Micron Technology, Inc.
MICRON TECHNOLOGY INC (Form: 10-Q, Received: 04/08/2016 14:30:57)


 
 
 
 
 
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 March 3, 2016

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 April 1, 2016, was 1,037,043,109 .

 
 
 
 
 




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
 
nm
 
Nanometer
Elpida
 
Elpida Memory, Inc.
 
Photronics
 
Photronics, Inc.
IMFT
 
IM Flash Technologies, LLC
 
PSRAM
 
Pseudo-static DRAM
Inotera
 
Inotera Memories, Inc.
 
Qimonda
 
Qimonda AG
Intel
 
Intel Corporation
 
R&D
 
Research and Development
Japan Court
 
Tokyo District Court
 
RLDRAM
 
Reduced Latency DRAM
LPDRAM
 
Mobile Low-Power DRAM
 
SG&A
 
Selling, General and Administration
MAI
 
Micron Akita, Inc.
 
SSD
 
Solid-State Drive
MCP
 
Multi-Chip Package
 
Tera Probe
 
Tera Probe, Inc.
Micron
 
Micron Technology, Inc. (Parent Company)
 
TLC
 
Triple-Level Cell
MLC
 
Multi-Level Cell
 
VIE
 
Variable Interest Entity


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.





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICRON TECHNOLOGY, INC.

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

 
 
Quarter ended
 
Six months ended
 
 
March 3,
2016
 
March 5,
2015
 
March 3,
2016
 
March 5,
2015
Net sales
 
$
2,934

 
$
4,166

 
$
6,284

 
$
8,739

Cost of goods sold
 
2,355

 
2,761

 
4,856

 
5,696

Gross margin
 
579

 
1,405

 
1,428

 
3,043

 
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
175

 
187

 
354

 
380

Research and development
 
403

 
379

 
824

 
755

Other operating (income) expense, net
 
6

 
(16
)
 
23

 
(32
)
Operating income (loss)
 
(5
)
 
855

 
227

 
1,940

 
 
 
 
 
 
 
 
 
Interest income
 
12

 
8

 
23

 
15

Interest expense
 
(97
)
 
(83
)
 
(193
)
 
(173
)
Other non-operating income (expense), net
 
(6
)
 
(6
)
 
(10
)
 
(55
)
 
 
(96
)
 
774

 
47

 
1,727

 
 
 
 
 
 
 
 
 
Income tax (provision) benefit
 
(5
)
 
(47
)
 
(1
)
 
(122
)
Equity in net income of equity method investees
 
5

 
208

 
64

 
332

Net income (loss)
 
(96
)
 
935

 
110

 
1,937

 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(1
)
 
(1
)
 
(1
)
 

Net income (loss) attributable to Micron
 
$
(97
)
 
$
934

 
$
109

 
$
1,937

 
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

 
 
 
 
Basic
 
$
(0.09
)
 
$
0.87

 
$
0.11

 
$
1.81

Diluted
 
(0.09
)
 
0.78

 
0.10

 
1.62

 
 
 
 
 
 
 
 
 
Number of shares used in per share calculations:
 
 
 
 
 
 
 
 
Basic
 
1,036

 
1,074

 
1,035

 
1,072

Diluted
 
1,036

 
1,190

 
1,072

 
1,193











See accompanying notes to consolidated financial statements.

1



MICRON TECHNOLOGY, INC.

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

 
 
Quarter ended
 
Six months ended
 
 
March 3,
2016
 
March 5,
2015
 
March 3,
2016
 
March 5,
2015
Net income (loss)
 
$
(96
)
 
$
935

 
$
110

 
$
1,937

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Gain (loss) on derivatives, net
 
3

 
(2
)
 
(1
)
 
(18
)
Foreign currency translation adjustments
 
1

 
(50
)
 
(89
)
 
(74
)
Pension liability adjustments
 
1

 
(1
)
 
(5
)
 
18

Gain (loss) on investments, net
 
1

 
(1
)
 
(2
)
 
(1
)
Other comprehensive income (loss)
 
6

 
(54
)
 
(97
)
 
(75
)
Total comprehensive income (loss)
 
(90
)
 
881

 
13

 
1,862

Comprehensive (income) loss attributable to noncontrolling interests
 
(1
)
 

 
(1
)
 
1

Comprehensive income (loss) attributable to Micron
 
$
(91
)
 
$
881

 
$
12

 
$
1,863



































See accompanying notes to consolidated financial statements.

2



MICRON TECHNOLOGY, INC.

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

As of
 
March 3,
2016
 
September 3,
2015
Assets
 
 
 
 
Cash and equivalents
 
$
3,078

 
$
2,287

Short-term investments
 
957

 
1,234

Receivables
 
1,984

 
2,507

Inventories
 
2,608

 
2,340

Other current assets
 
178

 
228

Total current assets
 
8,805

 
8,596

Long-term marketable investments
 
1,108

 
2,113

Property, plant, and equipment, net
 
11,819

 
10,554

Equity method investments
 
1,360

 
1,379

Intangible assets, net
 
512

 
449

Deferred tax assets
 
668

 
597

Other noncurrent assets
 
547

 
455

Total assets
 
$
24,819

 
$
24,143

 
 
 
 
 
Liabilities and equity
 
 
 
 
Accounts payable and accrued expenses
 
$
3,087

 
$
2,611

Deferred income
 
199

 
205

Current debt
 
1,125

 
1,089

Total current liabilities
 
4,411

 
3,905

Long-term debt
 
6,494

 
6,252

Other noncurrent liabilities
 
636

 
698

Total liabilities
 
11,541

 
10,855

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Redeemable convertible notes
 
39

 
49

 
 
 
 
 
Micron shareholders' equity:
 
 
 
 
Common stock, $0.10 par value, 3,000 shares authorized; 1,090 shares issued and outstanding (1,084 as of September 3, 2015)
 
109

 
108

Additional capital
 
7,579

 
7,474

Retained earnings
 
5,685

 
5,588

Treasury stock, 53 shares held (45 as of September 3, 2015)
 
(1,025
)
 
(881
)
Accumulated other comprehensive income (loss)
 
(84
)
 
13

Total Micron shareholders' equity
 
12,264

 
12,302

Noncontrolling interests in subsidiaries
 
975

 
937

Total equity
 
13,239

 
13,239

Total liabilities and equity
 
$
24,819

 
$
24,143





See accompanying notes to consolidated financial statements.

3



MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)

Six months ended
 
March 3,
2016
 
March 5,
2015
Cash flows from operating activities
 
 
 
 
Net income
 
$
110

 
$
1,937

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

 
 

Depreciation expense and amortization of intangible assets
 
1,511

 
1,284

Amortization of debt discount and other costs
 
64

 
71

Stock-based compensation
 
101

 
84

Loss on restructure of debt
 
1

 
30

Equity in net income of equity method investees
 
(64
)
 
(332
)
Change in operating assets and liabilities
 
 

 
 

Receivables
 
542

 
153

Inventories
 
(268
)
 
78

Accounts payable and accrued expenses
 
(67
)
 
(488
)
Deferred income taxes, net
 
(27
)
 
159

Other
 
(20
)
 
(133
)
Net cash provided by operating activities
 
1,883

 
2,843

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Expenditures for property, plant, and equipment
 
(2,209
)
 
(1,522
)
Purchases of available-for-sale securities
 
(679
)
 
(2,222
)
Payments to settle hedging activities
 
(66
)
 
(88
)
Proceeds from sales and maturities of available-for-sale securities
 
1,950

 
631

Other
 
(22
)
 
(1
)
Net cash provided by (used for) investing activities
 
(1,026
)
 
(3,202
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Repayments of debt
 
(519
)
 
(1,149
)
Cash paid to acquire treasury stock
 
(147
)
 
(244
)
Proceeds from equipment sale-leaseback transactions
 
424

 
254

Proceeds from issuance of debt
 
174

 
1,000

Contributions from noncontrolling interests
 
37

 
20

Proceeds from issuance of stock under equity plans
 
24

 
50

Other
 
(61
)
 
(75
)
Net cash provided by (used for) financing activities
 
(68
)
 
(144
)
 
 
 
 
 
Effect of changes in currency exchange rates on cash and equivalents
 
2

 
(100
)
 
 
 
 
 
Net increase (decrease) in cash and equivalents
 
791

 
(603
)
Cash and equivalents at beginning of period
 
2,287

 
4,150

Cash and equivalents at end of period
 
$
3,078

 
$
3,547




See accompanying notes to consolidated financial statements.

4



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 fiscal year 2015 contained 53 weeks. The first quarter of 53-week years contains 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.

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. We do not have an equity ownership interest in SCHE. SCHE is a VIE due to the nature of its tolling agreements with us and our option to purchase SCHE's assets. 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.

5



PTI Xi'an: Powertech Technology Inc. Xi'an ("PTI Xi'an") is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to provide assembly services to us at our manufacturing site in Xi'an, China. We do not have an equity ownership interest in PTI Xi'an. PTI Xi'an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We have determined that we do not have the power to direct the activities of PTI Xi'an that most significantly impact its economic performance, primarily because we have no governance rights. Therefore, we do not consolidate PTI Xi'an.

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 Adopted Accounting Standards

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17 – Balance Sheet Classification of Deferred Taxes, which eliminates the requirement to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. We adopted this ASU as of the beginning of our second quarter of 2016 on a prospective basis and did not retrospectively adjust prior periods. As a result of adopting this standard, we presented our deferred tax assets and liabilities as noncurrent. The adoption of this standard did not 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 following a business combination. 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. We adopted this ASU in our second quarter of 2016. The adoption of this standard did not have a material impact on our financial statements.


Recently Issued Accounting Standards

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

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


6



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.

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 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.  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.


Pending Acquisition of Inotera

In the second quarter of 2016, we entered into agreements to acquire the remaining interest in Inotera for 30 New Taiwan dollars per share in cash (or the equivalent of approximately $0.91 per share, assuming 33.1 New Taiwan dollars per U.S. dollar, the exchange rate as of March 3, 2016 ). As of March 3, 2016 , 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. Based on the exchange rate as of March 3, 2016 , we estimate the aggregate consideration payable for the 67% of Inotera shares not owned by us would be approximately $4.0 billion . We anticipate financing the acquisition with the proceeds of the 80 billion New Taiwan debt financing referred to below and a combination of cash on hand, additional borrowings under our existing credit agreements, and the issuance of equity and up to $500 million unsecured debt pursuant to the Private Placement (defined below).

On March 29, 2016, the transaction was approved by the shareholders of Inotera, including Nanya and certain of Nanya's affiliates (which held approximately 32% of Inotera's shares and provided such approval pursuant to voting and support agreements entered into in the second quarter of 2016). Under 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 the agreement to purchase the Inotera shares.

Consummation of the acquisition of Inotera is subject to various conditions, including but not limited to:

the receipt of necessary regulatory approvals from authorities in Taiwan;
the consummation and funding of debt financing of at least 80 billion New Taiwan dollars (or the equivalent of approximately $2.4 billion , assuming 33.1 New Taiwan dollars per U.S. dollar), on terms that are satisfactory to us; and
unless we determine otherwise, the consummation and funding of the Private Placement (described below).


7



In addition, the agreement to acquire the Inotera shares contains 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 satisfactory debt commitment letters for the debt financing of at least 80 billion New Taiwan dollars by May 16, 2016.

We currently anticipate completing the Inotera transaction during the fourth quarter of 2016. Consummation of the Inotera transaction is subject to significant uncertainties, including regulatory approvals and availability of debt financing on terms satisfactory to us, and there can be no assurance that the Inotera transaction will be consummated when anticipated or at all.

Issuance of Micron Shares to Nanya : In the second quarter of 2016, 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 equivalent to up to 31.5 billion New Taiwan dollars (or the equivalent of approximately $950 million , assuming 33.1 New Taiwan dollars per U.S. dollar) (the "Private Placement"), which will be used to fund a portion of the consideration for the transaction. The per-share selling price for the Micron Shares will be equal to the New Taiwan dollar equivalent of the average of the closing price of our common stock during the 30 consecutive trading-day period ending 30 days prior to the consummation of the Private Placement and the transaction.

We are currently in discussions about potential changes to the Private Placement commitment, including the possibility of substituting up to $500 million of unsecured notes (including convertible notes) for the corresponding portion of the shares of our common stock that may be purchased pursuant to the Private Placement.

The consummation of the Private Placement is subject to regulatory approval and various other conditions.


Technology Transfer and License Agreements with Nanya

In the second quarter of 2016, we entered into technology transfer and license agreements pursuant to which Nanya has the option to require us to transfer to Nanya certain technology and deliverables related to the next DRAM process node generation (the "1X Process Node") after our 20nm process node and the next DRAM process node generation after the 1X Process Node for Nanya's use. Under the terms of the 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 also receive an equity interest in Nanya upon the achievement of certain milestones.




8



Cash and Investments

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

As of
 
March 3, 2016
 
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
 
$
2,343

 
$

 
$

 
$
2,343

 
$
1,684

 
$

 
$

 
$
1,684

Level 1 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
339

 

 

 
339

 
168

 

 

 
168

Level 2 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 

 
675

 
673

 
1,348

 
2

 
616

 
1,261

 
1,879

Government securities
 
53

 
213

 
97

 
363

 
58

 
391

 
254

 
703

Certificates of deposit
 
331

 
20

 
10

 
361

 
311

 
28

 
23

 
362

Asset-backed securities
 

 
6

 
328

 
334

 

 
8

 
575

 
583

Commercial paper
 
12

 
43

 

 
55

 
64

 
191

 

 
255

 
 
$
3,078

 
$
957

 
$
1,108

 
$
5,143

 
$
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 March 3, 2016 , no adjustments were made to such pricing information.
(3)  
The maturities of long-term marketable investments range from one to four years.

Proceeds from sales of available-for-sale securities were $585 million and $992 million for the second quarter and first six months of 2016 , respectively, and $143 million and $376 million for the second quarter and first six months of 2015 , respectively. Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented. As of March 3, 2016 , there were no available-for-sale securities that had been in a loss position for longer than 12 months.


Receivables

As of
 
March 3,
2016
 
September 3,
2015
Trade receivables
 
$
1,694

 
$
2,188

Income and other taxes
 
93

 
116

Other
 
197

 
203

 
 
$
1,984

 
$
2,507


As of March 3, 2016 and September 3, 2015 , other receivables included $98 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.)




9



Inventories

As of
 
March 3,
2016
 
September 3,
2015
Finished goods
 
$
793

 
$
785

Work in process
 
1,578

 
1,315

Raw materials and supplies
 
237

 
240

 
 
$
2,608

 
$
2,340



Property, Plant, and Equipment

 
 
September 3,
2015
 
Additions
 
Retirements and Other
 
March 3,
2016
Land
 
$
88

 
$

 
$

 
$
88

Buildings
 
5,358

 
340

 
(4
)
 
5,694

Equipment (1)
 
21,020

 
1,994

 
(276
)
 
22,738

Construction in progress (2)
 
436

 
411

 
(28
)
 
819

Software
 
373

 
24

 

 
397

 
 
27,275

 
2,769

 
(308
)
 
29,736

Accumulated depreciation
 
(16,721
)
 
(1,451
)
 
255

 
(17,917
)
 
 
$
10,554

 
$
1,318

 
$
(53
)
 
$
11,819

(1)  
Included costs related to equipment not placed into service of $1.07 billion and $928 million as of March 3, 2016 and September 3, 2015 , respectively.
(2)  
Included building-related construction and tool installation costs for assets not placed into service.

Depreciation expense was $745 million and $1.45 billion for the second quarter and first six months of 2016 , respectively, and $611 million and $1.22 billion for the second quarter and first six months of 2015 , respectively.


Equity Method Investments

As of
 
March 3, 2016
 
September 3, 2015
 
 
Investment Balance
 
Ownership Percentage
 
Investment Balance
 
Ownership Percentage
Inotera (1)
 
$
1,303

 
33
%
 
$
1,332

 
33
%
Tera Probe
 
44

 
40
%
 
38

 
40
%
Other
 
13

 
Various

 
9

 
Various

 
 
$
1,360

 
 

 
$
1,379

 
 

(1) Entity is a variable interest entity.

As of March 3, 2016 , 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 agreement with Inotera.


10



We recognize our share of earnings or losses from our equity method investees generally on a two-month lag.  Included in our share of earnings for the second quarter of 2015 was $65 million related to Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward. Equity in net income (loss) of equity method investees, net of tax, included the following:

 
 
Quarter ended
 
Six months ended
 
 
March 3,
2016
 
March 5,
2015
 
March 3,
2016
 
March 5,
2015
Inotera
 
$
2

 
$
206

 
$
54

 
$
335

Tera Probe
 
3

 
1

 
6

 
(6
)
Other
 

 
1

 
4

 
3

 
 
$
5

 
$
208

 
$
64

 
$
332


Inotera

We have partnered with Nanya in Inotera, a Taiwan DRAM memory company, since 2009.  As of March 3, 2016 , 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. In the second quarter of 2016 we entered into agreements to acquire the remaining interest in Inotera. (See "Pending Acquisition of Inotera" note.)

As of March 3, 2016 , the market value of our equity interest in Inotera was $1.85 billion based on the closing trading price of 28.55 New Taiwan dollars per share in an active market. As of March 3, 2016 and September 3, 2015 , there were losses of $76 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. 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. We purchased $326 million and $705 million of DRAM products from Inotera in the second quarter and first six months of 2016, respectively, and $628 million and $1.36 billion in the second quarter and first six months of 2015, respectively. Due to declines in average selling prices, our per gigabit cost of products purchased from Inotera have decreased significantly throughout 2015 and the first six months of 2016 such that, for the second quarter of 2016, our costs for Inotera products approximated our cost for similar products manufactured in our wholly-owned facilities. In 2015 and the first quarter of 2016, our cost of Inotera products was higher than our cost for similar products manufactured in our wholly-owned facilities. The supply agreement with Inotera (as extended in December 2015) 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.

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 of equity method investees (the "Tera Probe Amortization"). As of March 3, 2016 , the remaining balance of the Tera Probe Amortization was $21 million and is expected to be amortized over a weighted-average period of eight years. Based on closing trading prices, the market value of our equity interest in Tera Probe was $26 million as of March 3, 2016 and $36 million as of December 31, 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 limited amount of time the market value was below carrying value and the historical volatility of Tera Probe's stock price. We incurred manufacturing costs for services performed by Tera Probe of $18 million and $39 million for the second quarter and first six months of 2016, respectively, and $22 million and $47 million for the second quarter and first six months of 2015, respectively.




11



Intangible Assets and Goodwill

As of
 
March 3, 2016
 
September 3, 2015
 
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Amortizing assets
 
 
 
 
 
 
 
 
Product and process technology
 
$
824

 
$
(421
)
 
$
864

 
$
(416
)
Other
 
1

 

 
2

 
(1
)
 
 
825

 
(421
)
 
866

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

 

 

 

 
 
 
 
 
 
 
 
 
 
 
$
933

 
$
(421
)
 
$
866

 
$
(417
)
 
 
 
 
 
 
 
 
 
Goodwill (1)
 
$
104

 
 
 
$
23

 
 
(1)  
Included in other noncurrent assets.

During the first six months of 2016 and 2015 , we capitalized $16 million and $32 million , respectively, for product and process technology with weighted-average useful lives of ten years and seven years, respectively. Amortization expense was $29 million and $60 million for the second quarter and first six months of 2016 , respectively, and $30 million and $60 million for the second quarter and first six months of 2015 , respectively.  The expected annual amortization expense for intangible assets held as of March 3, 2016 is $119 million for 2016 , $105 million for 2017 , $93 million for 2018 , $45 million for 2019 , and $29 million for 2020 .

In the first quarter of 2016, 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 expected cost reductions and other 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.


Accounts Payable and Accrued Expenses

As of
 
March 3,
2016
 
September 3,
2015
Accounts payable
 
$
1,014

 
$
1,020

Property, plant, and equipment payables
 
1,123

 
577

Salaries, wages, and benefits
 
372

 
321

Related party payables
 
234

 
338

Income and other taxes
 
65

 
85

Other
 
279

 
270

 
 
$
3,087

 
$
2,611


As of March 3, 2016 and September 3, 2015 , related party payables included $225 million and $327 million , respectively, due to Inotera primarily for the purchase of DRAM products. As of March 3, 2016 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.)




12



Debt

 
 
 
 
 
 
March 3, 2016
 
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
%
 
$
167

 
$
601

 
$
768

 
$
161

 
$
701

 
$
862

Capital lease obligations (2)
 
N/A

 
N/A

 
338

 
762

 
1,100

 
326

 
466

 
792

1.258% notes
 
1.258
%
 
1.97
%
 
87

 
174

 
261

 
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
%
 

 
1,139

 
1,139

 

 
1,138

 
1,138

2026 senior notes
 
5.625
%
 
5.73
%
 

 
446

 
446

 

 
446

 
446

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

 
200

 
200

 

 
197

 
197

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

 
152

 
152

 

 
150

 
150

2033E convertible senior notes (3)
 
1.625
%
 
4.50
%
 
166

 

 
166

 
217

 

 
217

2033F convertible senior notes (3)
 
2.125
%
 
4.93
%
 
267

 

 
267

 
264

 

 
264

2043G convertible senior notes
 
3.000
%
 
6.76
%
 

 
650

 
650

 

 
644

 
644

Other notes payable
 
2.519
%
 
2.70
%
 
100

 
247

 
347

 
34

 
171

 
205

 
 
 
 
 
 
$
1,125

 
$
6,494

 
$
7,619

 
$
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 3.3% and 3.7% as of March 3, 2016 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 December 31, 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 March 31, 2016. The closing price of our common stock did not meet the thresholds for the calendar quarter ended March 31, 2016; therefore, these notes are not convertible by the holders after 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.

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.


13



2015 Debt Restructure

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

 
 
Increase (Decrease) in Principal
 
Increase (Decrease) in Carrying Value
 
Increase (Decrease) in Cash
 
(Decrease) in Equity
 
(Loss) (1)
Conversions and settlements
 
$
(120
)
 
$
(367
)
 
$
(407
)
 
$
(14
)
 
$
(22
)
Repurchases
 
(36
)
 
(30
)
 
(125
)
 
(92
)
 
(3
)
Issuance
 
1,000

 
988

 
988

 

 

Early repayment
 
(121
)
 
(115
)
 
(122
)
 

 
(5
)
 
 
$
723

 
$
476

 
$
334

 
$
(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.
Issuance : Issued $1.00 billion in principal amount of 2023 Notes due August 2023.

Capital Lease Obligations

In the second 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% , with a weighted-average expected term of four years. In the first six months of 2016, we recorded capital lease obligations aggregating $444 million , including $424 million related to equipment sale-leaseback transactions.


14



Convertible Senior Notes

As of March 3, 2016 , 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 March 3, 2016 :

 
 
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

 
$
50

2032D Notes
 
May 2021
 
177

 
18

 
9.98

 
12.97

 
32

2033E Notes
 
February 2018
 
176

 
16

 
10.93

 
14.21

 
13

2033F Notes
 
February 2020
 
297

 
27

 
10.93

 
14.21

 
24

2043G Notes (4)
 
November 2028
 
1,025

 
35

 
29.16

 
37.91

 

 
 
 
 
$
1,899

 
119

 
 
 
 
 
$
119

(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 December 31, 2015 for our 2032 Notes and 2033 Notes; therefore, those notes were convertible by the holders through March 31, 2016. The closing price of our common stock did not meet the thresholds for the calendar quarter ended March 31, 2016; therefore, these notes are not convertible by the holders after March 31, 2016.
(3)  
Based on our closing share price of $11.79 as of March 3, 2016 .
(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 March 3, 2016 , the outstanding balance was $194 million .

Maturities of Notes Payable and Future Minimum Lease Payments

The following presents, as of March 3, 2016 , 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
 
$
97

 
$
209

2017
 
362

 
298

2018
 
521

 
251

2019
 
530

 
209

2020
 
711

 
101

2021 and thereafter
 
4,844

 
124

Unamortized amounts and interest, respectively
 
(546
)
 
(92
)
 
 
$
6,519

 
$
1,100



15




Subsequent Event

On April 8, 2016, we initiated a syndication process with respect to a new term loan B credit facility (the "Term Loan B Credit Facility"). The new Term Loan B Credit Facility, subject to market conditions and other factors, is expected to be in the aggregate principal amount of $500 million , have a maturity of six years, be secured by a substantial portion of our assets and bear interest at a floating interest based on LIBOR plus an applicable margin. The closing of the Term Loan B Credit Facility is anticipated to be subject to, among other things, successful syndication, negotiation, execution and delivery of definitive loan documentation and various customary closing conditions. In connection with commencement of the Term Loan B Credit Facility syndication process, we indicated that we may also consider, subject to market conditions and other factors, the concurrent issuance of up to $1.00 billion in aggregate principal amount of senior secured notes.


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 March 3, 2016 , 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.


16



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.

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 March 3, 2016 , the Inotera Shares had a carrying value in equity method investments of $667 million and a market value of $1.02 billion.

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 March 3, 2016 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 $39 million as of March 3, 2016 and $49 million as of September 3, 2015 was classified as redeemable convertible notes in the accompanying consolidated balance sheets. The closing price of our common stock did not meet or exceed the thresholds for the calendar quarter ended March 31, 2016; therefore, these notes are not convertible by the holders after March 31, 2016 until the conversion terms or thresholds are met or exceeded or another convertibility condition is met. (See "Debt" note.)


Equity

Micron Shareholders' Equity

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


17



Issued and Outstanding Capped Calls: We have capped calls (with strike prices that range from $9.80 to $10.93 and cap prices that range from $14.26 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 May 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. As of March 3, 2016, 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 $747 million if the trading price of our stock is at or above the cap price for all of the capped calls.

Expiration of Capped Calls: Our outstanding 2031 Capped Calls expired in the second quarter of 2016. We elected share settlement and received 2 million shares of our stock, equivalent to approximately $19 million based on the trading stock price at the time of expiration, which were recorded as treasury stock.

Accumulated Other Comprehensive Income (Loss): Changes in accumulated other comprehensive income (loss) by component for the six months ended March 3, 2016 , 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
 
(89
)
 
1

 
(2
)
 
(6
)
 
(96
)
Amount reclassified out of accumulated other comprehensive income (loss)
 

 
(2
)
 

 
(1
)
 
(3
)
Tax effects
 

 

 

 
2

 
2

Other comprehensive income (loss)
 
(89
)
 
(1
)
 
(2
)
 
(5
)
 
(97
)
Balance as of March 3, 2016
 
$
(89
)
 
$
(6
)
 
$
(5
)
 
$
16

 
$
(84
)

Noncontrolling Interests in Subsidiaries

As of
 
March 3, 2016
 
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
 
16

 
Various

 
15

 
Various

 
 
$
975

 
 
 
$
937

 
 
(1)  
Entity is a variable interest entity.

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 IMFT joint venture agreement to change the dates of the buy-sell rights. Pursuant to the 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 exercises its put right, 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 $53 million and $99 million for the second quarter and first six months of 2016, respectively, and $46 million and $100 million for the second quarter and first six months of 2015 , respectively.

18




Our sales include Non-Trade Non-Volatile Memory, which primarily consists of products sold to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. Non-Trade Non-Volatile sales were $126 million and $252 million for the second quarter and first six months of 2016, respectively, and were $112 million and $232 million for the second quarter and first six months of 2015 , respectively.

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

As of
 
March 3,
2016
 
September 3,
2015
Assets
 
 
 
 
Cash and equivalents
 
$
160

 
$
134

Receivables
 
82

 
79

Inventories
 
67

 
65

Other current assets
 
7

 
7

Total current assets
 
316

 
285

Property, plant, and equipment, net
 
1,744

 
1,768

Other noncurrent assets
 
48

 
49

Total assets
 
$
2,108

 
$
2,102

 
 
 
 
 
Liabilities
 
 

 
 

Accounts payable and accrued expenses
 
$
137

 
$
182

Deferred income
 
9

 
9

Current debt
 
19

 
22

Total current liabilities
 
165

 
213

Long-term debt
 
41

 
49

Other noncurrent liabilities
 
95

 
100

Total liabilities
 
$
301

 
$
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.

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

Six months ended
 
March 3,
2016
 
March 5,
2015
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.  In March 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.


19



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

As of
 
March 3,
2016
 
September 3,
2015
Current assets
 
$
24

 
$
21

Noncurrent assets (primarily property, plant, and equipment)
 
161

 
180

Current liabilities
 
6

 
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 in March 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 March 3, 2016 were $3.07 billion for the MMJ Group and $940 million for IMFT, which included cash and equivalents of $903 million for the MMJ Group and $160 million for IMFT.

As of March 3, 2016 , our retained earnings included undistributed earnings from our equity method investees of $296 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 March 3, 2016 and September 3, 2015 , we had certificates of deposit classified as restricted cash (included in other noncurrent assets) of $42 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).

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
 
March 3, 2016
 
September 3, 2015
 
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes and MMJ creditor installment payments
 
$
4,751

 
$
5,084

 
$
5,020

 
$
5,077

Convertible notes
 
1,899

 
1,435

 
2,508

 
1,472



20



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.

The following summarizes our derivative instruments without hedge accounting designation, which consisted of forward contracts to purchase the noted currencies as a hedge of our net position in monetary assets:

 
 
Notional Amount (in U.S. dollars)
 
Fair Value of
Current Assets (1)
 
Current Liabilities (2)
As of March 3, 2016
 
 
 
 
 
 
Yen
 
$
1,241

 
$
3

 
$

Singapore dollar
 
244

 
1

 

New Taiwan dollar
 
88

 

 

Other
 
93

 

 
(1
)
 
 
$
1,666

 
$
4

 
$
(1
)
As of September 3, 2015
 
 
 
 
 
 
Yen
 
$
928

 
$

 
$
(24
)
Singapore dollar
 
282

 

 

New Taiwan dollar
 
89

 

 

Other
 
107

 
1

 

 
 
$
1,406

 
$
1

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


21



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. Net gains (losses) for derivative instruments without hedge accounting designation were as follows:

 
 
Quarter ended
 
Six months ended
 
 
March 3,
2016
 
March 5,
2015
 
March 3,
2016
 
March 5,
2015
Foreign exchange contracts
 
$
92

 
$
(15
)
 
$
71

 
$
(73
)
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).