (Level 2 fair value measurements). Changes in fair values of the derivative settlement obligations were included in other non-operating income (expense), net.


21



Total notional amounts and gross fair values for derivative instruments without hedge accounting designation were as follows:

 
 
Notional Amount (in U.S. dollars)
 
Fair Value of
Current Assets (1)
 
Current Liabilities (2)
As of December 3, 2015
 
 
 
 
 
 
Yen
 
$
919

 
$

 
$
(4
)
Singapore dollar
 
229

 

 
(1
)
New Taiwan dollar
 
35

 

 

Shekel
 
28

 

 

Euro
 
17

 

 

British Pound
 
16

 

 

Yuan
 
15

 

 

 
 
$
1,259

 
$

 
$
(5
)
As of September 3, 2015
 
 
 
 
 
 
Yen
 
$
928

 
$

 
$
(24
)
Singapore dollar
 
282

 

 

New Taiwan dollar
 
89

 

 

Shekel
 
27

 

 

Euro
 
29

 

 

British Pound
 
19

 

 

Yuan
 
32

 
1

 

 
 
$
1,406

 
$
1

 
$
(24
)
(1)  
Included in receivables – other.
(2)  
Included in accounts payable and accrued expenses – other.


Net gains (losses) for derivative instruments without hedge accounting designation were included in other non-operating income (expense), net as follows:

Quarter ended
 
December 3,
2015
 
December 4,
2014
Foreign exchange contracts
 
$
(21
)
 
$
(58
)
Convertible notes settlement obligations
 

 
6


Derivative Instruments with Cash Flow Hedge Accounting Designation

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


22



For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss).  Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same line items of the consolidated statements of operations and in the same periods in which the underlying transactions affect earnings. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense), net.  Total notional amounts and gross fair values for derivative instruments with cash flow hedge accounting designation were as follows:

 
 
Notional Amount (in U.S. Dollars)
 
Fair Value of
 
 
Current Assets (1)
 
Current Liabilities (2)
As of December 3, 2015
 
 
 
 
 
 
Yen
 
$
102

 
$
1

 
$
(2
)
 
 
 
 
 
 
 
As of September 3, 2015
 
 

 
 
 
 

Yen
 
$
81

 
$
3

 
$

Euro
 
12

 

 

 
 
$
93

 
$
3


$

(1)  
Included in receivables – other.