UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | |
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 2, 20101, 2011
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 | |
| incorporation or organization) | (IRS Employer Identification No.) |
| 8000 S. Federal Way, Boise, Idaho | 83716-9632 |
| (Address of principal executive offices) | (Zip Code) |
| (208) 368-4000 | |
| Securities registered pursuant to Section 12(b) of the Act: | |
| Title of each class | Name of each exchange on which registered |
| Common Stock, par value $.10 per share | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ No T
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No xT
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 ¨ No T
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer x | Accelerated Filer o | ||
Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller Reporting Company o | ||
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 aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such stock on March 4, 2010,3, 2011, as reported by the NASDAQ Global Select Market, was approximately $6.1 billion.$9.1 billion. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant’sregistrant's common stock as of October 19, 2010,18, 2011, was 996,245,706.987,573,286.
DOCUMENTS INCORPORATED BY REFERENCE
REFERENCE: Portions of the Proxy Statement for the registrant’s 20102011 Annual Meeting of Shareholders to be held on December 16, 2010,January 24, 2012, are incorporated by reference into Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. BusinessBUSINESS
The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in“Products”in "Products" regarding increased sales of DDR3 DRAM products and growth in demand for NAND Flash products and solid-state drives;drives and the growth in “Manufacturing”the markets for phase change memory products; in "Manufacturing" regarding the transition to smaller line-width process technologies.technologies and increases in output from IM Flash's wafer fabrication facility in Singapore; and in "Research and Develop" regarding tool installation at our new research and development facility in Boise, Idaho. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Item"Item 1A. Risk Factors.R 21;Factors." All period references are to our fiscal periods unless otherwise indicated.
Corporate Information
Micron Technology, Inc., and its consolidated subsidiaries, a Delaware corporation, was incorporated in 1978. As used herein, “we,” “our,” “us”"we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. Our executive offices are located at 8000 South Federal Way, Boise, Idaho 83716-9632 and our telephone number is (208) 368-4000. Information about us is available on the internet at www.micron.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to these reports, are available through the our website as soon as reasonably practicable after they are electronically filed with or f urnishedfurnished to the Securities and Exchange Commission (the “SEC”"SEC"). Materials filed by us with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling (800) SEC-0330. Also available on our website are our: Corporate Governance Guidelines, Governance Committee Charter, Compensation Committee Charter, Audit Committee Charter and Code of Business Conduct and Ethics. Any amendments or waivers of our Code of Business Conduct and Ethics will also be posted on our website at www.micron.com within four business days of the amendment or waiver. Copies of these documents are available to shareholders upon request. Information contained or referenced on our website is not incorporated by reference and does not form a part of this Annual Report on Form 10-K.
Overview
We are a global manufacturer and marketer of semiconductor devices, principally DRAM, NAND Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embeddedautomotive, industrial and mobile products. In addition, we manufacture semiconductor components for CMOS image sensors and other semiconductor products. We market our products through our internal sales force, independent sales representatives and distributors primarily to original equipment manufacturers and retailers located around the world. Our success is largely dependent on the market acceptance of our diversified portfolio of semiconductor products, efficient utilization of our manufacturing infras tructure,infrastructure, successful ongoing development of advanced process technologies and the return on research and development investments.
We obtain product for sale through twoproducts from three primary channels: 1)sources: (1) production from our wholly-owned manufacturing facilities, and 2)(2) production from our joint venture manufacturing facilities.facilities and (3) to a lesser degree from third party manufacturers. In recent years, we have obtained additionalincreased our manufacturing scale and product diversity of products through strategic acquisitions and various partnering arrangements, including joint ventures, which have helped us to attain lower cash costs than we could otherwise achieve through internal investments alone. In addition, we
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We have leveragedmade significant investments to develop the proprietary product and process technology that is implemented in our worldwide manufacturing facilities and through our joint ventures to enable the production of semiconductor products with increasing functionality and performance at lower costs. We generally reduce the manufacturing cost of each generation of product through advancements in product and process technology such as our leading-edge line-width process technology and innovative array architecture. We continue to introduce new generations of products that offer improved performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption and increased memory density. To leverage our significant investments in research and development, by sharingwe have formed various strategic joint ventures that have allowed us to share the costs of developing memory product and process technologies with our joint venture partners. In addition, from time to time, we have also sold and/or licensed technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.
In the second quarter of 2011, we reorganized our business to better align with the markets we serve. All prior period amounts have been retrospectively adjusted to reflect this reorganization. After the reorganization, we have the following four reportable segments:
DRAM Solutions Group ("DSG"): Includes high-volume DRAM products sold to the PC, consumer electronics, networking and server markets.
NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music players, and portions of computing markets, as well as NAND Flash products sold to Intel Corporation ("Intel") through our consolidated IM Flash joint ventures.
Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and industrial applications, as well as NOR and NAND Flash sold to consumer electronics, networking, PC and server markets.
Products
Dynamic Random Access Memory (“DRAM”("DRAM"):
DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage and retrieval. DRAM products were 60%41%, 50%60% and 54%50% of our total net sales in 2011, 2010 and 2009, respectively. DRAM products are sold by the DSG, WSG and 2008, respectively.ESG segments. We offer DRAM products with a variety of performance, pricing and other characteristics including high-volume DDR3 and DDR2 products as well as specialty DRAM memory products including DDR, SDRAM, Mobile Low Power DRAM PSRAM("LPDRAM"), DDR, SDRAM, Reduced Latency DRAM ("RLDRAM") and RLDRAM.Pseudo-static DRAM ("PSRAM").
DDR3 and DDR2:DDR2: DDR3 and DDR2 are standardized, high-density, high-volume DRAM products that are sold primarily for use as main system memory in computers and servers. DDR3 and DDR2 products offer high speed and high bandwidth at a relatively low cost compared to other DRAM products. DDR3 products were 21%, 22% and 7% of our total net sales in 2011, 2010 and 2009, respectively. DDR2 products were 10%, 24% and 22% of our total net sales in 2011, 2010 as compared to 7% of our total net sales inand 2009, and we expect that sales of DDR3 products as a percentage of total net sales will continue to increase in 2011. DDR2 products were 24%, 22% and 28% of our total net sales in 2010, 2009 and 2008, respectively.
We offer DDR3 products in 1 gigabit (“Gb”("Gb"), 2Gb and 24 Gb densities and DDR2 products in 256 megabit (“Mb”("Mb"), 512 Mb, 1 Gbgigabit and 2 Gb densities. We expect that these densities will be necessary to meet future customer demands for a broad array of products and offer these products in multiple configurations, speeds and package types. In connection with our investment in Inotera in 2009, we also offered DDR2 and DDR3
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Specialty DRAM products manufactured by Inotera using a trench DRAM technology. As Inotera transitioned to our stack DRAM technology it discontinued wafers starts on trench DRAM in July of 2010. All wafer starts since that time have been on our stack DRAM technology.
:Other DRAM products: We also offer specialty DRAM memory products including DDR SDRAM, DDR and DDR2 Mobile Low Power DRAM (“LPDRAM”), Pseudo-static RAM (“PSRAM”)LPDRAM, DDR, SDRAM, RLDRAM and Reduced Latency DRAM (“RLDRAM”),PSRAM in densities ranging from 64 Mb to 2 Gb, whichGb. LPDRAM products are used primarily in laptop computers, tablets, and other consumer devices that require low power consumption. Our other specialty DRAM products are used primarily in networking devices, servers, consumer electronics, communications equipment and computer peripherals as well as computer memory upgrades. Aggregate sales of theseLPDRAM and our other DRAM products were 14%10%, 21%14% and 25%21% of our total net sales in 2011, 2010 2009 and 2008,2009, respectively.
NAND Flash memory (“NAND”Memory ("NAND"):
NAND products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off. NAND sales for the Memory segment were 28%36%, 39%28% and 35%39% of our total net sales in 2011, 2010 and 2009, respectively. NAND products are sold by the NSG, WSG and 2008, respectively.ESG segments. NAND is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memory. Removable storage devices, such as USB and Flash memory cards, are used with applications such as personal computers, digital still cameras, MP3/4 players and mobile phones. Embedded NAND-based storage devices are utilized in mobile phones, MP3/4 players, computers, solid-state drives (“SSD’s”("SSDs"), tablets and other personal and consumer applications. The market for NAND products has grown rapidly and we expect it to continue to grow due to demand for these and other removable and embedded storage devices.
We offer next-generation RealSSD™ solid-state drives for enterprise server and notebook applications which feature higher performance, reduced power consumption and enhanced reliability as compared to typical hard disk drives. Using our SLC and MLC NAND process technology, these solid-state drives (“SSDs”)SSDs are offered in 2.5-inch and 1.8-inch form factors, with densities up to 256 gigabytes and as512 gigabytes. We also offer embedded USB devices with densities up to 16 gigabytes. We are sampling enterprise PCIe SSDs with capacities up to 700 gigabytes. We expect that demand for SSD’sSSDs will continue to increase significantly over the next fewseveral years. We also offer NAND Flash in multichip packages (“MCP’s”) that incorporate NAND Flash with other memory products to create a single package that simplifies design while improving perfor mance and functionality.
NOR Flash Memory (“NOR”("NOR"):
NOR products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off, offer fast read times due to random access capability and have execute-in-place (“XiP”("XiP") capability whichthat enables processors to read NOR without first accessing RAM. These capabilities make NOR ideal for storing program code in wireless and embedded applications. NOR is the principal product of the Numonyx segment andOur NOR sales originated from the May 7, 2010 acquisition of Numonyx and were 18% and 5% of our total net sales for 2010. 2011 and 2010, respectively. NOR products are sold by the WSG and ESG segments.
We offer both parallel and serial interface NOR products in scalable densities from 32 Mb to 2 Gb and in a widebroad range of voltages to meet embedded application design requirements.
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Phase Change Memory (“PCM”("PCM"):
PCM is a new memory technology that combines the best attributes of NOR, NAND and RAM, simplifying memory and producing more capabilities within a single chip. PCM is bit-alterable, non-volatile memory featuring fast read/write/erase speeds that is highly scalable to lower line-width technologies. We currently offer Omneo™both parallel and serial interface PCM products and are developing next generation PCM products.
Partnering Arrangements
The following is a summary of our partnering arrangements as of September 2, 2010:1, 2011:
| Partner(s) | Approximate Micron Ownership Interest | Formed/ Acquired | Product Market | |||||||||||
| Consolidated Entities: | ||||||||||||||
IMFT | Intel Corporation | 51 | % | 2006 | NAND Flash | (1 | ) | |||||||
IMFS | Intel Corporation | 57 | % | 2007 | NAND Flash | (1 | ) | |||||||
TECH | Canon Inc. and Hewlett-Packard Corporation | 87 | % | 1998 | DRAM | (2 | ) | |||||||
MP Mask | Photronics, Inc. | 50 | % | 2006 | Photomasks | (3 | ) | |||||||
| Equity Method Investments: | ||||||||||||||
Inotera | Nanya Technology Corporation | 30 | % | 2009 | DRAM | (4 | ) | |||||||
MeiYa | Nanya Technology Corporation | 50 | % | 2008 | DRAM | (4 | ) | |||||||
Transform | Origin Energy Limited | 50 | % | 2010 | Solar Panels | (5 | ) | |||||||
Aptina | Riverwood Capital LLC and TPG Partners VI, L.P. | 35 | % | 2009 | CMOS Image Sensors | (6 | ) | |||||||
| Partner(s) | Approximate Micron Ownership Interest | Formed/ Acquired | Product Market | ||||
| Consolidated Entities: | |||||||
| IMFT | (1) | Intel Corporation | 51 | % | 2006 | NAND Flash | |
| IMFS | (1) | Intel Corporation | 86 | % | 2007 | NAND Flash | |
| MP Mask | (2) | Photronics, Inc. | 50 | % | 2006 | Photomasks | |
| Equity Method Investments: | |||||||
| Inotera | (3) | Nanya Technology Corporation | 30 | % | 2009 | DRAM | |
| MeiYa | (3) | Nanya Technology Corporation | 50 | % | 2008 | DRAM | |
| Transform | (4) | Origin Energy Limited | 50 | % | 2010 | Solar Panels | |
Aptina | (5) | Riverwood Capital LLC and TPG Partners VI, L.P. | 35 | % | 2009 | CMOS Image Sensors | |
| (1) | IM Flash:We |
| (2) |
MP Mask:We produce photomasks for leading-edge and advanced next generation semiconductors through MP Mask Technology Center, LLC |
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| (3) | Inotera and MeiYa:We |
| (4) | Transform: |
| (5) | Aptina: We manufacture CMOS image sensor products for Aptina under a wafer supply agreement. |
Manufacturing
Our manufacturing facilities are located in the United States, China, Israel, Italy, Japan, Malaysia, the Philippines, Puerto Rico and Singapore. Our Inotera joint venture also has a wafer fabrication facility in Taiwan. In 2011, we sold our wafer fabrication facility in Japan to Tower Semiconductor Ltd. ("Tower") and entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014. Our manufacturing facilities generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is extremely capital intensive, requiring large investments in sophisticated facilities and equipment. MostA significant portion of our semiconductor equipment must beis replaced every three to five years with increasingly advanced equipment. DRAM, NAND and NOR share common manufacturing processes, enabling us to leverage our product and process technologies and manufacturing infrastructure across these product lines.
Our process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer fabrication, assembly and test. Efficient production of semiconductor products requires utilization of advanced semiconductor manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary determinants of manufacturing cost are die size, number of mask layers, number of fabrication steps and number of good die produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type and cleanliness of the manufacturing environmen t.environment. We continuously enhance our production processes, reducing die sizes and transitioning to higher density products. In 2011, we transitioned the second halfmajority of 2010, most of our DRAM products were manufactured using our 50nm line-width process technology and we expect to transition our DRAM production to 42nm line-width process technology in 2011. In 2010 weand began transitioning productionto 30nm line-width process technology. In 2011 most of our NAND Flash memory products towere manufactured on our 25nm line-width process technology and we expect that mostto continue transitioning to 20nm line-width process technology in 2012. In 2011, we manufactured all of our NAND Flash products will be manufactured with this process technology in 2011. In 2010, we manufactured substantially all ofand our high-volume DRAM and NAND Flash products on 300mm wafers. We manufactured NOR Flash, some specialty DRAM and CMOS image sensor products on 200mm wafers. In 2011, the majority of our NOR Flash memory products were manufactured on our 65nm line-width process technology and we expect to continue transitioning to 45nm line-width technology in 2012.
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Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting contaminants. Despite stringent manufacturing controls, equipment errors, minute impurities in materials, defects in photomasks, circuit design marginalities or defects and dust particles can lead to wafers being scrapped and individual circuits being nonfunctional. Success of our manufacturing operations depends largely on minimizing defects to maximize yield of high-quality circuits. In this regard, we employ rigorous quality controls throughout the manufacturing, screening and testing processes. We are able to recover many nonstandard devices by testing and grading them to their highest level of functionality.
After fabrication, most silicon wafers are separated into individual die. We sell semiconductor products in both packaged and unpackaged (i.e. “bare die”"bare die") forms. For packaged products, functional die are sorted, connected to external leads and encapsulated in plastic packages. We assemble products in a variety of packages, including TSOP (thin small outline package), TQFP (thin quad flat package) and FBGA (fine pitch ball grid array). Bare die products address customer requirements for smaller form factors and higher memory densities and provide superior flexibility for use in packaging technologies such as systems-in-a-package (SIPs) and multi-chip packages (MCPs), which reduce the board area required.
We test our products at various stages in the manufacturing process, perform high temperature burn-in on finished products and conduct numerous quality control inspections throughout the entire production flow. In addition, we use our proprietary AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of DRAM die during the burn-in process, capturing quality and reliability data and reducing testing time and cost.
We assemble a significant portion of our memory products into memory modules. Memory modules consist of an array of memory components attached to printed circuit boards (“PCBs”("PCBs") that insert directly into computer systems or other electronic devices. We also contract with independent foundries and assembly and testing organizations to manufacture LexarLexar-brand flash media products such as memory cards and USB devices.
We utilize subcontractors to perform a significant portion of our assembly test and module assembly services. Outsourcing these services enables us to reduce costs and minimize our capital investment.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate resources to our most profitable products but also increases the complexity of our manufacturing process. Although our product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts and the reallocation of manufacturing capacity across various product lines.
NAND Flash joint venturesJoint Ventures with Intel Corporation:Corporation
Our IM Flash joint ventures with Intel manufacture NAND Flash memory products for the exclusive benefit of the partners. We share the output of IM Flash with Intel generally in proportion to theirour and Intel's investment in IM Flash. In the second quarter of 2010,2011, IM Flash began moving forward with start-up activities inramping production at a new Singapore wafer fabrication facility including placing purchase orders and tool installationswe expect that commencedoutput from this facility will significantly increase our overall NAND Flash production in the first quarter of 2011.2012.
Under a supply agreement with Inotera, we have the right and obligation to obtain 50% of Inotera’s output, estimated to beInotera's total capacity of approximately 65,000130,000 300mm DRAM wafer starts per month by the endas of calendar 2010. In 2010,September 1, 2011. Inotera substantially completed a transitionaccounted for 33% of its manufacturing from trenchour DRAM process technology to our stack DRAM process technology.gigabit production in 2011.
Aptina Supply Agreement:Agreement
We manufacture CMOS image sensor products for Aptina under a wafer supply agreement.
(See “Partnering Arrangements”"Partnering Arrangements")
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Availability of Raw Materials
Our production processes require raw materials that meet exacting standards, including several that are customized for, or are unique to, us. We generally have multiple sources and sufficient availability of supply; however,supply. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, photoresist, lead frames, molding compound and other materials. Shortages may occur from time to time in the future. In addition, transportation problems could delay our receipt of raw materials. Although raw materials shortages or transportation problems have not significantly interrupted our operati ons in the past, shortages may occur from time to time in the future. Also, leadLead times for the supply of raw materials have been extended in the past. If our supply of raw materials is interrupted or our lead times are extended, our results of operations or financial condition could be adversely affected.
Marketing and Customers
Our products are sold into computing, consumer, networking, telecommunications, automotive, industrial and imaging markets. Approximately 45% of ourMarket concentrations from 2011 net sales for 2010 were to theapproximately as follows: computing market, which includes(including desktop PCs, servers, notebooks and workstations. Sales to Hewlett-Packard Company, primarily of DRAM, were 13% of our net sales in 2010.workstations), 30%; mobile, 25%; consumer electronics, 15%; and networking and storage, 15%. Sales to Intel, primarily of NAND Flash from our IM Flash joint ventures, were 10% of our net sales in 2011, 9% of our net sales in 2010, and 20% of our net sales in 2009 and 19%2009. Sales to Hewlett-Packard Company, primarily of DRAM, were 9% of our net sales in 2008.2011 and 13% of our net sales in 2010.
Our Memorysemiconductor memory products are offered under the Micron, Lexar®, Crucial™, SpecTek® and SpecTek®Numonyx® brand names and private labels. Our Numonyx products are offered under the Numonyx® brand name. We market our Memory and Numonyx semiconductor memory products primarily through our own direct sales force and maintain sales offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory products primarily through retail channels and our Crucial™-branded products primarily through a web-based customer direct sales channel.channel as well as channel and distribution partners. Our products are also offered through independent sales representatives and distributors. Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a commission basis. We make shipments against these orders directly to the customer. Distributors carry our products in inventory and typically sell a variety of other semiconductor products, including competitors’competitors' products. We maintain inventory at locations in close proximity to certain key customers to facilitate rapid delivery of products.
We offer products designed to meet the diverse needs of computing, server, automotive, networking, commercial/industrial, consumer electronics, mobile, embedded, security and medical applications. Many of our customers require a thorough review or qualification of semiconductor products, which may take several months.
Backlog
Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts. Accordingly, new order volumes for our semiconductor products fluctuate significantly. We typically accept orders with acknowledgment that the terms may be adjusted to reflect market conditions at the date of shipment. For these reasons, we do not believe that our order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.
Product Warranty
Because the design and manufacturing process for semiconductor products is highly complex, it is possible that we may produce products that do not comply with customer specifications, contain defects or are otherwise incompatible with end uses. In accordance with industry practice, we generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that pro videdprovided under our general terms and conditions.
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Competition
We face intense competition in the semiconductor memory markets from a number of companies, including Elpida Memory, Inc.; Hynix Semiconductor Inc.; Samsung Electronics Co., Ltd; SanDisk Corporation; Spansion Inc. and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which we compete, invest in technology and capitalize on growth opportunities. Our competitors seek to increase silicon capacity, improve yields, reduce die size and minimize mask levels in their product designs resulting in significantly increased worldwide supply and downward pressure on prices. Many of our high-volume memory products are manufactured to industry standard specifications, and as such, have similar performance characteristics to our competitors. For these high-volume memory products, the principal competitive factors are generally price and performance characteristics including: operating speed, power consumption, reliability, compatibility, size and form factors. For our other memory products, the aforementioned performance characteristics generally take precedent to pricing.
Research and Development
Our process technology research and development (“("R&D”&D") efforts are focused primarily on development of successively smaller line-width process technologies, which are designed to facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our core semiconductor expertise and the development of new manufacturing materials. Product design and development efforts are concentrated on our high density DDR3DRAMDDR3 DRAM and LP-DDR2 mobile LPDRAM products as well as high density and mobile NAND Flash memory (including multi-level cell technology), NOR Flash memory, specialty memory, PCM and other next-generation memories and memory systems.
Our R&D expenses were $791 million, $624 million and $647 million in 2011, 2010 and $680 million in 2010, 2009, and 2008, respectively. We generally share R&D process and design costs for NAND Flash equally with Intel and for DRAM equally with Nanya. As a result of reimbursements under our NAND Flash and DRAM cost sharing arrangements with our joint venture partners, our overall R&D expenses were reduced by $236 million, $155 million and $107 million in 2011, 2010 and $148 million in 2010, 2009, and 2008, respectively.
To compete in the semiconductor memory industry, we must continue to develop technologically advanced products and processes. We believe that expansion of our semiconductor product offerings is necessary to meet expected market demand for specific memory solutions. Our process development center and largest design center are located at our corporate headquarters in Boise, Idaho. In 2011, we began construction of a new 450mm-wafer capable R&D facility in Boise which we expect will be ready for tool installations in the beginning of calendar year 2012. We have several additional product design centers in other strategic locations around the world. In addition, we develop leading edge photolithography mask technology at our MP Mask joint venture facility in Boise.
R&D expenses vary primarily with the number of development wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. We deem development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.
Geographic Information
Sales to customers outside the United States totaled $7.1$7.4 billion for 20102011 and included $3.3$3.0 billion in sales to China, $817$924 million in sales to Europe, $744 million in sales to Taiwan, $737 million in sales to Malaysia $777 million in sales to Europe, $711 million in sales to Taiwan, and $1.1$1.5 billion in sales to the rest of the Asia Pacific region (excluding China, Malaysia and Taiwan). Sales to customers outside the United States totaled $7.1 billion for 2010 and $3.9 billion for 2009 and $4.4 billion for 2008.2009. As of September 2, 2010,1, 2011, we had net property, plant and equipment of $3.9$3.6 billion in Singapore, $3.5 billion in the United States, $2.2 billion in Singapore, $173$190 million in Italy, $111$179 million in China, $94 million in Israel, $90 million in China, $81 million in Japan, and $60$36 million in other countries. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information”Information" note and “Item"Item 1A. Risk Factors.”")
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Patents and Licenses
In recent years, we have been recognized as a leader in per capita and quality of patents issued. As of September 2, 2010,1, 2011, we owned approximately 16,80017,100 U.S. patents and 2,9003,200 foreign patents. In addition, we have numerous U.S. and foreign patent applications pending. Our patents have various terms expiring through 2029.2030.
We have a number of patent and intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
In recent years, we have recovered some of our investment in technology through sales or licenselicenses of intellectual property rights to joint venture partners and other third parties. We are pursuing additional opportunities to recover our investment in intellectual property through additional sales or licenses of intellectual property and potential partnering arrangements. On October 1, 2010, we entered into a 10-year patent cross-license agreement with Samsung Electronics Co., Ltd. (“Samsung”). Under the agreement, Samsung will pay us $275 million, with $200 million paid in October 2010, $40 million due January 31, 2011 and $35 million due March 31, 2011. The license is a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents.
Employees
As of September 2, 2010,1, 2011, we had approximately 25,90026,100 employees, of which approximately 15,90015,500 were outside the United States, including approximately 6,4007,600 in Singapore, 3,4003,300 in Italy, 1,5001,700 in Japan,China, 1,300 in ChinaIsrael and 1,2001,000 in Israel.Malaysia. Our employees include approximately 2,3002,800 in our IM Flash joint ventures, primarily located in the United States and approximately 1,800 are employees of our TECH joint venture, located in Singapore. Our employment levels can vary depending on market conditions and the level of our production, research and product and process development. Many of our employees are highly skilled and our continued success depends in part upon our ability to attract and retain such employees. The loss of our key personnel could hav ehave a material adverse effect on our business, results of operations or financial condition.
Environmental Compliance
Government regulations impose various environmental controls on raw materials and discharges, emissions and solid wastes from our manufacturing processes. In 2010,2011, our wholly-owned wafer fabrication facilities continued to conform to the requirements of ISO 14001certification. To continue certification, we met annual requirements in environmental policy, compliance, planning, management, structure and responsibility, training, communication, document control, operational control, emergency preparedness and response, record keeping and management review. While we have not experienced any materially adverse effects to our operations from environmental regulations, changes in the regulations could necessitate additional capital expenditures, modification of our operations or other compliance actions.
Directors and Executive Officers of the Registrant
Our officers are appointed annually by the Board of Directors and our directors are elected annually by our shareholders. Any directors appointed by the Board of Directors to fill vacancies on the Board serve until the next election by the shareholders. All officers and directors serve until their successors are duly chosen or elected and qualified, except in the case of earlier death, resignation or removal.
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As of September 2, 2010,1, 2011, the following executive officers and directors were subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
| Name | Age | Position | ||
| Mark W. Adams | 47 | Vice President of Worldwide Sales | ||
| Steven R. Appleton | 51 | Chairman and Chief Executive Officer | ||
| D. Mark Durcan | 50 | President and Chief Operating Officer | ||
| Thomas T. Eby | 50 | Vice President of Embedded Solutions | ||
| Ronald C. Foster | 61 | Vice President of Finance and Chief Financial Officer | ||
| Glen W. Hawk | 49 | Vice President of | ||
| Roderic W. Lewis | 56 | Vice President of Legal Affairs, General Counsel and Corporate Secretary | ||
| Mario Licciardello | 69 | Vice President of Wireless | ||
| Patrick T. Otte | 49 | Vice President of Human Resources | ||
| Brian J. Shields | 49 | Vice President of Worldwide Operations | ||
| Brian M. Shirley | 42 | Vice President of DRAM Solutions | ||
| Teruaki Aoki | 69 | Director | ||
| James W. Bagley | 72 | Director | ||
| Robert L. Bailey | 54 | Director | ||
| Patrick J. Byrne | 50 | Director | ||
| Mercedes Johnson | 57 | Director | ||
| Lawrence N. Mondry | 51 | Director | ||
| Robert E. Switz | 65 | Director | ||
Mark W. Adams joined us in June 2006. From January 2006, until he joined us, Mr. Adams was the Chief Operating Officer of Lexar Media, Inc. Mr. Adams served as the Vice President of Sales and Marketing for Creative Labs, Inc. from December 2002 to January 2006. From March 2000 to September 2002, Mr. Adams was the Chief Executive Officer of Coresma, Inc. Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business School.
Steven R. Appleton joined us in February 1983 and has served in various capacities since that time. Mr. Appleton first became an officer in August 1989 and has served in various officer positions since that time. From April 1991 until July 1992 and since May 1994, Mr. Appleton has served on our Board of Directors. From September 1994 to June 2007, Mr. Appleton served as our Chief Executive Officer, President and Chairman of the Board of Directors. From June 2007, Mr. Appleton served as our Chief Executive Officer and Chairman of the Board. Mr. Appleton is a member of the Board of Directors of National Semiconductor Corporation. Mr. Appleton holds a BA in Business Manage mentManagement from Boise State University.
D. Mark Durcan joined us in June 1984 and has served in various positions since that time. Mr. Durcan was appointed our Chief Operating Officer in February 2006 and President in June 2007. Mr. Durcan has been an officer since 1996. Mr. Durcan holds a BS and MChE in Chemical Engineering from Rice University.
Thomas T. Eby joined us in September 2010 and serves as our Vice President of Embedded Solutions. Mr. Eby was with Spansion Inc from October 2005 to September 2010 where he held leading roles in strategy and communications, sales and marketing, and integration. He was also the General Manager of and Excutive Vice President of Spansion's embedded group. Mr. Eby previously held a variety of positions in sales and marketing and strategy with AMD. Mr. Eby holds a BS degree in Electrical Engineering and Computer Science from Princeton University.
Ronald C. Fosterjoined usin April 2008 and is the Chief Financial Officer and Vice President of Finance. In this position, Mr. Foster has oversight responsibilities of the financial aspects of Micron’sMicron's worldwide operations. He was appointed to his current position in 2008 after serving as a member of the Board of Directors from June 2004 to April 2005. Before joining Micron, Mr. Foster was the chief financial officer of FormFactor, Inc. He previously served as the Chief Financial Officer for JDS Uniphase, Inc., and Novell, Inc., and has held senior financial management positions at Hewlett-Packard and Applied Materials. 60; He is currently a member of the Board of Directors of Luxim, Inc. Mr. Foster holds a master’s degree in business administrationan MBA from the University of Chicago and a bachelor’s degreeBA in economicsEconomics from Whitman College.
Glen W. Hawk joined us in May 2010 and serves as our Vice President of EmbeddedNAND Solutions. Mr. Hawk served as the Vice President and General Manger of the Embedded Business Group for Numonyx from 2008 to May 2010. Prior to Numonyx, Mr. Hawk served as General Manager of the Flash Product Group for Intel Corporation. Mr. Hawk holds a BS degree in Chemical Engineering from the University of California, Berkeley.
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Roderic W. Lewis joined us in August 1991 and has served in various capacities since that time. Mr. Lewis has served as our Vice President of Legal Affairs, General Counsel and Corporate Secretary since July 1996. Mr. Lewis holds a BA in Economics and Asian Studies from Brigham Young University and a JD from Columbia University School of Law.
Mario Licciardello joined us in May 2010 and serves as our Vice President of Wireless Business Group.Solutions. Mr. Licciardello served as the Chief Operating Officer for Numonyx since its inception in 2008 through May 2010. Prior to Numonyx, Mr. Licciardello served as Corporate Vice President and General Manager of the Flash Memories Group at STMicroelectronics N.V. Mr. Licciardello holds a BS degree in Physics from the University of Catania, Italy.
Patrick T. Otte joined us in 1987 and has served in various positions of increasing responsibility, including production and operations manager in several of our fabrication facilities and site director for our facility in Manassas, Virginia. Mr. Otte has served as our Vice President of Human Resources since March 2007. Mr. Otte holds a Bachelor of ScienceBS degree from St. Paul Bible College in Minneapolis, Minnesota.
Brian J. Shields joined us in November 1986 and has served in various operational positions with us. Mr. Shields first became an officer in March 2003 and was Vice President of Wafer Fabrication starting December 2005 and has served as Vice President of Worldwide Operations from June 2010.
Brian M. Shirley joined us in August 1992 and has served in various positions since that time. Mr. Shirley became Vice President of Memory in February 2006 and has served as Vice President of DRAM Solutions from June 2010. Mr. Shirley holds a BS in Electrical Engineering from Stanford University.
Teruaki Aoki has served as President of Sony University since April 2005. Dr. Aoki has been associated with Sony since 1970 and has held various executive positions, including Senior Executive Vice President and Executive Officer of Sony Corporation as well as President and Chief Operating Officer of Sony Electronics, a U.S. subsidiary. Dr. Aoki holds a Ph.D. in Material Sciences from Northwestern University as well as a BS in Applied Physics from the University of Tokyo. He was elected as an IEEE Fellow in 2003 and serves as Advisory Board Member of Kellogg School of Management of Northwestern University. Dr. Aoki also serves on the board of Citizen Holdings Co., Ltd. Dr. Aoki is the Chairm anChairman of the Board’sBoard's Compensation Committee. He has served on our Board of Directors since 2006.
James W. Bagley became the Executive Chairman of Lam Research Corporation (“Lam”("Lam"), a supplier of semiconductor manufacturing equipment, in June 2005. From August 1997 through June 2005, Mr. Bagley served as the Chairman and Chief Executive Officer of Lam. Mr. Bagley is a member of the Board of Directors of Teradyne, Inc. He has served on our Board of Directors since June 1997. Mr. Bagley holds a MS and BS degrees in Electrical Engineering from Mississippi State University.
Robert L. Bailey has been was the Chairman of the Board of Directors of PMC-Sierra (“PMC”("PMC") sincefrom 2005 until May 2011 and also served as PMC’sPMC's Chairman from February 2000 until February 2003. Mr. Bailey has beenserved as a director of PMC since October 1996. He also served as the President and Chief Executive Officer of PMC from July 1997 until May 2008. PMC is a leading provider of broadband communication and semiconductor storage solutions for the next-generation Internet. Mr. Bailey currently serves on the Board of Directors of Entropic Communications. Mr. Bailey holds a BS degree in Electrical Engineering from the University of Bridgeport and an MBA from the University of Dallas. He has served on our Board of Directors since 2007.
Patrick J. Byrne has served as Director, President and Chief Executive Officer of Intermec, Inc. (“Intermec”) since July 2007. Intermec develops and integrates products, services and technologies that identify, track and manage supply chain assets and information. Prior to joining Intermec, Mr. Byrne served as a Senior Vice President and President of the Electronic Measurement Group of Agilent Technologies Inc., a bio-analytical and electronic measurement company, from February 2005 to March 2007. Prior to assuming that position, Mr. Byrne served as Vice President and General Manager for Agilent's Electronic Products and Solutions Group's Wireless Business Unit from September 2001 to February 2005. He served as Vice President for Agilent's Electronic Products and Solutions Group's Product Generation Units from 1999 to 2001. Mr. Byrne is also a member of the Board of Directors of Flow International, a manufacturer of ultrahigh-pressure waterjet technology, and a leading provider of robotics and assembly equipment. Mr. Byrne received his BS degree in Electrical Engineering from the University of California, Berkeley, and his MS degree in Electrical Engineering from Stanford University. Mr. Byrne joined our Board of Directors in April 2011.
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Mercedes Johnson was the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a supplier of analog interface components for communications, industrial and consumer applications, from December 2005 to August 2008. She also served as the Senior Vice President, Finance, of Lam from June 2004 to January 2005 and as Lam’sLam's Chief Financial Officer from May 1997 to May 2004. Ms. Johnson holds a degree in Accounting from the University of Buenos Aires and currently serves on the Board of Directors for Intersil Corporation.Corporation and Juniper Networks, Inc. Ms. Johnson is the Chairman of the Board’sBoard's Audit Committee and has served on our Board of Directors since 2005.
Lawrence N. Mondry was the President and Chief Executive Officer of CSK Auto Corporation (“CSK”("CSK"), a specialty retailer of automotive aftermarket parts, from August 2007 to July 2008. Prior to his appointment at CSK, Mr. Mondry served as the Chief Executive Officer of CompUSA Inc. from November 2003 to May 2006. Mr. Mondry joined CompUSA in 1990. Mr. Mondry is the Chairman of the Board’sBoard's Governance Committee and Presiding Director. He has served on our Board of Directors since 2005.
Robert E. Switz is currently was the Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc., (“ADC”("ADC"), a supplier of network infrastructure products and services.services from August 2003 until December 2010, when Tyco Electronics Ltd. acquired ADC. Mr. Switz has been President and Chief Executive officer ofjoined ADC since August 2003 and Chairman since August 2008. He has been with ADC sincein 1994 and prior tothroughout his current position, served ADC as Executive Vice President and Chief Financial Officer.career there held numerous leadership positions. Mr. Switz holds an MBA from the University of Bridgeport as well as a degree in Marketing/Economics from Quinnipiac University. Mr. Switz also serves on the Board of Directors for ADCBroadcom Corporation, GT Advanced Technologies and Broadcom Corporation.Leap Wireless International, Inc. He has served on our Board of Directors since 2006.
There are no family relationships between any of our directors or executive officers.
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In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of us.
We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.
| DRAM | NAND Flash | ||||||
| (percentage change in average selling prices) | |||||||
| 2011 from 2010 | (39 | )% | (17 | )% | |||
| 2010 from 2009 | 28 | % | * | (18 | )% | ||
| 2009 from 2008 | (52 | )% | (56 | )% | |||
| 2008 from 2007 | (51 | )% | (67 | )% | |||
| 2007 from 2006 | (23 | )% | (56 | )% | |||
| * Only increase in DRAM pricing since 2004. | |||||||
We may be unable to reduce our per gigabit manufacturing costs at the rate average selling prices decline.
Our gross margins are dependent upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes, including reducing the die size of our existing products. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to improve or maintain gross margins. Factors that may limit our ability to reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, technological barriers and changes in process technologies or products that inherently may require relatively larger die sizes. Per gigabit manufacturing costs may also be affected by the relatively smaller production quantities and shorter product lifecycles of certain specialty memory products.
An adverse outcome relating to allegations of anticompetitive conduct could materially adversely affect our business, results of operations or financial condition.
On May 5, 2004, Rambus, Inc. ("Rambus") filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers alleging that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM ("RDRAM") by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus' complaint alleges various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus is seeking a judgment for damages of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the jury on September 21, 2011. At the time of this filing, a jury verdict is pending. We cannot predict when a verdict will be reached or when a formal judgment would be entered by the Court subsequent to a verdict. In the event of an adverse judgment, we would anticipate filing appropriate post-judgment motions and appeals. We may be required to post a bond or other security to stay enforcement of an adverse judgment pending appeal. Depending on the amount required, we cannot assure you we would be able to obtain sufficient security to pursue an appeal. We are unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. Accordingly, we have not provided an accrual for an adverse judgment in the September 1, 2011, financial statements. However, we have accrued a liability and charged operations for estimated costs to successfully defend the matter. An adverse judgment may have a material impact on our business, results of operations and financial condition, including liquidity.
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On September 24, 2010, Oracle America Inc. ("Oracle"), successor to Sun Microsystems, a DRAM purchaser that opted-out of a direct purchaser class action suit that was settled, filed suit against us in U.S. District Court for the Northern District of California. The complaint alleges DRAM price-fixing and other violations of federal and state antitrust and unfair competition laws based on purported conduct for the period from August 1, 1998 through at least June 15, 2002. Oracle is seeking joint and several damages, trebled, as well as restitution, disgorgement, attorneys' fees, costs and injunctive relief.
We are unable to predict the outcome of these lawsuits. An adverse court determination in any of these lawsuits alleging violations of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.
The semiconductor memory industry is highly competitive.
We face intense competition in the semiconductor memory market from a number of companies, including Elpida Memory, Inc.; Hynix Semiconductor Inc.; Samsung Electronics Co., Ltd.; SanDisk Corporation; Spansion Inc. and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which we compete, invest in technology and capitalize on growth opportunities. Our competitors seek to increase silicon capacity, improve yields, reduce die size and minimize mask levels in their product designs. The transitions to smaller line-width process technologies and 300mm wafers in the industry have resulted in significant increases in the worldwide supply of semicon ductorsemiconductor memory. Increases in worldwide supply of semiconductor memory also result from semiconductor memory fab capacity expansions, either by way of new facilities, increased capacity utilization or reallocation of other semiconductor production to semiconductor memory production. As a result of improving conditions in the semiconductor memory market in recent periods, ourOur competitors may increase capital expenditures resulting in future increases in worldwide supply. Increases in worldwide supply of semiconductor memory, if not accompanied with commensurate increases in demand, would lead to further declines in average selling prices for our products and would materially adversely affect our business, results of operations or financial condition.
The downturn in the worldwide economy may harm our business.
The downturn in the worldwide economy had an adverse effect on our business. A continuation or further deterioration of depressed economic conditions could have an even greater adverse effect on our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers and other computing and networking products, mobile devices, Flash memory cards and USB devices. Reduced demand for our products could result in continued market oversupply and significant decreases in our average selling prices. A continuation of current negative conditions in worldwide credit markets would limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experie nceexperience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults. As a result, our business, results of operations or financial condition could be materially adversely affected.
Inotera's liquidity risk may adversely impact our ownership interest and supply agreement.
Because of significant market declines in the selling price of DRAM, Inotera incurred net losses of $278 million for the six-month period ended June 30, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.3 billion as of June 30, 2011, which exposes Inotera to liquidity risk. Further, under generally accepted accounting principles in the Republic of China, Inotera reported a loss for its quarter ended September 30, 2011 of an additional New Taiwan dollars 7,022 million (approximately $241 million U.S. dollars). Inotera's management has developed plans to improve its liquidity. If Inotera is unable to adequately improve its liquidity, we may have to impair our $323 million investment in Inotera. In connection with our ownership equity interest in Inotera, we have rights and obligations to purchase 50% of the wafer production capacity of Inotera. In 2011, we purchased $641 million of DRAM products from Inotera, and our supply from Inotera accounted for 37% or our DRAM gigabit production in the fourth quarter of 2011. As a result, if our supply of DRAM from Inotera is impacted, our business, results of operations or financial condition could be materially adversely affected.
Our supply agreement with Inotera involves numerous risks.
Our supply agreement with Inotera involves numerous risks including the following:
we have experienced difficulties and delays in ramping production at Inotera on our technology and may continue to experience difficulties and delays in the future;
we may experience continued difficulties in transferring technology to Inotera;
costs associated with manufacturing inefficiencies resulting from underutilized capacity;
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difficulties in obtaining high yield and throughput due to differences in Inotera's manufacturing processes from our other fabrication facilities;
uncertainties around the timing and amount of wafer supply we will receive under the supply agreement; and
the cost of our product obtained from Inotera is impacted by Nanya's revenue and back-end manufacturing costs for product obtained from Inotera.
The acquisition of our ownership interest in Inotera from Qimonda has been legally challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against us and Micron Semiconductor B.V., our Netherlands subsidiary, 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 us and Qimonda in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order requiring us to retransfer the Inotera shares to the Qimonda estate. The complaint also seeks 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. A hearing is scheduled to begin on November 9, 2011. We are unable to predict the outcome of this lawsuit. The final resolution of this lawsuit could result in the loss of the Inotera shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse effect on our business, results of operation or financial condition.
Our future success may depend on our ability to develop and produce competitive new memory technologies.
Our key semiconductor memory technologies of DRAM, NAND Flash and NOR Flash face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on the ability to shrink products in order to reduce costs, meet higher density requirements, and improve power consumption and reliability. To meet these requirements, we expect that new memory technologies will be developed by the semiconductor memory industry. Our competitors are working to develop new memory technologies that may offer performance and/or cost advantages to our existing memory technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory technologies. There can be no assurance of the following:
that we will be successful in developing competitivenew semiconductor memory technologies;
that we will be able to cost-effectively manufacture new products;
that we will be able to successfully market these technologies; and
that margins generated from sales of these products will allow us to recover costs of development efforts.
If our efforts to develop new semiconductor memory technologies are unsuccessful, our business results of operations or financial condition may be adversely affected.
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory sold, average selling prices and per unit manufacturing costs. To develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, facilities, research and development, and product and process technology. We expectestimate that capital spending for 2012 will be approximately $2.4 billion to $2.9 billion for 2011.$2 billion. The actual amount in 2011amounts for 2012 will vary depending on funding participation by joint venture partners and market conditions. As of September 2, 2010,1, 2011, we had cash and equivalents of $2,913$2,160 million, of which $601 millio n$327 million consisted of cash and investments of IM Flash and TECH that wouldis generally not be available to finance our other operations. In the past we have utilized external sources of financing when needed.needed. As a result of the downturn in general economic conditions and the adverse conditions in the credit markets, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assuranceWe cannot assure you that we will be able to generate sufficient cash flows or find other sources of financing to fund our operations;operations, make adequate capital investments to remain competitive in terms of technology development and cost efficiency;efficiency, or access capital markets. Our inability to do the foregoing could have a material adverse effect on our business and results of operations.
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Our joint ventures and strategic partnerships involve numerous risks.
We have entered into partnering arrangements to manufacture products and develop new manufacturing process technologies and products. These arrangements include our IM Flash NAND Flash joint ventures with Intel, our Inotera DRAM joint venture with Nanya, our TECH DRAM joint venture, our MP Mask joint venture with Photronics, our Transform joint venture with Origin Energy and our CMOS image sensor wafer supply agreement with Aptina. These joint ventures and strategic partnerships are subject to various risks that could adversely affect the value of our investments and our results of operations. These risks include the following:
our interests could diverge from our partners or we may not be able to agree with partners on ongoing manufacturing and operational activities, or on the amount, timing or nature of further investments in our joint venture;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
we may need to recognize our share of losses from Inotera, Aptina or Transform in our future results of operations;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, our partners may decide not to join us in capital contributions to our joint ventures, which may result in us increasing our capital contributions to such ventures, resulting in additional cash expenditures by us; for example, our contributions to IM Flash Singapore in 2011 and 2010 totaled $1,580 million and $128 million, respectively, while Intel's contributions totaled $0 and $38 million, respectively;
the terms of our partnering arrangements may turn out to be unfavorable;
cash flows may be inadequate to fund increased capital requirements; and
changes in tax, legal or regulatory requirements may necessitate changes in the agreements with our partners.
If our joint ventures and strategic partnerships are unsuccessful, our business, results of operations or financial condition may be adversely affected.
An adverse determination that our products or manufacturing processes infringe the intellectual property rights of others could materially adversely affect our business, results of operations or financial condition.
On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California. Rambus alleges that certain of our DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as fourteen Rambus patents and seeks monetary damages, treble damages, and injunctive relief. The accused products account for a significant portion of our net sales. On June 2, 2006, we filed an answer and counterclaim against Rambus alleging, among other things, antitrust and fraud claims. On January 9, 2009, in another lawsuit involving us and Rambus and involving allegations by Rambus of patent infringement against us in the U.S. District Court for the District of Delaware, Judge Robinson entered an opinion in favor of us holding that Rambu sRambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the Delaware Court’sCourt's decision to the U.S. Court of Appeals for the Federal Circuit. That appeal is pending. Subsequently,On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy based on the Federal Circuit's decision. The Northern District of California Court stayed a trial of the patent phase of the Northern District of California case pending the outcome of theupon appeal of the Delaware Court’s spoliation decision or further order ofissue to the California Court.Federal Circuit. (See “Item"Item 1. Legal Proceedings”Proceedings" for additional details on this lawsuit and other Rambus matters pending in the U.S. and Europe.)
We are unable to predict the outcome of assertions of infringement made against us. A court determination that our products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse effect on our business, results of operations or financial condition.
We have a number of patent and intellectual property license agreements. Some of these license agreements require us to make one time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
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Products that fail to meet specifications, are defective or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations or financial condition.
| we may be required to replace product or otherwise compensate customers for costs incurred or damages caused by defective or incompatible product, and |
| we may encounter adverse publicity, which could cause a decrease in sales of our products. |
We may make future acquisitions and alliances, which involve numerous risks.
Acquisitions and the formation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks including the following:
increasing capital expenditures to upgrade and maintain facilities;
increasing debt to finance an acquisition or formation of a new business;
diverting management's attention from normal daily operations;
managing larger or more complex operations and facilities and employees in separate and diverse geographic areas; and
hiring and retaining key employees.
Acquisitions of, or alliances with, high-technology companies are inherently risky, and future transactions may not be successful and may materially adversely affect our business, results of operations or financial condition.
The limited availability of raw materials, supplies or capital equipment could materially adversely affect our business, results of operations or financial condition.
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, photoresist, lead frames and molding compound. Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials is disrupted or our lead times extended, our business, results of operations or financial condition could be materially adversely affected.
Our operations are dependent on our ability to procure advanced semiconductor equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. In recent periods we have experienced difficulties in obtaining some equipment on a timely basis due to the supplier's limited capacity. Our inability to obtain this equipment timely could adversely affect our ability to transition to next generation manufacturing processes and reduce costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and increase our overall costs of the ramp. If we are unable to obtain advanced semiconductor equipment timely, our business, results of operations or financial condition could be materially adversely affected.
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New product development may be unsuccessful.
We are developing new products that complement our traditional memory products or leverage their underlying design or process technology. We have made significant investments in product and process technologies and anticipate expending significant resources for new semiconductor product development over the next several years. The process to develop DRAM, NAND Flash, NOR Flash and certain specialty memory products requires us to demonstrate advanced functionality and performance, many times well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be no assuranceWe cannot assure you that our product development efforts will be successful, that we will be able to cost-effectively manufacture new products, that we will be able t oto successfully market these products or that margins generated from sales of these products will allow us to recover costs of development efforts.
Our net operating loss and tax credit carryforwards may be limited.
We have a valuation allowance against substantially all U.S. net deferred tax assets. As of September 2, 2010,1, 2011, our federal, state and foreign net operating loss carryforwards were $2.4$2.9 billion, $2.0 billion and $290$529 million, respectively. If not utilized, substantially all of our federal and state net operating loss carryforwards will expire in 2022 to 20292031 and the foreign net operating loss carryforwards will begin to expire in 2015. As of September 2, 2010,1, 2011, our federal and state tax credit carryforwards were $188$206 million and $204$215 million respectively. If not utilized, substantially all of our federal and state tax credit carryforwards will expire in 2013 to 2030.2031. As a consequence of prior business acquisitions, utilization of the tax benefits for some of the tax carryforwards is subject to limitations imposed by Section 382 of the Internal Revenue Code and some portion or all of these carryforwards may not be available to offset any future taxable income. The determination of thethese tax limitations is complex and requires a significant amount of judgment andby us with respect to analysis of past transactions.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations or financial condition.
Across our multi-national operations, there are transactions and balances denominated in currencies other than the U.S. dollar (our reporting currency), primarily the Singapore dollar, euro and yen. We recorded net losses from changes in currency exchange rates of $6 million for 2011 and $23 million for 2010. To the extent our assets and liabilities denominated in currencies other than the U.S. dollar as of September 1, 2011 are not hedged, we estimate that a 1% change in the exchange rate versus the U.S. dollar would expose us to foreign currency gains or losses of approximately U.S. $2 million for the euro and U.S. $1 million for the yen and Singapore dollar. In the event that the U.S. dollar weakens significantly compared to the Singapore dollar, euro or yen, our results of operations or financial condition may be adversely affected.
We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations or financial condition.
Sales to customers outside the United States approximated 84% of our consolidated net sales for 2011. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore. Our international sales and operations are subject to a variety of risks, including:
export and import duties, changes to import and export regulations, and restrictions on the transfer of funds;
compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act, export control laws and similar rules and regulations;
political and economic instability;
problems with the transportation or delivery of our products;
issues arising from cultural or language differences and labor unrest;
longer payment cycles and greater difficulty in collecting accounts receivable;
compliance with trade, technical standards and other laws in a variety of jurisdictions;
contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels;
disruptions to our manufacturing operations as a result of actions imposed by foreign governments;
changes in economic policies of foreign governments; and
difficulties in staffing and managing international operations.
These factors may materially adversely affect our business, results of operations or financial condition.
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If our manufacturing process is disrupted, our business, results of operations or financial condition could be materially adversely affected.
We manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. Additionally, our control over operations at our IM Flash, TECH, Inotera, MP Mask and Transform joint ventures is limited by our agreements with our partners. From time to time, we have experienced minor disruptions in our manufacturing process as a result of power outages, improperly functioning equipment and equipment failures. If production at a fabrication facility is disrupted for any reason, manufacturi ngmanufacturing yields may be adversely affected or we may be unable to meet our customers’customers' requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs or loss of revenues or damage to customer relationships, which could materially adversely affect our business, results of operations or financial condition.
We may incur additional material restructure charges in future periods.
In response to a severe downturn in the semiconductor memory industry and global economic conditions, we implemented restructure initiatives that resulted in net charges of $70 million in 2009 and $33 million in 2008. We may need to implement further restructure initiatives in future periods. As a result of these initiatives, we could incur restructure charges, lose production output, lose key personnel and experience disruptions in our operations and difficulties in delivering products timely.
Consolidation of industry participants and governmental assistance to some of our competitors may contribute to uncertainty in the semiconductor memory industry and negatively impact our ability to compete.
In recent years, manufacturing supply of memory products has significantly exceeded customer demand resulting in significant declines in average selling prices of DRAM, NAND Flash and NOR Flash products and substantial operating losses by us and our competitors. The operating losses as well as limited access to sources of financing have led to the deterioration in the financial condition of a number of industry participants. Some of our competitors may try to enhance their capacity and lower their cost structure through consolidation. In addition, some governments have provided, or are considering providing, significant financial assistance to some of our competitors. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments have provided, or are considering, significant financial assistance for some of our competitors.
None.
Our corporate headquarters are located in Boise, Idaho. The following is a summary of theour principal facilities we own as of September 2, 2010:1, 2011:
| Location | Principal Operations | |
| Boise, Idaho | ||
| R&D including wafer fabrication and reticle manufacturing | ||
| Lehi, Utah | Wafer fabrication | |
| Manassas, Virginia | Wafer fabrication | |
| Singapore | Three wafer fabrication facilities and a test, assembly and module assembly facility | |
| Avezzano, Italy | Wafer fabrication | |
| Nampa, Idaho | Test | |
| Aguadilla, Puerto Rico | Module assembly and test | |
| Xi’an, China | Test | |
| Qiryat Gat, Israel | Wafer fabrication | |
| Muar, Malaysia | ||
| Module assembly and test | ||
| Agrate, Italy | R&D including wafer fabrication | |
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We also own and lease a number of other facilities in locations throughout the world that are used for design, research and development, and sales and marketing activities.
Our facility in Lehi and one of our facilities in Singapore isare owned and operated by our IM Flash joint venture with Intel. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest Entities – NAND Flash Joint Ventures with Intel”Intel" note.)
We believe that our existing facilities are suitable and adequate for our present purposes. We do not identify or allocate assets by operating segment. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information”Information" note.)
Antitrust Matters
On May 5, 2004, Rambus, Inc. (“Rambus”("Rambus") filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers alleging that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM (“RDRAM”("RDRAM") by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus’Rambus' complaint alleges various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus alleges that it is entitled to actualseeking a judgment for damages of more than aapproximately $3.9 billion, dollars and seeks joint and several liability, trebletrebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys’attorneys' fees and costs. A trial date hasTrial began on June 20, 2011, and the case went to the jury on September 21, 2011. At the time of this filing, a jury verdict is pending. We cannot predict when a verdict will be reached or when a formal judgment would be entered by the Court subsequent to a verdict. In the event of an adverse judgment, we would anticipate filing appropriate post-judgment motions and appeals. We may be required to post a bond or other security to stay enforcement of an adverse judgment pending appeal. Depending on the amount required, we cannot assure you we would be able to obtain sufficient security to pursue an appeal. We are unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. Accordingly, we have not been scheduled.provided an accrual for an adverse judgment in the September 1, 2011, financial statements. However, we have accrued a liability and charged operations for estimated costs to successfully defend the matter. An adverse judgment may have a material impact on our business, results of operations and financial condition, including liquidity.
A number of purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at least June 30, 2002. The complaints allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’attorneys' fees. In addition, at least sixty-four cases have been filed in various state courts asserting claims on beha lfbehalf of a purported class of indirect purchasers of DRAM. In July 2006, the Attorneys General for approximately forty U.S. states and territories filed suit in the U.S. District Court for the Northern District of California. The complaints allege, among other things, violations of the Sherman Act, Cartwright Act, and certain other states’states' consumer protection and antitrust laws and seek joint and several damages, trebled, as well as injunctive and other relief. On October 3, 2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law. On June 23, 2010, we executed a settlement agreement resolving these purported class-action indirect purchaser cases and the pending cases of the Attorneys General relating to alleged DRAM price-fixing in the United States. Subject t oto certain conditions, including final court approval of the class settlements, we agreed to pay a total of approximately $67 million in three equal installments over a two-year period.
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Three purported class action cases alleging price-fixing of DRAM products have been filed against us in the following Canadian courts: Superior Court, District of Montreal, Province of Quebec; Ontario Superior Court of Justice, Ontario; and Supreme Court of British Columbia, Vancouver Registry, British Columbia. The substantive allegations in these cases are similar to those asserted in the DRAM antitrust cases filed in the United States. Plaintiffs’Plaintiffs' motion for class certification was denied in the British Columbia and Quebec cases in May and June 2008, respectively. Plaintiffs have filed an appeal of each of those decisions. On November 12, 2009, the British Columbia Court of Appeal reversed the denial of class certification and remanded the case for fur therfurther proceedings. The appeal of the Quebec case is still pending.
On February 28, 2007, February 28, 2007 and March 8, 2007, cases were filed against us and other manufacturers of DRAM in the U.S. District Court for the Northern District of California by All American Semiconductor, Inc., Jaco Electronics, Inc. and DRAM Claims Liquidation Trust, respectively, that opted-out of a direct purchaser class action suit that was settled. The complaints allege, among other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek joint and several damages, trebled, as well as restitution, attorneys’attorneys' fees, costs, and injunctive relief. On July 11, 2011, we made a collective payment to the three plaintiffs to settle all claims of an amount that was not significant to our business, results of operations or financial condition.
On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice (“SDE”("SDE") announced that it had initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. industry. The SDE’sSDE's Notice of Investigation names various DRAM manufacturers and certain executives, including ours, and focuses on the period from July 1998 to June 2002.
On September 24, 2010, Oracle America Inc. (“Oracle”("Oracle"), successor to Sun Microsystems, a DRAM purchaser that opted-out of a direct purchaser class action suit that was settled, filed suit against us in U.S. District Court for the Northern District of California. The complaint alleges DRAM price-fixing and other violations of federal and state antitrust and unfair competition laws based on purported conduct for the period from August 1, 1998 through at least June 15, 2002. Oracle is seeking joint and several damages, trebled, as well as restitution, disgorgement, attorneys’attorneys' fees, costs and injunctive relief.
We are unable to predict the outcome of these lawsuits.lawsuits, except as noted in the U.S. indirect purchasers cases above. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.
Patent Matters
On August 28, 2000, we filed a complaint against Rambus in the U.S. District Court for the District of Delaware seeking monetary damages and declaratory and injunctive relief. Among other things, our complaint (as amended) alleges violation of federal antitrust laws, breach of contract, fraud, deceptive trade practices, and negligent misrepresentation. The complaint also seeks a declaratory judgment (a)(1) that we did not infringe on certain of Rambus’Rambus' patents or that such patents are invalid and/or are unenforceable, (b)(2) that we have an implied license to those patents, and (c)(3) that Rambus is estopped from enforcing those patents against us. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying that we are entitled to relief, alleging infringeme ntinfringement of the eight Rambus patents (later amended to add four additional patents) named in our declaratory judgment claim, and seeking monetary damages and injunctive relief. In the Delaware action, we subsequently added claims and defenses based on Rambus’Rambus' alleged spoliation of evidence and litigation misconduct. The spoliation and litigation misconduct claims and defenses were heard in a bench trial before Judge Robinson in October 2007. On January 9, 2009, Judge Robinson entered an opinion in favor of us holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit. That appeal is pending.On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for further analysis of the appropriate remedy.
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A number of other suits involving Rambus are currently pending in Europe alleging that certain of our SDRAM and DDR SDRAM products infringe various of Rambus’Rambus' country counterparts to its European patent 525 068, including: on September 1, 2000, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against us and Reptronic (a distributor of our products) in the Court of First Instance of Paris, France; on September 29, 2000, we filed suit against Rambus in the Civil Court of Milan, Italy, alleging invalidity and non-infringement. In addition, on December 29, 2000, we filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement o fof the Italian counterpart to European patent 1 004 956. Additionally, on August 14, 2001, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany alleging that certain of our DDR SDRAM products infringe Rambus’Rambus' country counterparts to its European patent 1 022 642. In the European suits against us, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits, the European Patent Office (the “EPO”"EPO") declared Rambus’Rambus' 525 068, 1 022 642, and 1 004 956 European patents invalid and revoked the patents. The declaration of invalidity with respect to the ‘068 patent'068 and '642 patents was upheld on appeal. The original claims of the '956 patent also were declared invalid on appeal, but the EPO ultimately granted a Rambus request to amend the claims by adding a number of limitations.
On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California. Rambus alleges that certain of our DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as fourteen Rambus patents and seeks monetary damages, treble damages, and injunctive relief. The accused products account for a significant portion of our net sales. On June 2, 2006, we filed an answer and counterclaim against Rambus alleging, among other things, antitrust and fraud claims. On January 9, 2009, in another lawsuit involving us and Rambus and involving allegations by Rambus of patent infringement against us in the U.S. District Court for the District of Delaware, Judge Robinson entered an opinion in favor of us holding that Rambus had engag edengaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the Delaware Court’sCourt's decision to the U.S. Court of Appeals for the Federal Circuit. Subsequently,On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy based on the Federal Circuit's decision. The Northern District of California Court stayed a trial of the patent phase of the Northern District of California case pending the outcome of theupon appeal of the Delaware Court’s spoliation decision or further order ofissue to the California Court.Federal Circuit.
On March 6, 2009, Panavision Imaging, LLC filed suit against us and Aptina Imaging Corporation, then oura wholly-owned subsidiary (“Aptina”("Aptina"), in the U.S. District Court for the Central District of California. The complaint allegesalleged that certain of oursour and Aptina’sAptina's image sensor products infringeinfringed four Panavision Imaging U.S. patents and seekssought injunctive relief, damages, attorneys’attorneys' fees, and costs. On February 7, 2011, the Court ruled that one of the four patents in suit was invalid for indefiniteness. On March 10, 2011, claims relating to the remaining three patents in suit were dismissed with prejudice. Panavision subsequently filed a motion for reconsideration of the Court's decision regarding invalidity of the first patent, and we filed a motion for summary judgment of non-infringement of such patent. On July 8, 2011, the Court issued an order that rescinded its prior indefiniteness decision, and held that the disputed term does not render the claims in suit indefinite. A hearing on motions for summary judgment regarding infringement and validity is scheduled for April 2, 2012.
On December 11, 2009, RingSeptember 1, 2011, HSM Portfolio LLC and Technology EnterprisesProperties Limited LLC filed a patent infringement action in the U.S. District Court for the District of Texas LLC (“Ring”) filed suitDelaware against us and seventeen other defendants. The complaint alleges that certain Company DRAM and image sensor products infringe two U.S. patents.
On September 9, 2011, Advanced Data Access LLC filed a patent infringement action in the U.S. District Court for the Eastern District of Texas allegingagainst the Company and seven other defendants. The complaint alleges that certain of our memoryCompany DRAM products infringe one Ring Technologya single U.S. patent. On June 26, 2010, we executed a settlement agreement with Ring resolving the dispute for an immaterial amount.
On September 14, 2011, Smart Memory Solutions LLC filed a patent infringement action in the U.S. District Court for the District of Delaware against the Company and Winbond Electronics Corporation of America. The complaint alleges that certain NOR Flash products infringe a single U.S. patent.
We are unable to predict the outcome of these suits. A court determination that our products or manufacturing processes infringe the product or process intellectual property rights of others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse effect on our business, results of operations or financial condition.
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Securities Matters
On February 24, 2006, a putative class action complaint was filed against us and certain of our officers in the U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same Court. The cases purport to be brought on behalf of a class of purchasers of our stock during the period February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct or our operations and financial results. The complaint seeks unspecified damages, interest, attorneys’attorneys' fees, costs, and expenses. On December 19, 2007, the Court issued an order certifying the class but reducing the class period to purchasers of our stock during the period from February 24, 2001 to September 18, 2002. On August 24, 2010, we executed a settlement agreement resolving these purported class-action cases. Subject to certain conditions, including final court approval of the class settlement, we and our insurers agreed to pay $42$6 million withas our contribution to the settlement comprising approximately $6 million.settlement. On April 28, 2011, the Court entered final approval of the class settlement.
Commercial Matters
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against us and Micron Semiconductor B.V., our Netherlands subsidiary, 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 us and Qimonda in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order requiring us to retransfer the Inotera shares to the Qimonda estate. The complaint also seeks 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. A hearing is scheduled to begin on November 9, 2011. We are unable to predict the outcome of this lawsuit. The final resolution of this lawsuit could result in the loss of the Inotera shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse effect on our business, results of operation or financial condition.
(See “Item"Item 1A. Risk Factors.”")
(REMOVED AND RESERVED)
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PART II
Market for Common Stock: Stock
Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol “MU”"MU" and traded under the same symbol on the New York Stock Exchange through December 29, 2009. The following table represents the high and low closing sales prices for our common stock for each quarter of 20102011 and 2009,2010, as reported by Bloomberg L.P.:
| Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||
| 2010 | ||||||||||||||||
High | $ | 10.02 | $ | 11.30 | $ | 11.22 | $ | 8.91 | ||||||||
Low | 6.46 | 8.57 | 8.44 | 6.58 | ||||||||||||
| 2009 | ||||||||||||||||
High | $ | 7.56 | $ | 5.50 | $ | 4.32 | $ | 5.13 | ||||||||
Low | 4.70 | 2.58 | 1.85 | 1.69 | ||||||||||||
| Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||
| 2011 | ||||||||||||||||
| High | $ | 9.16 | $ | 11.80 | $ | 11.80 | $ | 8.66 | ||||||||
| Low | 5.25 | 9.41 | 7.75 | 6.51 | ||||||||||||
| 2010 | ||||||||||||||||
| High | $ | 10.02 | $ | 11.30 | $ | 11.22 | $ | 8.91 | ||||||||
| Low | 6.46 | 8.57 | 8.44 | 6.58 | ||||||||||||
Holders of Record: Record
As of October 18, 2010,2011, there were 2,9982,909 shareholders of record of our common stock.
Dividends
We have not declared or paid cash dividends since 1996 and do not intend to pay cash dividends for the foreseeable future.
Equity Compensation Plan Information: Information
The information required by this item is incorporated by reference from the information set forth in Item 12 of this Annual Report on Form 10-K.
Issuer Sales of Unregistered Securities: Securities
On May 7, 2010, we issued an aggregate of 137.7 million unregistered shares of common stock (with a fair value of $1,091 million on the issuance date) to Intel Corporation, Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash, LLC as consideration for all the outstanding shares of Numonyx Holdings, B.V. The shares we issued were exempt from registration under Section 4(2) of the Securities Act of 1933.
Issuer Purchases of Equity Securities
On August 11, 2009,July 26, 2011, we issued 1.8repurchased 19.7 million unregistered shares of common stock (with a fair value of $12 million on the issuance date) to DT FLCO, Inc. as partial consideration paid for a business acquired for cash and stock. These shares were exempt from registration under Section 4(2) of the Securities Act of 1933.at
$7.60Issuer Purchases of Equity Securities: per share. During the fourth quarter of 2010,2011, we acquired, as payment of withholding taxes in connection with the vesting of restricted stock and restricted stock unit awards, 1,821,1499,692 shares of our common stock at an average price of $8.59$6.40 per share. We retired thesethe 9,692 shares in the fourth quarter of 2010.2011.
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| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs | ||||||||||||
| June 4, 2010 – July 8, 2010 | 1,633,206 | $ | 8.74 | N/A | N/A | |||||||||||
| July 9, 2010 – August 5, 2010 | 166,174 | 7.34 | N/A | N/A | ||||||||||||
| August 6, 2010 – September 2, 2010 | 21,769 | 7.04 | N/A | N/A | ||||||||||||
| 1,821,149 | 8.59 | |||||||||||||||
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs | |||||||||
| June 3, 2011 | - | July 7, 2011 | 1,008 | $ | 7.92 | N/A | N/A | ||||||
| July 8, 2011 | - | August 4, 2011 | 19,739,445 | 7.60 | N/A | N/A | |||||||
| August 5, 2011 | - | September 1, 2011 | 6,081 | 5.66 | N/A | N/A | |||||||
| 19,746,534 | 7.60 | ||||||||||||
Performance Graph
The following graph illustrates a five-year comparison of cumulative total returns for our common stock, the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX) from August 31, 2005,2006, through August 31, 2010.2011.
Note: Management cautions that the stock price performance information shown in the graph below is provided as of fiscal year-end and may not be indicative of current stock price levels or future stock price performance.
We operate on a 52 or 53 week fiscal year which ends on the Thursday closest to August 31. Accordingly, the last day of our fiscal year varies. For consistent presentation and comparison to the industry indices shown herein, we have calculated our stock performance graph assuming an August 31 year end. The performance graph assumes $100 was invested on August 31, 20052006 in common stock of Micron Technology, Inc., the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX). Any dividends paid during the period presented were assumed to be reinvested. The performance was plotted using the following data:
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
| Micron Technology, Inc. | $ | 100 | $ | 145 | $ | 96 | $ | 36 | $ | 62 | $ | 54 | ||||||||||||
| S&P 500 Composite Index | 100 | 109 | 125 | 111 | 91 | 96 | ||||||||||||||||||
| Philadelphia Semiconductor Index (SOX) | 100 | 95 | 107 | 76 | 68 | 69 | ||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||||||||
| Micron Technology, Inc. | $ | 100 | $ | 66 | $ | 25 | $ | 43 | $ | 37 | $ | 34 | ||||||||||||
| S&P 500 Composite Index | 100 | 115 | 102 | 84 | 88 | 104 | ||||||||||||||||||
| Philadelphia Semiconductor Index (SOX) | 100 | 112 | 80 | 71 | 72 | 85 | ||||||||||||||||||
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ITEM 6. Selected Financial DataSELECTED FINANCIAL DATA
Amounts and balances in the table below have been adjusted for the retrospective application of new accounting standards for noncontrolling interests and certain convertible debt instruments. (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Adjustment for Retrospective Application of New Accounting Standards” note.)
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 8,482 | $ | 4,803 | $ | 5,841 | $ | 5,688 | $ | 5,272 | ||||||||||
| Gross margin | 2,714 | (440 | ) | (55 | ) | 1,078 | 1,200 | |||||||||||||
| Operating income (loss) | 1,589 | (1,676 | ) | (1,595 | ) | (280 | ) | 350 | ||||||||||||
| Net income (loss) | 1,900 | (1,993 | ) | (1,665 | ) | (209 | ) | 415 | ||||||||||||
| Net income (loss) attributable to Micron | 1,850 | (1,882 | ) | (1,655 | ) | (331 | ) | 408 | ||||||||||||
| Diluted earnings (loss) per share | 1.85 | (2.35 | ) | (2.14 | ) | (0.43 | ) | 0.57 | ||||||||||||
| Cash and short-term investments | 2,913 | 1,485 | 1,362 | 2,616 | 3,079 | |||||||||||||||
| Total current assets | 6,333 | 3,344 | 3,779 | 5,234 | 5,101 | |||||||||||||||
| Property, plant and equipment, net | 6,601 | 7,089 | 8,819 | 8,279 | 5,888 | |||||||||||||||
| Total assets | 14,693 | 11,459 | 13,432 | 14,810 | 12,221 | |||||||||||||||
| Total current liabilities | 2,702 | 1,892 | 1,598 | 2,026 | 1,661 | |||||||||||||||
| Long-term debt | 1,648 | 2,379 | 2,106 | 1,597 | 405 | |||||||||||||||
| Total Micron shareholders’ equity | 8,020 | 4,953 | 6,525 | 8,135 | 8,114 | |||||||||||||||
| Noncontrolling interests in subsidiaries | 1,796 | 1,986 | 2,865 | 2,607 | 1,568 | |||||||||||||||
| Total equity | 9,816 | 6,939 | 9,390 | 10,742 | 9,682 | |||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net sales | $ | 8,788 | $ | 8,482 | $ | 4,803 | $ | 5,841 | $ | 5,688 | ||||||||||
| Gross margin | 1,758 | 2,714 | (440 | ) | (55 | ) | 1,078 | |||||||||||||
| Operating income (loss) | 755 | 1,589 | (1,676 | ) | (1,595 | ) | (280 | ) | ||||||||||||
| Net income (loss) | 190 | 1,900 | (1,993 | ) | (1,665 | ) | (209 | ) | ||||||||||||
| Net income (loss) attributable to Micron | 167 | 1,850 | (1,882 | ) | (1,655 | ) | (331 | ) | ||||||||||||
| Diluted earnings (loss) per share | 0.17 | 1.85 | (2.35 | ) | �� | (2.14 | ) | (0.43 | ) | |||||||||||
| Cash and short-term investments | 2,160 | 2,913 | 1,485 | 1,362 | 2,616 | |||||||||||||||
| Total current assets | 5,832 | 6,333 | 3,344 | 3,779 | 5,234 | |||||||||||||||
| Property, plant and equipment, net | 7,555 | 6,601 | 7,089 | 8,819 | 8,279 | |||||||||||||||
| Total assets | 14,752 | 14,693 | 11,459 | 13,432 | 14,810 | |||||||||||||||
| Total current liabilities | 2,480 | 2,702 | 1,892 | 1,598 | 2,026 | |||||||||||||||
| Long-term debt | 1,861 | 1,648 | 2,379 | 2,106 | 1,597 | |||||||||||||||
| Total Micron shareholders’ equity | 8,470 | 8,020 | 4,953 | 6,525 | 8,135 | |||||||||||||||
| Noncontrolling interests in subsidiaries | 1,382 | 1,796 | 1,986 | 2,865 | 2,607 | |||||||||||||||
| Total equity | 9,852 | 9,816 | 6,939 | 9,390 | 10,742 | |||||||||||||||
On May 7, 2010, we completed our acquisition ofacquired Numonyx Holdings B.V. (“Numonyx”("Numonyx"), which manufacturesmanufactured and sellssold primarily NOR Flash and NAND Flash DRAM and Phase Change memory technologies and products. In connection therewith, we issued 137.7 million shares of our common stock in exchange for all of the outstanding Numonyx capital stock and issued 4.8 million restricted stock units to employees of Numonyx in exchange for all of their outstanding restricted stock units. The total fair value of the consideration paid for Numonyx was $1,112 million and consisted of 137.7 million shares of our common stock issued to the Numonyx shareholders and 4.8 million restricted stock units issued to employees of Numonyx. In connection with the acquisition, we recorded $2,162 millionnet assets of $1,549 million. Because the fair value of the net assets $613 million of liabilities andacquired exceeded the purchase price, we recognized a gain on the acquisition of $437 million asin the third quarter of 2010. In addition, we recognized a result of$51 million income tax benefit in connection with the acquisition. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Numonyx Holdings B.V”Numonyx" note.)
In the first quarter of 2009, we acquired a noncontrolling interest in Inotera Memories, Inc. (“Inotera”("Inotera"), a publicly-traded DRAM manufacturer in Taiwan. In connection therewith, we entered into a supply agreement with Inotera to purchase 50% of Inotera’s wafer production capacity of DRAM products and substantially began purchasing product in the fourth quarter of 2009. As of September 2, 2010,1, 2011, our ownership interest was 29.9%29.7%. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Inotera and MeiYa DRAM joint ventures with Nanya”Nanya" note.)
We have two joint ventures with Intel Corporation: IM Flash Technologies, LLC (“IMFT”("IMFT"), formed in January, 2006, and IM Flash Singapore LLP (“IMFS”("IMFS"), formed in February, 2007 (collectively “IM Flash”"IM Flash"), to manufacture NAND Flash memory products for the exclusive benefit of the partners. As of September 2, 2010,1, 2011, we owned an approximate 51% interest in IMFT and an approximate 57%86% interest in IMFS with the remaining interests held by Intel. Our ownership interest in IMFS has increased from 51% prior to 71%the second quarter of 2010 to 86% on October 5, 2010.September 1, 2011 as Intel did not match our capital contributions. On September 26, 2011, Intel participated in a capital call of IMFS by contributing $131 million. After that capital call, our ownership interest in IMFS was reduced to 82%. We consolidate IM Flash and report Intel’s ownership interests as noncontrolling interests in subsidiaries. (See “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated F inancialFinancial Statements – Consolidated Variable Interest Entities – NAND Flash joint venture with Intel”Intel" note.)
(See “Item"Item 1A. Risk Factors”Factors" and “Item"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements.”")
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein, “we,” “our,” “us”"we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in “Results of Operations” regarding the future composition of the our reportable segments; in “Net Sales”"Operating Results by Business Segment" regarding future royalty and other payments from Nanya; DRAM production received from Inotera in 2011 and future increases in NAND Flash prod uctionproduction resulting from the productioncontinued ramp of production at IM Flash’sFlash's new fabrication facility;facility and lower underutilized capacity costs at the new IM flash fabrication facility in “Gross Margin” regarding future charges for inventory write-downs and future margins on sales of Numonyx products;periods; in “Selling,"Selling, General and Administrative”Administrative" regarding SG&A costs for the first quarter of 2011, future legal expenses2012; in "Research and increased expenses resulting from the acquisition of Numonyx; in “Research and Development”Development" regarding R&D costs for the first quarter of 2011 and increased expenses resulting from the acquisition of Numonyx;2012; in “Liquidity"Liquidity and Capital Resources”Resources" regarding capital spending in 2011,2012, future distributions from IM Flash to Intel, and future contribution by us to IM Flash;Flash and the timing of payments for certain contractual obligations; and in “Recently"Recently Issued Accounting Standards”Standards" regarding the impact from the adoption of new accounting standards. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Item"Item 1A. Risk Factors.”" This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended September 2, 2010.1, 2011. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. All tabular dollar amounts are in millions. Our fiscal 2010,2011, which ended on September 2, 2010,1, 2011, contained 52 weeks, our fiscal 20092010 contained 5352 weeks and our fiscal 20082009 contained 5253 weeks. All production data includes the production of our consolidated joint ventures and our other partnering arrangements. All tabular dollar amounts are in millions.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview: Highlights of key transactions and events that impacted our 2011 results of operations.
Results of Operation: An analysis of our financial results comparing 2011 to 2010 and comparing 2010 to 2009.
| ◦ | Consolidated results |
| ◦ | Operating results by business segment |
| ◦ | Operating results by product |
| ◦ | Operating expenses and other |
Liquidity and Capital Resources: An analysis of changes in our balance sheets and cash flows and discussion of our financial condition and potential sources of liquidity. Also includes our contractual obligations.
Off-Balance-Sheet Arrangements: Contingent liabilities, commitments and off-balance-sheet arrangements outstanding as of September 1, 2011, including expected payment schedule.
Critical Accounting Estimates: Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. Also includes changes in accounting standards.
Overview
Rambus Antitrust Litigation
On May 5, 2004, Rambus, Inc. ("Rambus") filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers alleging that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM ("RDRAM") by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus' complaint alleges various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus is seeking a judgment for damages of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the jury on September 21, 2011. At the time of this filing, a jury verdict is pending. We cannot predict when a verdict will be reached or when a formal judgment would be entered by the Court subsequent to a verdict. On September 29, 2011, we entered into a judgment sharing agreement with Hynix Semiconductor, Inc., a co-defendant in the case, pursuant to which each party agreed, if found liable, to share equally any joint and several
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damages. In the event of an adverse judgment, we would anticipate filing appropriate post-judgment motions and appeals. We may be required to post a bond or other security to stay enforcement of an adverse judgment pending appeal. Depending on the amount required, there can be no assurance we would be able to obtain sufficient security to pursue an appeal. We are unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss. Accordingly, we have not provided an accrual for an adverse judgment in the September 1, 2011, financial statements. However, we have accrued a liability and charged operations for estimated costs to successfully defend the matter. An adverse judgment may have a material impact on our business, results of operations and financial condition, including liquidity.
Numonyx Holdings B.V. (“Numonyx”("Numonyx"):
On May 7, 2010, we completed our acquisition ofacquired Numonyx, Holdings B.V. (“Numonyx”), which manufacturesmanufactured and sellssold primarily NOR Flash and NAND Flash DRAMmemory products. The total fair value of the consideration paid for Numonyx was $1,112 million and Phase Change memory technologies and products. We acquired Numonyx to further strengthen our portfolioconsisted of memory products, increase manufacturing and revenue scale, access Numonyx’s customer base and provide opportunities to increase multi-chip offerings in the embedded and mobile markets. In connection therewith, we issued 137.7 million shares of our common stock in exchange for all ofissued to the outstanding Numonyx capital stockshareholders and issued 4.8 million restricted stock units issued to the employees of Numonyx in exchange for allNumonyx. In connection with the acquisition, we recorded net assets of their outstanding restricted stock units. The total$1,549 million. Because the fair value of the consideration we paid for Numonyx was $1,112 million and the net assets acquired were valued at $1,549 million resulting inexceeded the purchase price, we recognized a gain on the acquisition of $437 million.million in the third quarter of 2010. In addition, we recognized a $51 million income tax benefit in connection with the acquisition. Our results of operations for 2010 include $635 million of net sales and $13 million of operating losses from the Numonyx operations after the May 7, 2010 acquisition date. We incurred transaction costs of $20 million during 2010 in connection with the acquisition.
Japan Fabrication Facility
On June 2, 2011, we sold our wafer fabrication facility in Japan (the "Japan Fab") to Tower Semiconductor Ltd. ("Tower"). Under the arrangement, Tower paid $40 million in cash and “Item 1. Financial Statements – Notesapproximately 20 million of Tower ordinary shares. In addition, we will receive an aggregate amount of $20 million in twelve equal monthly installments beginning in the second quarter of 2012. We recorded a gain of $54 million (net of transaction costs of $3 million) in connection with the sale of the Japan Fab. We also recorded a tax provision of $74 million related to Consolidated Financial Statements – Equity Method Investments – Hynix JV” note.the gain on the sale and to write down certain deferred tax assets associated with the Japan Fab. In connection with the sale of the Japan Fab, we entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014.
Business Segments
In the second quarter of 2011, we reorganized our business to better align with the markets we serve. All prior period amounts have been retrospectively adjusted to reflect this reorganization. After the reorganization, we have the following four reportable segments:
DRAM Solutions Group ("DSG"): Includes DRAM products sold to the PC, consumer electronics, networking and server markets.
NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music players, and the high-density computing markets, as well as NAND Flash products sold to Intel through our consolidated IM Flash joint ventures.
Wireless Solutions Group ("WSG"):Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and industrial applications, as well as NOR and NAND flash sold to consumer electronics, networking, PC and server markets.
Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other. All Other includes our CMOS image sensor, LED, microdisplay and solar operations.
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Results of Operations
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||||
| (in millions and as a percent of net sales) | ||||||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||||||
Memory | $ | 7,437 | 88 | % | $ | 4,290 | 89 | % | $ | 5,188 | 89 | % | ||||||||||||||||
Numonyx | 635 | 7 | % | -- | -- | -- | -- | |||||||||||||||||||||
All Other | 423 | 5 | % | 513 | 11 | % | 653 | 11 | % | |||||||||||||||||||
Intersegment | (13 | ) | 0 | % | -- | -- | -- | -- | ||||||||||||||||||||
| $ | 8,482 | 100 | % | $ | 4,803 | 100 | % | $ | 5,841 | 100 | % | |||||||||||||||||
Gross margin: | ||||||||||||||||||||||||||||
Memory | $ | 2,601 | 35 | % | $ | (522 | ) | (12 | ) | % | $ | (241 | ) | (5 | ) | % | ||||||||||||
Numonyx | 123 | 19 | % | -- | -- | -- | -- | |||||||||||||||||||||
All Other | (11 | ) | (3 | ) | % | 82 | 16 | % | 186 | 28 | % | |||||||||||||||||
Intersegment | 1 | (8 | ) | % | -- | -- | -- | -- | ||||||||||||||||||||
| $ | 2,714 | 32 | % | $ | (440 | ) | (9 | ) | % | $ | (55 | ) | (1 | ) | % | |||||||||||||
Selling, general and administrative | $ | 528 | 6 | % | $ | 354 | 7 | % | $ | 455 | 8 | % | ||||||||||||||||
Research and development | 624 | 7 | % | 647 | 13 | % | 680 | 12 | % | |||||||||||||||||||
Restructure | (10 | ) | 0 | % | 70 | 1 | % | 33 | 1 | % | ||||||||||||||||||
Goodwill impairment | -- | -- | 58 | 1 | % | 463 | 8 | % | ||||||||||||||||||||
Other operating (income) expense, net | (17 | ) | 0 | % | 107 | 2 | % | (91 | ) | (2 | ) | % | ||||||||||||||||
Gain from acquisition of Numonyx | 437 | 5 | % | -- | -- | -- | -- | |||||||||||||||||||||
Equity in net income (losses) of equity method investees, net of tax | (39 | ) | 0 | % | (140 | ) | (3 | ) | % | -- | -- | |||||||||||||||||
Net income (loss) attributable to Micron | 1,850 | 22 | % | (1,882 | ) | (39 | ) | % | (1,655 | ) | (28 | ) | % | |||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||
| (amounts in millions and as a percent of net sales) | ||||||||||||||||||||||
| Net sales | $ | 8,788 | 100 | % | $ | 8,482 | 100 | % | $ | 4,803 | 100 | % | ||||||||||
| Cost of goods sold | 7,030 | 80 | % | 5,768 | 68 | % | 5,243 | 109 | % | |||||||||||||
| Gross margin | 1,758 | 20 | % | 2,714 | 32 | % | (440 | ) | (9 | )% | ||||||||||||
| Selling, general and administrative | 592 | 7 | % | 528 | 6 | % | 354 | 7 | % | |||||||||||||
| Research and development | 791 | 9 | % | 624 | 7 | % | 647 | 13 | % | |||||||||||||
| Other operating (income) expense, net | (380 | ) | (4 | )% | (27 | ) | — | % | 235 | 5 | % | |||||||||||
| Operating income (loss) | 755 | 9 | % | 1,589 | 19 | % | (1,676 | ) | (35 | )% | ||||||||||||
| Gain on acquisition of Numonyx | — | — | % | 437 | 5 | % | — | — | % | |||||||||||||
| Interest income (expense), net | (101 | ) | (1 | )% | (160 | ) | (2 | )% | (160 | ) | (3 | )% | ||||||||||
| Other non-operating income (expense), net | (103 | ) | (1 | )% | 54 | 1 | % | (16 | ) | — | % | |||||||||||
| Income tax (provision) benefit | (203 | ) | (2 | )% | 19 | — | % | (1 | ) | — | % | |||||||||||
| Equity in net income (loss) of equity method investees | (158 | ) | (2 | )% | (39 | ) | — | % | (140 | ) | (3 | )% | ||||||||||
| Net (income) loss attributable to noncontrolling interests | (23 | ) | — | % | (50 | ) | (1 | )% | 111 | 2 | % | |||||||||||
| Net income (loss) attributable to Micron | $ | 167 | 2 | % | $ | 1,850 | 22 | % | $ | (1,882 | ) | (39 | )% | |||||||||
Net Sales
| 2011 | 2010 | 2009 | ||||||||||||||||||||
| DSG | $ | 3,203 | 36 | % | $ | 4,638 | 55 | % | $ | 2,100 | 44 | % | ||||||||||
| NSG | 2,196 | 25 | % | 2,113 | 25 | % | 1,747 | 36 | % | |||||||||||||
| WSG | 1,959 | 22 | % | 778 | 9 | % | 247 | 5 | % | |||||||||||||
| ESG | 1,002 | 11 | % | 521 | 6 | % | 178 | 4 | % | |||||||||||||
| All Other | 428 | 6 | % | 432 | 5 | % | 531 | 11 | % | |||||||||||||
| $ | 8,788 | 100 | % | $ | 8,482 | 100 | % | $ | 4,803 | 100 | % | |||||||||||
Total net sales for 2011 increased 4%, as compared to 2010 primarily due to increases in WSG and ESG sales as a result of the acquisition of Numonyx in May 2010. DSG sales for 2011 decreased 31% as compared to 2010 primarily due to declines in average selling prices mitigated by increases in gigabit sales. NSG sales for 2011 increased 4% as compared to 2010 primarily due to increases in gigabit sales partially offset by declines in average selling prices.
Total net sales for 2010 increased 77% as compared to 2009 primarily due to a 73% increase in Memory sales and the addition of $635 million of sales from Numonyx as a result of its acquisitionimproved sales across all reportable segments. Increases in May 2010. The increase in MemoryDSG and NSG sales for 2010 as compared to 2009 primarily reflectsreflect significant increases in gigabits sold for both segments and improved average selling prices for certainDSG products. Total netIncreases in ESG and WSG sales for 2009 decreased 18% as compared2010 were primarily the result of the acquisition of Numonyx.
Gross Margin
Our overall gross margin percentage declined from 32% for 2010 to 200820% for 2011 primarily due to a 17% decrease in Memory sales and a 21% decrease in All Other sales.
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Our overall gross margin percentage improved to 32% for 2010 from negative 9% for 2009 primarily due to improvements in the gross margin for Memoryall reportable segments as a result of cost reductions and improved pricing and cost reductions. OverallDRAM pricing. Our gross margins weremargin percentage was also impacted by our acquisition of Numonyx in May of 2010 as the Numonyx segment recorded gross margins offor Numonyx activities were 19% for the 2010 period after the acquisition. Our overall gross margin percentage declined from negative 1% for 2008 to negative 9% for 2009 due to declines in the gross margins for both Memory and All Other primarily as a result of severe pricing pressure mitigated by cost reductions.
Our gross margins arein prior years were impacted by charges to write down inventories to their estimated market values as a result of the significant decreases in average selling prices for both DRAM and NAND Flash products. As charges to write down inventories are recorded in advance of when inventories are sold, gross margins in subsequent reporting periods are higher than they otherwise would be. The impact of inventory write-downs onOur gross margins for all periods reflects inventory write-downs less2010 and 2009 were $40 million and $164 million higher as a result of the net impact of sales of products that had been written down to their estimated net effect ofmarked values in prior period write-downs. The effects of inventory write-downs on Memory gross margins by period were as follows:
| 2010 | 2009 | 2008 | ||||||||||
| Inventory write-downs | $ | -- | $ | (603 | ) | $ | (282 | ) | ||||
| Estimated effect of previous inventory write-downs | 40 | 767 | 98 | |||||||||
Net effect of inventory write-downs | $ | 40 | $ | 164 | $ | (184 | ) | |||||
periods. In future periods, we will be required to record additional inventory write-downs if estimated average selling prices of products held in finished goods and work in process inventories at a quarter-end date are below the manufacturing cost of those products.
Operating Results by Business Segments
DRAM Solutions Group ("DSG")
| 2011 | 2010 | 2009 | ||||||||||
| Net sales | $ | 3,203 | $ | 4,638 | $ | 2,100 | ||||||
| Operating income (loss) | 290 | 1,269 | (902 | ) | ||||||||
DSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for our consolidated sales of DRAM products. (See "Operating Results by Product Groups - DRAM" for further detail.) DSG sales for 2011 decreased 31% from 2010 primarily due to significant declines in average selling prices partially offset by an increase in sales volume. DSG operating income decreased from 2010 to 2011 primarily as a result of the significant declines in average selling prices, mitigated by reductions in manufacturing costs per gigabit as a result of improved production efficiencies.
The significant declines in DSG sales and margins for 2011 compared to 2010 was primarily attributable to a severe decrease in demand for PC DRAM, particularly for DDR3 DRAM, due to overall weakness in the PC market. Decreases in PC DRAM margins for 2011 were mitigated by the relatively higher margins in our server and other premium markets.
DSG operating income for 2011 benefited from the following items as compared to the corresponding periods of 2010:
Lower SG&A costs primarily due to costs recognized in the third quarter of 2010 from the settlement of litigation in DRAM antitrust matters;
Lower R&D costs primarily due to the DRAM R&D cost-sharing agreement with Nanya that commenced in the third quarter of 2010; and
A $75 million gain in 2011 from a license arrangement with Samsung.
We have formed partnering arrangements and have sold or licensed technology to other parties. DSG recognized royalty and license revenue of $25 million in 2011, $83 million in 2010 and $120 million in 2009. We have a partnering arrangement with Nanya pursuant to which we and Nanya jointly develop process technology and designs to manufacture stack DRAM products. In addition, we have deployed and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya. We recognized $65 million and $105 million of license revenue in net sales from this arrangement during 2010 and 2009, respectively. In April 2010 the license agreement was completed and we began to share DRAM development costs with Nanya on an approximately equal basis. This cost-sharing arrangement reduced our overall research and development costs by $141 million and $51 million for 2011 and 2010, respectively, of which $109 million and $51 million was attributed to DSG. DSG received royalties of $25 million and $6 million in 2011 and 2010, respectively, from Nanya for sales of stack DRAM products manufactured by or for Nanya on process nodes of 50nm or larger and we expect to continue to receive royalties from Nanya associated with technology developed prior to the cost-sharing arrangement.
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DSG sales for 2010 increased 121% from 2009 primarily due to increases in gigabits sold and average selling prices per gigabit. The increase in gigabits sold for 2010 was largely due to additional supply obtained from Inotera, which accounted for 23% of our DRAM gigabit production in 2010 as compared to 4% for 2009. The increase in average selling prices in 2010 for DSG products from improved market conditions was partially offset by a shift in product mix resulting from increases in sales of Inotera trench DRAM products that had significantly lower average selling prices per gigabit than our other DSG products.
NAND Solutions Group ("NSG")
| 2011 | 2010 | 2009 | ||||||||||
| Net sales | $ | 2,196 | $ | 2,113 | $ | 1,747 | ||||||
| Operating income (loss) | 269 | 240 | (573 | ) | ||||||||
NSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for our consolidated sales of NAND Flash products. NSG sales for 2011 increased 4% from 2010 primarily due to increases in gigabits sold partially offset by declines in average selling prices. We sell NSG products in three principal channels: (1) to Intel Corporation ("Intel") through our IM Flash consolidated joint ventures at long-term negotiated prices approximating cost, (2) to original equipment manufacturers ("OEMs") and other resellers and (3) to retailers.
NSG sales through IM Flash to Intel were $884 million for 2011, $764 million for 2010 and $886 million for 2009. The ramp of production at IM Flash's new wafer fabrication facility in Singapore began to increase our NAND Flash production in the second half of 2011 and we expect that it will significantly increase our NAND Flash production in 2012. Our share of the operating costs and supply of NAND Flash from IMFS adjusts in proportion to changes in our ownership share either 12 months or 8 months (depending on the status of IMFS' production ramp) from the date of the applicable ownership change. Accordingly, we anticipate that our share of IMFS costs and supply will increase from 57% as of September 1, 2011 to our current ownership interest in IMFS during the course of 2012. In September 2011, subsequent to the end of our 2011, we contributed $103 million and Intel contributed $131 million to IMFS, decreasing our ownership interest in IMFS to 82%. The following table presents the contributions and ownership percentages of IMFS:
| Contributions | Ownership Percentage | |||||||||||||
| Micron | Intel | Micron | Intel | |||||||||||
| Prior to the second quarter of 2010 | 51 | % | 49 | % | ||||||||||
| Second quarter of 2010 | $ | 25 | $ | — | 53 | % | 47 | % | ||||||
| Third quarter of 2010 | 26 | 24 | 53 | % | 47 | % | ||||||||
| Fourth quarter of 2010 | 77 | 14 | 57 | % | 43 | % | ||||||||
| First quarter of 2011 | 392 | — | 71 | % | 29 | % | ||||||||
| Second quarter of 2011 | 343 | — | 78 | % | 22 | % | ||||||||
| Third quarter of 2011 | 409 | — | 83 | % | 17 | % | ||||||||
| Fourth quarter of 2011 | 421 | — | 86 | % | 14 | % | ||||||||
| Subsequent to fourth quarter of 2011 through October 2011 | 103 | 131 | 82 | % | 18 | % | ||||||||
NSG sales of NAND Flash products to our OEM, reseller and retail customers decreased 2% for 2011 as compared to 2010 primarily due to declines in average selling prices partially offset by an an increase in gigabits sold. NSG operating income increased for 2011 as compared to 2010 despite declines in average selling prices due to (1) reductions in manufacturing costs per gigabit as a result of improved production efficiencies and higher NAND Flash production and (2) other operating gains including a $57 million gain from the Samsung license arrangement. NSG's costs of goods sold for 2011, 2010 and 2009 included $81 million, $60 million and $60 million, respectively of underutilized capacity costs from the IMFS's wafer fabrication facility in Singapore. We expect that the underutilized capacity costs will decrease significantly in 2012 due to the qualification of IMFS products for sale in the third quarter of 2011.
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NSG sales for 2010 increased 21% from 2009 primarily due to an increase in gigabits produced partially offset by a decline in average selling prices per gigabit. The decline in average selling prices was primarily due to declines in prices on sales of NAND Flash to Intel as a result of cost reductions and were partially offset by increases in average selling prices to trade customers. NSG's operating income improved for 2010 from 2009 primarily due to reductions in costs per gigabit. The reductions in manufacturing costs per gigabit for 2010 were partially offset by the declines in overall average selling prices per gigabit. NSG's operating income for 2009 included a $144 million gain from termination of a supply agreement with Intel.
Wireless Solutions Group ("WSG")
| 2011 | 2010 | 2009 | ||||||||||
| Net sales | $ | 1,959 | $ | 778 | $ | 247 | ||||||
| Operating income (loss) | 20 | (23 | ) | (63 | ) | |||||||
In 2011, WSG sales were composed of NOR Flash, NAND Flash and DRAM in decreasing order of revenue. The 152% increase in WSG sales for 2011 as compared to 2010 was primarily due to the acquisition of Numonyx in May of 2010. WSG experienced pricing pressure in 2011 due to weakness in demand from certain customers. In addition, during 2011 and 2010, a portion of the NAND Flash sold by WSG was obtained from Hynix at market prices and by the end of 2011, substantially all of this supply was obtained from lower-cost Micron production. The improvement in WSG's operating income for 2011 is primarily due to a $95 million gain from the Samsung license arrangement recognized by WSG in 2011.
The significant increase in WSG sales for 2010 as compared to 2009 was primarily due to the acquisition of Numonyx. Operating loss for WSG improved for 2010 from 2009 primarily due to cost reductions and improvements in average selling prices, partially offset by higher R&D expenses.
Embedded Solutions Group ("ESG")
| 2011 | 2010 | 2009 | ||||||||||
| Net sales | $ | 1,002 | $ | 521 | $ | 178 | ||||||
| Operating income (loss) | 237 | 152 | 37 | |||||||||
In 2011, ESG sales were composed of NOR Flash, DRAM and NAND Flash in decreasing order of revenue. The 92% increase in ESG sales for 2011 as compared to 2010 was primarily due to the acquisition of Numonyx in May of 2010. Absent impacts from the Numonyx acquisition, ESG's performance in the automotive, industrial and networking markets was relatively stable from 2010 to 2011. In addition, during 2011 and 2010, a portion of the NAND Flash sold by ESG was obtained from Hynix at market prices and by the end of 2011, the majority of this supply was obtained from lower-cost Micron production. The improvement in ESG's operating income for 2011 is primarily due to the acquisition of Numonyx. In addition, ESG recognized a $33 million gain from the Samsung license arrangement in 2011.
The significant increase in ESG sales for 2010 as compared to 2009 was primarily due to the acquisition of Numonyx. Operating income for ESG improved for 2010 from 2009 primarily due to cost reductions and improvements in average selling prices, partially offset by higher R&D expenses.
Operating Results by Product
Net Sales by Product
| 2011 | 2010 | 2009 | ||||||||||||||||||||
| DRAM | $ | 3,620 | 41 | % | $ | 5,052 | 60 | % | $ | 2,422 | 50 | % | ||||||||||
| NAND Flash | 3,193 | 36 | % | 2,555 | 30 | % | 1,857 | 39 | % | |||||||||||||
| NOR Flash | 1,547 | 18 | % | 451 | 5 | % | — | — | % | |||||||||||||
| Other | 428 | 5 | % | 424 | 5 | % | 524 | 11 | % | |||||||||||||
| $ | 8,788 | 100 | % | $ | 8,482 | 100 | % | $ | 4,803 | 100 | % | |||||||||||
33
Partially as a result of a decrease in DRAM product sales in 2011 and an increase in NAND Flash product sales during the same period, in the fourth quarter of 2011, sales of NAND Flash products were higher than sales of DRAM products. This marks the first time in our history that the primary product by revenue was not DRAM.
DRAM
| 2011 | 2010 | |||||
| (percentage change from prior year) | ||||||
| Net sales | (28 | )% | 109 | % | ||
| Average selling prices per gigabit | (39 | )% | 28 | % | ||
| Gigabits sold | 19 | % | 69 | % | ||
| Cost reduction per gigabit | (23 | )% | (35 | )% | ||
The increase in gigabit sales of DRAM products for 2011 as compared to 2010 was primarily due to increased output obtained from our Inotera joint venture and improved production efficiencies. Sales of DDR3 and DDR2 DRAM, were 51% and 25%, respectively, of total DRAM sales for 2011 and 37% and 40%, respectively, of total DRAM sales for 2010.
The gross marginsmargin percentage on sales of DRAM products for 2011 declined significantly as compared to 2010 primarily due to the declines in average selling prices particularly for DDR3 DRAM sold into the PC market, partially offset by cost reductions resulting from improvements in manufacturing efficiencies. The gross margin percentage for 2011 was also adversely affected by an increasing percentage of products obtained from Inotera. The gross margin percentage on sales of DRAM products for 2010 improved significantly as compared to 2009 were primarily due to the 28% increasecost reductions and increases in average selling pricesprices.
We have rights and obligations to purchase 50% of Inotera's wafer production capacity under a 35% reduction in costs per gigabit primarily as a result of improved production efficiencies.supply agreement with Inotera (the "Inotera Supply Agreement"). DRAM products acquired from our Inotera joint venture accounted for 10% total net sales33% of our DRAM gigabit production in 2011 as compared to 23% for 2010 and our4% for 2009. Products obtained from Inotera in 2011 were primarily DDR3 for the PC market. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin sharingmargin-sharing formula among Nanya, Inotera, and ourselves. Under such formula, all parties’parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya’s selling pricesNanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. ForIn 2011, the cost of wafers purchased from Inotera was significantly higher than our cost of wafers manufactured in our facilities. Because of significant market declines in the selling price of DRAM, Inotera incurred net losses of $278 million for the six-month period ended June 30, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.3 billion as of June 30, 2011, which exposes Inotera to liquidity risk. Further, under generally accepted accounting principles in the Republic of China, Inotera reported a loss for its quarter ended September 30, 2011 of an additional New Taiwan dollars 7,022 million (approximately $241 million U.S. dollars). Inotera's management has developed plans to improve its liquidity. We cannot assure you that Inotera's plan to improve its liquidity will be successful.
NAND Flash
| 2011 | 2010 | |||||
| (percentage change from prior year) | ||||||
| NAND Flash sales to trade customers: | ||||||
| Net sales | 31 | % | 81 | % | ||
| Average selling prices per gigabit | (12 | )% | 26 | % | ||
| Gigabits sold | 50 | % | 44 | % | ||
| Cost (reduction) increase per gigabit | 2 | % | (31 | )% | ||
| NAND Flash sales to Intel: | ||||||
| Net sales | 16 | % | (14 | )% | ||
| Average selling prices per gigabit | (24 | )% | (49 | )% | ||
| Gigabits sold | 53 | % | 71 | % | ||
| Cost reduction per gigabit | (25 | )% | (50 | )% | ||
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Approximately half of our output of NAND Flash products has been sold to Intel through our IM Flash consolidated joint ventures at long-term negotiated prices approximating cost. Sales of NAND Flash products to Intel were $884 million for 2011, $764 million for 2010 we realized significantly lower gross margins onand $886 million for 2009. (See "Segment Operating Results - NAND Solutions Group" for further detail.) The remainder of our sales of Inotera DRAMNAND Flash products is to "trade" customers (i.e., customers other than forIntel).
We sell NAND Flash products in various forms, including discrete standalone devices as well as in multi-chip packages ("MCPs") and other NAND Flash systems solution products. MCPs and system solutions products, which combine NAND Flash devices with a controller and/or other semiconductor devices, generally have significantly higher average selling prices and costs per gigabit than discrete NAND Flash devices. Our sales of MCPs and other system solution NAND Flash products increased in 2011 from 2010 due primarily to our other DRAM products. Gross margins onacquisition of Numonyx and to targeted efforts at increasing sales of DRAMthese products. Our mix of single-level cell ("SLC") and multi-level cell ("MLC") NAND Flash products for 2010 did not include any costs for Inotera’s underutilized capacity, whilealso impacted our average selling prices and sales volumes. SLC products have fewer bits per wafer but higher average selling prices per gigabit as compared to MLC products. These shifts in 2009 $95 millionthe mix of underutilized capacity costs were recorded.our products increased our average selling prices and cost per gigabit in 2011 as compared to 2010.
Increases in gigabits sold for both 2011 and 2010 were primarily due to increased production efficiencies. The ramp of the IMFS wafer fabrication facility in Singapore also contributed to the increase in production for 2011. Our acquisition of Numonyx in May 2010 also contributed to increases in sales volumes to trade customers in 2011 and 2010.
The gross margin percentage on sales of NAND Flash products to trade customers for 2011 declined as compared to 2010 improved from 2009 primarily due to reductionsthe declines in costs per gigabit of 42%, as a result of lower manufacturing costs from increased production of higher-density, advanced-geometry devices.average selling prices. The reductions in costs per gigabitgross margin percentage on sales of NAND Flash products to trade customers for 2010 were partially offsetimproved as compared to 2009 primarily due to cost reductions and by the declinesincreases in average selling prices per gigabit of 18%. Gross margins onprices.
NOR Flash
The increases in our sales of NAND Flash products reflect sales of approximately half of IM Flash’s output to Intel at long-term negotiated prices approximating cost. Our cost of goods sold on sales of NANDNOR Flash products for 2011 and 2010 and 2009 included $62 million and $61 million, respectively,were primarily due to our acquisition of idle capacity costsNumonyx in May 2010 as all of our sales of NOR Flash originated from IM Flash’s wafer fabrication fac ility in Singapore.
this acquisition. Our gross margin percentage on sales of NOR products for Memory products declined from negative 5% for 20082011 improved slightly as compared to negative 12% for 20092010 primarily due to declines in the gross margin for DRAM products partially offset by improvements in the gross margin for NAND Flash products. Gross margins for 2009 were positively affected by significant cost reductions for DRAM and NAND Flash products and the effects of selling memory products that were subject to inventory write-downs in 2008. Declines in gross margins on sales of DRAM products for 2009 as compared to 2008 were primarily due to the 52% decline in average selling prices mitigated by 40% reduction in costs per gigabit. The reduction in DRAM costs per gigabit was primarily due to production efficiencies. DRAM production costs for 2009 were adversely impacted by $95 million of underutilized capacity costs from Inotera. Our gross margin on sales of NAND Flash products for 2009 improved from 2008, despite a 56% decrease in overall average selling prices per gigabit, primarily due to a 61% reduction in costs per gigabit primarily due to lower manufacturing costs.reductions.
Selling, General and Administrative
Selling, general and administrative (“("SG&A”&A") expenses for 2011 increased 12% as compared to 2010 primarily due to increased costs associated with Numonyx operations and higher payroll costs, partially offset by a reduction in legal costs. The reduction in legal costs from 2010 to 2011 was primarily due to $64 million of costs in 2010 for estimated settlements in an indirect purchasers antitrust case and other matters.
SG&A expenses for 2010 increased 49% from 2009 primarily due to higher payroll expenses resulting from increased incentive-based compensation costs;the costs associated with the indirect purchasers settlements, increased costs associated with legal matters, including $64 million relating to accruals for estimated settlements in the indirect purchasers antitrust case and other matters (in Memory); $20 million of Numonyx acquisitionoperations, higher payroll costs and Numonyx SG&A subsequent to the acquisition.acquisition costs. The increase in SG&A expenses for 2010 was reducedpartially offset by a reduction in expenses for imaging operations as a result of the sale of a 65% interest in Aptina Imaging Corporation (“Aptina”("Aptina") in the fourth quarter of 2009. We expect to incur increased SG&A expenses from Numonyx o perations for 2011 as compared to 2010, which only reflected Numonyx’s operations from the May 7, 2010 acquisition date. SG&A expenses for 2009 decreased 22% from 2008, primarily due to lower payroll expenses and other costs related to our restructure initiatives and lower legal expenses. Lower payroll expenses reflected reductions in headcount, variable pay, salary levels and employee benefits. Future SG&A expense is expected to vary, potentially significantly, depending on, among other things, the number of legal matters that are resolved relatively early in their life-cycle and the number of legal matters that progress to trial. We expect that SG&A expenses will approximate $140$155 million to $150$165 million for the first quarter of 2011. SG&A expense by segment were as follows:2012.
| 2010 | 2009 | 2008 | ||||||||||
Memory | $ | 444 | $ | 315 | $ | 385 | ||||||
Numonyx | 57 | -- | -- | |||||||||
All Other | 27 | 39 | 70 | |||||||||
| $ | 528 | $ | 354 | $ | 455 | |||||||
Research and Development
R&D expenses for 2011 increased 27% from 2010 primarily due to the following:
•increased costs associated with R&D activities for acquired Numonyx operations;
•higher payroll costs; and
•a higher volume of pre-qualification wafers processed.
35
R&D expenses for 2010 decreased 4% from 2009 primarily due to the following:
a DRAM cost-sharing arrangement with Nanya that commenced in 20102010; and
a reduction in R&D costs for imaging products as a result of the sale of a 65% interest in Aptina in the fourth quarter of 2009,2009.
Decreases in R&D costs for 2010 from the above factors was partially offset by higher payroll expenses resulting from the accrual of incentive-based compensation costs and additional $79 million of R&D expenses in connection with the May 7, 2010 acquisition of Numonyx. R&D expenses were reduced by $104 million in 2010, $107 million in 2009 and $148 million in 2008 for
As a result of amounts reimbursable from Intel under a NAND Flash R&D cost-sharing arrangement.arrangement, R&D expenses were reduced by $51$95 million, in$104 million and $107 million for 2011, 2010 for amounts reimbursable from Nanya under a DRAM R&D cost-shari ng arrangement that commenced in the third quarter of 2010. We expect that reimbursements from Nanya under the DRAM R&D cost sharing arrangement will increase in 2011 when the arrangement is outstanding for the entire year. We expect to incur increased R&D expenses from Numonyx’s operations in 2011 as compared to 2010, which only reflected Numonyx’s operations from the May 7, 2010 acquisition date.and 2009 respectively. We expect that R&D expenses, net of amounts reimbursable from our R&D partners, will approximate $195be approximately $200 million to $205$230 million for the first quarter of 2011. R&D expenses for 2009 decreased 5% from 2008 primarily due to lower payroll costs and decreases in costs of development wafers processed.2012.
| 2010 | 2009 | 2008 | ||||||||||
Memory | $ | 526 | $ | 529 | $ | 536 | ||||||
Numonyx | 79 | -- | -- | |||||||||
All Other | 19 | 118 | 144 | |||||||||
| $ | 624 | $ | 647 | $ | 680 | |||||||
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies which are designed to facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our core semiconductor expertise and the development of new manufacturing materials. Product design and development efforts are concentrated on our high density DDR3 DRAM and LP-DDR2 mobile LPDRAMMobile Low Power DRAM products as well as high density and mobile NAND Flash memory (including multi-level cell technology), NOR Flash memory, specialty memory, phase change memory and memory systems.
Restructure
In response to a severe downturn in the semiconductor memory industry and global economic conditions, we initiated a restructure plan in 2009 primarily within our Memory segment. In the first quarter of 2009, IM Flash, our joint venture and Intel, terminated an agreement to obtain NAND Flash memory supply from our Boise facility. In connection therewith, Intel paid us $208 million in 2009. In addition, we phased out all remaining 200mm DRAM wafer manufacturing operations in Boise, Idaho in the second half of 2009. As a result of these restructure plans, we reduced employment in 2009 by approximately 4,600 employees, or approximately 20%. We do not expect to incur any additional material res tructure charges related to the plan initiated in 2009. The following table summarizes restructure charges (credits) resulting from the restructure activities:
34
Goodwill Impairment
In the second quarter of 2009, our imaging operations (the primary component of All Other segment) experienced a severe decline in sales, margins and profitability due to a significant decline in demand as a result of the downturn in global economic conditions. The drop in market demand resulted in significant declines in average selling prices and unit sales. Due to these market and economic conditions, our imaging operations experienced a significant decline in market value. Accordingly, in the second quarter of 2009, we performed an assessment of our imaging operations goodwill for impairment. Based on this assessment, we wrote off all of the $58 million of goodwill associated with our imaging operations as of March 5, 2009.
In the first and second quarters of 2008, we experienced a sustained, significant decline in our stock price. As a result of the decline in stock prices, our market capitalization fell significantly below the recorded value of our consolidated net assets for most of the second quarter of 2008. The reduced market capitalization at that time reflected, in part, the Memory segment’s lower average selling prices and expected continued weakness in pricing for our memory products. Accordingly, in the second quarter of 2008, we performed an assessment of Memory segment goodwill for impairment. Based on this assessment, we wrote off all the $463 million of goodwill associated with our Memory segment as of February 28, 2008.
Other Operating (Income) Expense, Net
Other operating (income) expense consisted of the following:
On August 3, 2009, Inotera soldOther non-operating expense for 2011 included a $111 million loss recognized in the first quarter of 2011 in connection with a series of debt restructure transactions with certain holders of our convertible notes. (See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt" note.)
Equity Method InvestmentsIncome taxes for 2010 include a benefit of $51 million from reduction of a portion of the deferred tax asset valuation allowance in connection with the sale of our equity interest in the Hynix JV that was acquired as part of the Numonyx acquisition. Except for this benefit, taxes for 2010 and 2009 primarily reflect taxes on our non-U.S. operations and U.S. alternative minimum tax. We have a valuation allowance against substantially all U.S. net deferred tax assets. Taxes attributable to U.S. operations for 2010, 2009 and 2008 were substantially offset by changes in the valuation allowance.Equity Plans
35
We have a valuation allowance against substantially all U.S. net deferred tax assets. As of September 2, 2010, the federal, state and foreign net operating loss carryforwards were $2.4 billion, $2.0 billion and $290 million, respectively. If not utilized, substantially all of the federal and state net operating loss carryforwards will expire in 2022 to 2029 and the foreign net operating loss carryforwards will begin to expire in 2015. As of September 2, 2010, the federal and state tax credit carryforwards were $188 million and $204 million, respectively. If not utilized, substantially all of the federal and state tax credit carryforwards will expire in 2013 to 2030. As a consequence of prior business acquisitions, utilization of the tax benefits for some of the tax carryforwards is subject to limitations imposed by Section 382 of the Internal Revenue Code and some portion or all of these carryforwards may not be available to offset any future taxable income. The determination of the limitations is complex and requires significant judgment and analysis of past transactions.
In connection with the acquisition of Numonyx, we accrued a $66 million liability related to uncertain tax positions on the tax years of Numonyx open to examination. We have recorded an indemnification asset for a significant portion of these accrued liabilities related to these tax positions.
Equity in Net Losses of Equity Method Investees
We have partnered with Nanya in two Taiwan DRAM memory companies accounted for as equity method investments: Inotera and MeiYa Technology Corporation (“MeiYa”). Inotera and MeiYa each have fiscal years that end on December 31. We recognize our share of Inotera’s and MeiYa’s quarterly earnings or losses on a two-month lag. From our interest in these equity method investments, we recognized a loss of $5 million for 2010 and a loss of $140 million for 2009.
As a result of our sale of a 65% interest in our Aptina subsidiary on July 10, 2009, we account for our remaining interest in Aptina under the equity method. Our shares in Aptina constitute 35% of Aptina’s total common and preferred stock and 64% of Aptina’s common stock. Under the equity method, we recognize our share of Aptina’s results of operations based on our 64% share of Aptina’s common stock on a two-month lag. We recognized losses of $24 million on our investment in Aptina for 2010.
On December 18, 2009, we acquired a 50% interest in Transform, a subsidiary of Origin Energy Limited (“Origin”), in exchange for our contribution to Transform of nonmonetary manufacturing assets with a fair value of $65 million. We recognize our 50% share of Transform’s results of operations on a two-month lag. Our results of operations for 2010 included a loss of $12 million for our share of Transform’s results of operations from the acquisition date through June 30, 2010.
(See “Item 8. Financial Statements – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Equity Method Investments” note.)
Noncontrolling Interests in Net (Income) Loss
Noncontrolling interests for 2010, 2009 and 2008 primarily reflects the share of income or losses attributed to the noncontrolling interests in our TECH joint venture. We made the following purchases of TECH shares: $99 million on February 27, 2009, $99 million on June 2, 2009, and $60 million on August 27, 2009. As a result, noncontrolling interests in TECH were reduced from approximately 27% as of August 28, 2008 to approximately 15% as of September 3, 2009. We purchased an additional $80 million of TECH shares on January 27, 2010 and further reduced noncontrolling interest in TECH to approximately 13% as of September 2, 2010. (See “Item 8. Financial Statements – Notes to Consolidated Financial Statements – TECH Semi conductor Singapore Pte. Ltd” note.)
Stock-based Compensation
Total compensation cost for our equity plans for 2010, 2009 and 2008 was $93 million, $44 million and $48 million, respectively. Stock-based compensation expense was higher for 2010 than for 2009 primarily due to the accrual of performance-based stock compensation costs as a result of improved operating results. Stock compensation expenses fluctuate based on assessments of whether the achievement of performance conditions is probable for performance-based stock grants.
| 2010 | 2009 | 2008 | ||||||||||
| (Gain) loss from disposition of equipment | $ | (13 | ) | $ | 152 | $ | -- | |||||
| Severance and other termination benefits | 1 | 60 | 23 | |||||||||
| Gain from termination of NAND Flash supply agreement | -- | (144 | ) | -- | ||||||||
| Other | 2 | 2 | 10 | |||||||||
| $ | (10 | ) | $ | 70 | $ | 33 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
| Government grants in connection with operations in China | $ | (24 | ) | $ | (9 | ) | $ | (2 | ) | |||
| Receipts from U.S. government for anti-dumping tariffs | (12 | ) | (6 | ) | (38 | ) | ||||||
| (Gain) loss on disposition of property, plant and equipment | (1 | ) | 54 | (66 | ) | |||||||
| Loss on sale of majority interest in Aptina | -- | 41 | -- | |||||||||
| (Gain) loss from changes in currency exchange rates | 23 | 30 | 25 | |||||||||
| Other | (3 | ) | (3 | ) | (10 | ) | ||||||
| $ | (17 | ) | $ | 107 | $ | (91 | ) | |||||
Interest Income/ExpenseIncome (Expense)
Interest expense for 2011, 2010 and 2009, and 2008, includesincluded aggregate amounts of non-cash amortization of debt discount and issuance costs of $60 million, $76 million and $71 million, and $49 million, respectively. As a result of the retrospective adoption of a new accounting standard for certain convertible debt, we modified our accounting for our $1.3 billion 1.875% convertible notes. We retrospectively allocated the $1.3 billion aggregateNet proceeds received at inception from some of our convertible notes were allocated between a liability component (issued at a discount) and an equity component. The debt discount is being amortized from issuance through June 2014, the expected maturity datedates of the 1.875%such convertible notes, with the amortization recorded as additional non-cash interest expense. Included in the aggregate noncash interest expense abo ve is amortization on the 1.875% convertible notes of $54 million for 2011, $56 million infor 2010 and $52 million in 2009 and $47 million in 2008.for 2009. (See “Item"Item 1. Financial Statements – Notes to Consolidated Financial Statements – Adjustments for Retrospective Application of New Accounting Standards”Debt" note.)
Other Non-Operating Income (Expense), netNet
Other non-operating income for 2011 also included $15 million in connection with the release of our guarantee of debt in a joint venture in which we previously participated. (See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt" note.)
Other non-operating income for 2010 included a gain of $56 million recognized in the first quarter of 2010 in connection with an issuance of common shares in a public offering.offering by Inotera Memories, Inc. ("Inotera"). As a result of the issuance, our interest in Inotera decreased from 35.5% to 29.8% and we recognized a gain of $56 million in the first quarter of 2010.. (See “Item 8."Item 1. Financial Statements – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Equity Method Investments – Inotera and MeiYa DRAM joint ventures with Nanya – Inotera”Nanya" note.)
Other Operating and Non-operating Income and Expenses
Further discussion of operating and non-operating income and expenses can be found in the following notes contained in "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements":
Other Operating (Income) Expense, Net
TECH Semiconductor Singapore Pte. Ltd.
Income Taxes
Equity Method Investments
36
Liquidity and Capital Resources
As of September 1, 2011 and September 2, 2010, we had the following cash and equivalents totaling $2,913 million compared to $1,485 million as of September 3, 2009. The balance as of September 2, 2010 included $355 million held at our TECH joint venture and $246 million held at our IM Flash joint ventures. Our ability to access funds held by the joint ventures to finance our other operations is subject to agreement by the joint venture partners, debt covenants and contractual limitations. Amounts held by TECH and IM Flash are not anticipated to be available to finance our other operations.equivalents:
| As of | 2011 | 2010 | ||||||
| Bank deposit accounts | $ | 543 | $ | 372 | ||||
| Money market accounts | 1,462 | 2,170 | ||||||
| Certificates of deposit | 155 | 371 | ||||||
| Aggregate cash and equivalents (includes $327 million and $246 million held by IM Flash) | $ | 2,160 | $ | 2,913 | ||||
| Bank deposit accounts | $ | 372 | ||
| Money market accounts | 2,170 | |||
| Certificates of deposit | 371 | |||
| $ | 2,913 |
To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting investments with any single obligor. Our ability to access funds held by IM Flash to finance our other operations is subject to agreement by the joint venture partners and contractual limitations. Amounts held by IM Flash are not anticipated to be available to finance our other operations.
Cash generated by operations is our primary source of liquidity. Our liquidity is highly dependent on average selling prices for our products and the timing and level of our capital expenditures, both of which can vary significantly from period to period. Depending on conditions in the semiconductor memory market, our cash flows from operations and current holdings of cash and investments may not be adequate to meet our needs for capital expenditures and operations. Historically, we have used external sources ofWe may pursue additional financing to fund these needs. Due to conditionsalternatives in the credit markets, it may be difficult to obtain financing on terms acceptable to us.future as cost effective and strategic opportunities arise.
Operating activities
Investing activities:activities
Net cash used for investing activities was $448$2,201 million for 2010,2011, which includedconsisted primarily of cash expenditures of $616$2,550 million for property, plant and equipment and $138$159 million for the acquisition of additional sharesnoncontrolling interests in InoteraTECH, partially offset by net proceeds$330 million released from the sale of our interest in the Hynix JV of $173 million (net of $250 million placed in a cash collateral account for a loan guarantee). A significant portion of the capital expenditures related to IM Flash and TECH operations.restricted cash. We believe that to develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, we must continue to invest in manufac turingmanufacturing technologies, facilities and capital equipment and research and development. We expectestimate that capital spending for 2012 will be approximately $2.4$2 billion, the majority of which is expected to $2.9 billion for 2011.be incurred in the first half of 2012. The actual amount in 2011amounts for 2012 will vary depending on funding participation by joint venture partners and market conditions. As of September 2, 2010,1, 2011, we had commitments of approximately $1.2 billion$600 million for the acquisition of property, plant and equipment, mostsubstantially all of which is expected to be paid within one year.
$250 million of restricted cash collateral released to the acquisition, Hynix exercised its option to purchase our equity interest in the Hynix JV for $423 million on August 31, 2010. Alsous in connection with the Numonyx acquisition, we entered into agreements with STMicroelectronics N.V. and DBS Bank Ltd. (“DBS”) that require us to guarantee an outstanding $250 million loan, due in periodic installments from 2014 through 2016, made by DBS to the Hynix JV. Under the agreements, on August 31, 2010, we deposited $250 million of proceeds from the saletermination of our interest in the Hynix JV into a pledged account at DBS Bank Ltd. (R 20;DBS”) to collateralize the guarantee of a loan for a former joint venture as a result of the loan. The amount on depositunderlying loan being repaid, and
$60 million of previously restricted cash that was released to us as a result of our prepayment of the TECH credit facility in the DBS account is accounted for as restricted cash. The amount on deposit and our guarantee decrease as payments are made by the Hynix JV against the loan.2011.
Financing activities
37
On July 26, 2011, we issued $345 million of 1.5% Convertible Senior Notes due August 1, 2031 (the "2031A Notes") and $345 million of 1.875% Convertible Senior Notes due August 1, 2031 (the "2031B Notes" and together with the 2031A Notes the "2031 Notes") at face value. Issuance costs for the 2031 Notes totaled $18 million.
On July 26, 2011, we paid $150 million to repurchase 19.7 million shares of common stock at $7.60 per share.
In the third quarter of 2011, we prepaid the remaining $250 million outstanding under our TECH subsidiary's credit facility.
On November 3, 2010, we completed the following series of debt restructure transactions in connection with separate privately negotiated agreements entered into on October 28, 2010 with certain holders of our convertible notes:
Repurchased $176 million in aggregate principal amount of our 1.875% Convertible Senior Notes due 2014 (the "2014 Notes") for $171 million in cash.
Repurchased $91 million in aggregate principal amount of our 4.25% Convertible Senior Notes due 2013 for $166 million in cash.
Exchanged $175 million in aggregate principal amount of our 2014 Notes for $175 million in aggregate principal amount of the 1.875% Convertible Senior Notes due 2027 (the"2027 Notes"). Holders of the 2027 Notes have an option to require us to purchase the 2027 Notes on June 1, 2017, and in certain other circumstances, at a price equal to 100 percent of the principal amount of the 2027 Notes plus accrued and unpaid interest.
(See “Item 8."Item 1. Financial Statements and Supplementary Data –- Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Debt” note.- Debt" and "Item 1. Financial Statements - Notes to Consolidated Financial Statements - Shareholders' Equity" notes.)
Joint ventures:ventures
In 2010,2011, IM Flash distributed $267$225 million to Intel and we expect that it will make additionalIntel. Timing of future distributions to Intel in the future. Timing of these distributions and any future contributions, however, is subject to market conditions and approvalavailability of the partners.cash. In the second quarter of 2010,2011, IM Flash began moving forward with start-up activities including placing purchase orders and preparing the facility for tool installationsinstalling tools at its new 300mm wafer fabrication facility in Singapore that commenced in 2011. In 2010, we contributed $128 million and Intel contributed $38 million to IM Flash. In the first quarter of 2011, we contributed $392 milli onSingapore. We made contributions to IM Flash of $1,580 million in 2011 and $103 million in September 2011, subsequent to 2011. Intel did not make any contribution.contributions to IM Flash in 2011 but contributed $131 million in September 2011. We expect to make additional significant contributions to IM Flash in future periods in connection with these start-up activities.tool installations and the further ramp of production at the Singapore facility. The level of our future capital contributions to IM Flash will depend on market conditions and the extent to which Intel participates with us in future IM Flash capital calls.
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
Notes payable (1) | $ | 2,223 | $ | 443 | $ | 220 | $ | 1,560 | $ | -- | ||||||||||
Capital lease obligations (1) | 602 | 347 | 128 | 44 | 83 | |||||||||||||||
Operating leases | 131 | 31 | 38 | 21 | 41 | |||||||||||||||
Purchase obligations | 1,801 | 1,687 | 89 | 11 | 14 | |||||||||||||||
Other long-term liabilities | 527 | -- | 197 | 158 | 172 | |||||||||||||||
Total | $ | 5,284 | $ | 2,508 | $ | 672 | $ | 1,794 | $ | 310 | ||||||||||
(1) Includes interest | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
Notes payable (1) | $ | 2,136 | $ | 39 | $ | 1,163 | $ | 30 | $ | 904 | ||||||||||
Capital lease obligations (1) | 497 | 151 | 158 | 118 | 70 | |||||||||||||||
| Operating leases | 116 | 32 | 42 | 17 | 25 | |||||||||||||||
| Purchase obligations | 1,781 | 1,277 | 486 | 9 | 9 | |||||||||||||||
| Other long-term liabilities | 559 | — | 282 | 152 | 125 | |||||||||||||||
| Total | $ | 5,089 | $ | 1,499 | $ | 2,131 | $ | 326 | $ | 1,133 | ||||||||||
(1) Includes interest | ||||||||||||||||||||
38
The obligations disclosed above do not include contractual obligations recorded on our balance sheet as current liabilities except for the current portion of long-term debt. The expected timing of payment amounts of the obligations discussed above is estimated based on current information. Timing and actual amounts paid may differ depending on the timing of receipt of goods or services, market prices, changes to agreed-upon amounts or timing of certain events for some obligations.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable,noncancellable, (2) we would incur a penalty if the agreement was cancelled,canceled, or (3) we must make specified minimum payments even if it does not take delivery of the contracted products or services (“take-or-pay”("take-or-pay"). If the obligation to purchase goods or services is noncancelable,noncancellable, the entire value of the contract was included in the above table. If the obligation is cancelable,cancellable, but we would incur a penalty if cancelled,canceled, the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in take-or-pay contracts are also included in the above tab letable as they represent the portion of each contract that is a firm commitment.
Pursuant to the Inotera Supply Agreement, we have an obligation to purchase 50% of Inotera’s output of semiconductor memory componentscapacity subject to specific terms and conditions. As purchase quantities are based on qualified production output, the Inotera Supply Agreement does not contain a fixed or minimum purchase quantity and therefore we did not include our obligations under the Inotera Supply Agreement in the contractual obligations table above. Our obligation under the Inotera Supply Agreement also fluctuates due to pricing which is based on manufacturing costs and marginsrevenues associated with the resale of DRAM products. Pursuant to our obligations under the Inotera Supply Agreement, weWe purchased $693$641 million of DRAM products from Inotera in 2010.2011 under the Inotera Supply Agreement.
Off-Balance Sheet Arrangements
Concurrent with the offering of the 1.875%2031 Notes on July 26, 2011, we entered into capped call transactions (the "2011 Capped Calls") that have an initial strike price of approximately $9.50 per share, subject to certain adjustments, which was set to the initial conversion price of the 2031 Notes. The 2011 Capped Calls are in four equal tranches, have cap prices of $11.40, $12.16, $12.67 and $13.17 per share, and cover, subject to anti-dilution adjustments similar to those contained in the 2031 Notes, an approximate combined total of 72.6 million shares of common stock. The 2011 Capped Calls expire on various dates between July 2014 and February 2016. The 2011 Capped Calls are intended to reduce the potential dilution upon conversion of the 2031 Notes.
Concurrent with the offering of the 4.25% Convertible Senior Notes due 2013 (the "2013 Notes") in April 2009, we paid approximately $25 million for three capped call instruments that have an initial strike price of approximately $5.08 per share (the "2009 Capped Calls"). The 2009 Capped Calls have a cap price of $6.64 per share and cover an aggregate of approximately 45.2 million shares of common stock. The 2009 Capped Calls expire in October and November of 2012. The 2009 Capped Calls are intended to reduce potential dilution upon conversion of the 2013 Notes.
Concurrent with the offering of the 2014 Notes in May 2007, we paid approximately $151 million for three Capped Call transactions (the “Capped Calls”"2007 Capped Calls"). The 2007 Capped Calls cover an aggregate of approximately 91.3 million shares of common stock. The 2007 Capped Calls are in three equal tranches with cap prices of $17.25, $20.13 and $23.00 per share, respectively, each with an initial strike price of approximately $14.23 per share, subject to certain adjustments. The 2007 Capped Calls expire on various dates between November 2011 and December 2012. The 2007 Capped Calls are intended to reduce potential dilution upon conversion of the Convertible2014 Notes.
(See “Item"Item 8. Financial Statements and Supplementary Data –- Notes to Consolidated Financial Statements –- Supplemental Balance Sheet Information – Shareholders’- Shareholders' Equity –- Capped Call Transactions”Transactions" note.)
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and requires management’smanagement's most difficult, subjective or co mplexcomplex judgments.
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Business AcquisitionsAcquisitions:: Accounting for acquisitions and consolidations requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, as well as various forms of consideration given, which involves a number of judgments, assumptions and estimates that could materially affect the amount and timing of costs recognized. We typically obtain independent third party valuation studies to assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates and comparable market values.
Consolidations: Consolidations:We have interests in joint venture entities that are Variable Interest Entities ("VIEs"). Determining whether to consolidate a variable interest entityVIE may require judgment in assessing (1) whether an entity is a variable interest entityVIE and (2) if we are the entity’sentity's primary beneficiary. We are required to consolidate a variable interest entityTo determine if we have variable interests that will absorb a majority of `the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Deter miningare the primary beneficiary requires considerationof a VIE, we evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or the right to receive benefits of the rightsVIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and obligations conveyed by our variable interests and the relationshipan assessment of our variable interests with variable interests held byability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding and financing and other parties. If we hold variable interests in the same variable interest entity with another entity that is considered a related party, we are required to assessapplicable agreements and circumstances. Our assessment of whether we are the primary beneficiary based on a determination of who is most closely associated with the variable interest entity. This assessmentour VIEs requires judgmentsignificant assumptions and shall be based on an analysis of all relevant facts and circumstances, including (1) the relationship and significance of the activities of the variable interest entity to the various parties within the related party group, (2) each party’s exposure to the expected losses of the variable interest entity and (3) the design of the variable interest entity. In 2011, upon adoption of a new accounting standard, the determination of the primary benefici ary of a variable interest entity will require an assessment of whether we have the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance.judgment.
ContingenciesContingencies:: We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.
Income taxes:Taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. EstimatesThese estimates involve judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxabl etaxable income.
InventoriesInventories:: Inventories are stated at the lower of average cost or market value and we recorded charges of $603 million in aggregate for 2009 and $282 million in aggregate for 2008 to write down the carrying value of inventories of memory products to their estimated market values. Cost includes labor, material and overhead costs, including product and process technology costs. Determining market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. To project average selling prices and sales volumes, we review recent sales volumes, ex istingexisting customer orders, current contract prices, industry analysis of supply and demand, seasonal factors, general economic trends and other information. When these analyses reflect estimated market values below our manufacturing costs, we record a charge to cost of goods sold in advance of when the inventory is actually sold. Differences in forecasted average selling prices used in calculating lower of cost or market adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated market value of our Memory segmentmemory inventory by approximately $105$143 million at September 2, 2010.1, 2011. Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary significantly from projected prices and volumes and, as a result, the timing of when product costs a reare charged to operations can vary significantly.
U.S. GAAP provides for products to be grouped into categories in order to compare costs to market values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. Our inventories have been categorized as Memory, Numonyx, Imagingmemory, imaging and Microdisplaymicrodisplay products. The major characteristics we consider in determining inventory categories are product type and markets.
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Research and development:Development: Costs related to the conceptual formulation and design of products and processes are expensed as research and development as incurred. Determining when product development is complete requires judgment yby us. We deem development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. Subsequent to product qualification, product costs are valued in inventory.
Stock-based compensation:Compensation: Compensation cost for stock-based compensation is estimated at the grant date based on the fair-value of the award and is recognized as expense ratably over the requisite service period of the award. For stock-based compensation awards with graded vesting that were granted after 2005, we recognize compensation expense using the straight-line amortization method. For performance-based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop itsthese estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock awards. We estimate stock price volatility based on an average of its historical volatility and the implied volatility derived from traded options on our stock.
Recently Issued Accounting Standards
In May 2011, the FASB issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. We are required to adopt this standard in the third quarter of 2012. We do not expect this adoption to have a material impact on our financial statements.
In June 2011, the FASB issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. We are required to adopt this standard as of the beginning of 2013. The adoption of this standard will only impact the presentation of our financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOLSURES ABOUT MARKET RISK
Interest Rate Risk
As of September 2, 2010, $1,8101, 2011, $1,950 million of our $2,360$2,001 million of debt was at fixed interest rates. As a result, the fair value of our debt fluctuates based on changes in market interest rates. The estimated fair value of our debt was $2,565$2,281 million as of September 1, 2011 and $2,565 million as of September 2, 2010 and $2,868 million as of September 3, 2009.. We estimate that, as of September 2, 2010,1, 2011, a 1% decrease in market interest rates would change the fair value of our fixed-rate debt instruments by approximately $49 million.$59 million. As of September 2, 2010, $5501, 2011, $51 million of the debt had variable interest rates and a 1% increase in the rates would increase annual interest expense by approximately $4 million.$1 million.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the exchange rates of foreign currency in “Item"Item 1A. Risk Factors.”" Changes in foreign currency exchange rates could materially adversely affect our results of operations andor financial condition.
The functional currency for substantially all of our operations is the U.S. dollar. We held cash and other assets in foreign currencies valued at an aggregate of U.S. $504$512 million as of September 1, 2011 and U.S. $504 million as of September 2, 2010 and U.S. $229 million as of September 3, 2009.. We also had foreign currency liabilities valued at an aggregate of U.S. $901$944 million as of September 1, 2011, and U.S. $901 million as of September 2, 2010 and. Because the substantial majority of our sales are denominated in U.S. $742 million as of September 3, 2009.dollar, we do not have significant natural hedges to offset our expenditures denominated in other currencies. Significant components of assets and liabilities denominated in foreign currencies other than the U.S. dollar (our reporting currency) were as follows (in U.S. dollar equivalents):
| September 2, 2010 | September 3, 2009 | |||||||||||||||||||||||
| Singapore Dollars | Yen | Euro | Singapore Dollars | Yen | Euro | |||||||||||||||||||
| (amounts in millions) | ||||||||||||||||||||||||
| Deferred tax assets | $ | -- | $ | 115 | $ | 6 | $ | -- | $ | 115 | $ | 4 | ||||||||||||
| Other assets | 88 | 55 | 196 | 25 | 17 | 40 | ||||||||||||||||||
| Accounts payable and accrued expenses | (158 | ) | (186 | ) | (168 | ) | (68 | ) | (141 | ) | (99 | ) | ||||||||||||
| Debt | (78 | ) | (9 | ) | (61 | ) | (289 | ) | (25 | ) | (4 | ) | ||||||||||||
| Other liabilities | (14 | ) | (75 | ) | (100 | ) | (8 | ) | (55 | ) | (41 | ) | ||||||||||||
Net assets (liabilities) | $ | (162 | ) | $ | (100 | ) | $ | (127 | ) | $ | (340 | ) | $ | (89 | ) | $ | (100 | ) | ||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
| Singapore Dollars | Yen | Euro | Other | Singapore Dollars | Yen | Euro | Other | |||||||||||||||||||||||||
| (amounts in millions) | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 22 | $ | 4 | $ | 33 | $ | 21 | $ | 27 | $ | 27 | $ | 53 | $ | 19 | ||||||||||||||||
| Receivables | 92 | 25 | 72 | 18 | 52 | 15 | 77 | 23 | ||||||||||||||||||||||||
| Deferred tax assets | — | 39 | 7 | 1 | — | 115 | 6 | 1 | ||||||||||||||||||||||||
| Other assets | 12 | 16 | 88 | 62 | 9 | 13 | 66 | 1 | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | (124 | ) | (194 | ) | (240 | ) | (44 | ) | (158 | ) | (186 | ) | (168 | ) | (45 | ) | ||||||||||||||||
| Debt | (81 | ) | — | (3 | ) | (3 | ) | (78 | ) | (9 | ) | (61 | ) | — | ||||||||||||||||||
| Other liabilities | (15 | ) | (8 | ) | (128 | ) | (104 | ) | (14 | ) | (75 | ) | (100 | ) | (7 | ) | ||||||||||||||||
| Net assets (liabilities) | $ | (94 | ) | $ | (118 | ) | $ | (171 | ) | $ | (49 | ) | $ | (162 | ) | $ | (100 | ) | $ | (127 | ) | $ | (8 | ) | ||||||||
We estimate that, based on the assets and liabilities denominated in currencies other than the U.S. dollar as of September 2, 2010,1, 2011, a 1% change in the exchange rate versus the U.S. dollar, would expose us to foreignresulting in currency gains or losses of approximately U.S. $2$2 million for the Singapore dollareuro and U.S. $1$1 million for the euroyen and the yen.Singapore dollar. During the first quarter of 2010, we began using derivative instruments to hedge our foreign currency exchange rate risk. (See Item"Item 8. Financial Statements and Supplementary Data – “DerivativeNotes to Consolidated Financial Instruments”Statements – Derivative Financial Instruments" note.)
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Index to Consolidated Financial Statements
| Page | |
| Consolidated Financial Statements as of September | |
Consolidated Statements of Operations | |
Consolidated Balance Sheets | |
Consolidated Statements of | |
Consolidated Statements of Cash Flows | |
Notes to Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm | |
| Financial Statement Schedule: | |
Schedule II – Valuation and Qualifying Accounts | |
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MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
| For the year ended | September 2, 2010 | September 3, 2009 | August 28, 2008 | |||||||||
| Net sales | $ | 8,482 | $ | 4,803 | $ | 5,841 | ||||||
| Cost of goods sold | 5,768 | 5,243 | 5,896 | |||||||||
Gross margin | 2,714 | (440 | ) | (55 | ) | |||||||
| Selling, general and administrative | 528 | 354 | 455 | |||||||||
| Research and development | 624 | 647 | 680 | |||||||||
| Restructure | (10 | ) | 70 | 33 | ||||||||
| Goodwill impairment | -- | 58 | 463 | |||||||||
| Other operating (income) expense, net | (17 | ) | 107 | (91 | ) | |||||||
Operating income (loss) | 1,589 | (1,676 | ) | (1,595 | ) | |||||||
| Gain from acquisition of Numonyx | 437 | -- | -- | |||||||||
| Interest income | 18 | 22 | 79 | |||||||||
| Interest expense | (178 | ) | (182 | ) | (118 | ) | ||||||
| Other non-operating income (expense), net | 54 | (16 | ) | (13 | ) | |||||||
| 1,920 | (1,852 | ) | (1,647 | ) | ||||||||
| Income tax (provision) benefit | 19 | (1 | ) | (18 | ) | |||||||
| Equity in net income (loss) of equity method investees, net of tax | (39 | ) | (140 | ) | -- | |||||||
Net income (loss) | 1,900 | (1,993 | ) | (1,665 | ) | |||||||
| Net (income) loss attributable to noncontrolling interests | (50 | ) | 111 | 10 | ||||||||
Net income (loss) attributable to Micron | $ | 1,850 | $ | (1,882 | ) | $ | (1,655 | ) | ||||
| Earnings (loss) per share: | ||||||||||||
Basic | $ | 2.09 | $ | (2.35 | ) | $ | (2.14 | ) | ||||
Diluted | 1.85 | (2.35 | ) | (2.14 | ) | |||||||
| Number of shares used in per share calculations: | ||||||||||||
Basic | 887.5 | 800.7 | 772.5 | |||||||||
Diluted | 1,050.7 | 800.7 | 772.5 | |||||||||
| For the year ended | September 1, 2011 | September 2, 2010 | September 3, 2009 | |||||||||
| Net sales | $ | 8,788 | $ | 8,482 | $ | 4,803 | ||||||
| Cost of goods sold | 7,030 | 5,768 | 5,243 | |||||||||
| Gross margin | 1,758 | 2,714 | (440 | ) | ||||||||
| Selling, general and administrative | 592 | 528 | 354 | |||||||||
| Research and development | 791 | 624 | 647 | |||||||||
| Other operating (income) expense, net | (380 | ) | (27 | ) | 235 | |||||||
| Operating income (loss) | 755 | 1,589 | (1,676 | ) | ||||||||
| Gain on acquisition of Numonyx | — | 437 | — | |||||||||
| Interest income | 23 | 18 | 22 | |||||||||
| Interest expense | (124 | ) | (178 | ) | (182 | ) | ||||||
| Other non-operating income (expense), net | (103 | ) | 54 | (16 | ) | |||||||
| 551 | 1,920 | (1,852 | ) | |||||||||
| Income tax (provision) benefit | (203 | ) | 19 | (1 | ) | |||||||
| Equity in net income (loss) of equity method investees, net of tax | (158 | ) | (39 | ) | (140 | ) | ||||||
| Net income (loss) | 190 | 1,900 | (1,993 | ) | ||||||||
| Net (income) loss attributable to noncontrolling interests | (23 | ) | (50 | ) | 111 | |||||||
| Net income (loss) attributable to Micron | $ | 167 | $ | 1,850 | $ | (1,882 | ) | |||||
| Earnings (loss) per share: | ||||||||||||
| Basic | $ | 0.17 | $ | 2.09 | $ | (2.35 | ) | |||||
| Diluted | 0.17 | 1.85 | (2.35 | ) | ||||||||
| Number of shares used in per share calculations: | ||||||||||||
| Basic | 988.0 | 887.5 | 800.7 | |||||||||
| Diluted | 1,007.5 | 1,050.7 | 800.7 | |||||||||
See accompanying notes to consolidated financial statements.
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MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
As of | September 2, 2010 | September 3, 2009 | ||||||
| Assets | ||||||||
| Cash and equivalents | $ | 2,913 | $ | 1,485 | ||||
| Receivables | 1,531 | 798 | ||||||
| Inventories | 1,770 | 987 | ||||||
| Other current assets | 119 | 74 | ||||||
Total current assets | 6,333 | 3,344 | ||||||
| Intangible assets, net | 323 | 344 | ||||||
| Property, plant and equipment, net | 6,601 | 7,089 | ||||||
| Equity method investments | 582 | 315 | ||||||
| Restricted cash | 335 | 56 | ||||||
| Other noncurrent assets | 519 | 311 | ||||||
Total assets | $ | 14,693 | $ | 11,459 | ||||
| Liabilities and equity | ||||||||
| Accounts payable and accrued expenses | $ | 1,509 | $ | 1,037 | ||||
| Deferred income | 298 | 209 | ||||||
| Equipment purchase contracts | 183 | 222 | ||||||
| Current portion of long-term debt | 712 | 424 | ||||||
Total current liabilities | 2,702 | 1,892 | ||||||
| Long-term debt | 1,648 | 2,379 | ||||||
| Other noncurrent liabilities | 527 | 249 | ||||||
Total liabilities | 4,877 | 4,520 | ||||||
| Commitments and contingencies | ||||||||
| Micron shareholders’ equity: | ||||||||
Common stock, $0.10 par value, 3,000 shares authorized, 994.5 shares issued and outstanding (848.7 in 2009) | 99 | 85 | ||||||
Additional capital | 8,446 | 7,257 | ||||||
Accumulated deficit | (536 | ) | (2,385 | ) | ||||
Accumulated other comprehensive income (loss) | 11 | (4 | ) | |||||
Total Micron shareholders’ equity | 8,020 | 4,953 | ||||||
| Noncontrolling interests in subsidiaries | 1,796 | 1,986 | ||||||
Total equity | 9,816 | 6,939 | ||||||
Total liabilities and equity | $ | 14,693 | $ | 11,459 | ||||
| As of | September 1, 2011 | September 2, 2010 | ||||||
| Assets | ||||||||
| Cash and equivalents | $ | 2,160 | $ | 2,913 | ||||
| Receivables | 1,497 | 1,531 | ||||||
| Inventories | 2,080 | 1,770 | ||||||
| Other current assets | 95 | 119 | ||||||
| Total current assets | 5,832 | 6,333 | ||||||
| Intangible assets, net | 414 | 323 | ||||||
| Property, plant and equipment, net | 7,555 | 6,601 | ||||||
| Equity method investments | 483 | 582 | ||||||
| Restricted cash | 8 | 335 | ||||||
| Other noncurrent assets | 460 | 519 | ||||||
| Total assets | $ | 14,752 | $ | 14,693 | ||||
| Liabilities and equity | ||||||||
| Accounts payable and accrued expenses | $ | 1,830 | $ | 1,509 | ||||
| Deferred income | 443 | 298 | ||||||
| Equipment purchase contracts | 67 | 183 | ||||||
| Current portion of long-term debt | 140 | 712 | ||||||
| Total current liabilities | 2,480 | 2,702 | ||||||
| Long-term debt | 1,861 | 1,648 | ||||||
| Other noncurrent liabilities | 559 | 527 | ||||||
| Total liabilities | 4,900 | 4,877 | ||||||
| Commitments and contingencies | ||||||||
| Micron shareholders' equity: | ||||||||
| Common stock, $0.10 par value, 3,000 shares authorized, 984.3 shares issued and outstanding (994.5 as of September 2, 2010) | 98 | 99 | ||||||
| Additional capital | 8,610 | 8,446 | ||||||
| Accumulated deficit | (370 | ) | (536 | ) | ||||
| Accumulated other comprehensive income | 132 | 11 | ||||||
| Total Micron shareholders' equity | 8,470 | 8,020 | ||||||
| Noncontrolling interests in subsidiaries | 1,382 | 1,796 | ||||||
| Total equity | 9,852 | 9,816 | ||||||
| Total liabilities and equity | $ | 14,752 | $ | 14,693 | ||||
See accompanying notes to consolidated financial statements.
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MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
| Micron Shareholders | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Micron Shareholders' Equity | Noncontrolling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at August 28, 2008 | 761.1 | $ | 76 | $ | 6,960 | $ | (503 | ) | $ | (8 | ) | $ | 6,525 | $ | 2,865 | $ | 9,390 | |||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net loss | (1,882 | ) | (1,882 | ) | (111 | ) | (1,993 | ) | ||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net unrealized gain (loss) on investments, net of tax | 12 | 12 | 12 | |||||||||||||||||||||||||||||
| Pension liability adjustment, net of tax | 1 | 1 | 1 | |||||||||||||||||||||||||||||
| Net gain (loss) on foreign currency translation adjustment, net of tax | (9 | ) | (9 | ) | (9 | ) | ||||||||||||||||||||||||||
| Total comprehensive income (loss) | (1,878 | ) | (111 | ) | (1,989 | ) | ||||||||||||||||||||||||||
| Issuance of common stock | 69.3 | 7 | 269 | 276 | 276 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 44 | 44 | 44 | |||||||||||||||||||||||||||||
| Stock issued for business acquisition | 1.8 | 12 | 12 | 12 | ||||||||||||||||||||||||||||
| Stock issued under stock plans | 4.0 | 1 | 1 | 1 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | (681 | ) | (681 | ) | |||||||||||||||||||||||||||
| Acquisition of noncontrolling interests in TECH | — | (87 | ) | (87 | ) | |||||||||||||||||||||||||||
| Purchase of capped calls | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (0.5 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||
| Exercise of stock rights held by Intel | 13.0 | 1 | (1 | ) | — | — | ||||||||||||||||||||||||||
| Balance at September 3, 2009 | 848.7 | $ | 85 | $ | 7,257 | $ | (2,385 | ) | $ | (4 | ) | $ | 4,953 | $ | 1,986 | $ | 6,939 | |||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net income | 1,850 | 1,850 | 50 | 1,900 | ||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net gain (loss) on foreign currency translation adjustment, net of tax | 11 | 11 | 11 | |||||||||||||||||||||||||||||
| Net unrealized gain (loss) on investments, net of tax | 5 | 5 | 5 | |||||||||||||||||||||||||||||
| Net gain (loss) on derivatives, net of tax | 1 | 1 | (1 | ) | — | |||||||||||||||||||||||||||
| Pension liability adjustment, net of tax | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||
| Total comprehensive income (loss): | 1,865 | 49 | 1,914 | |||||||||||||||||||||||||||||
| Stock issued in acquisition of Numonyx | 137.7 | 14 | 1,098 | 1,112 | 1,112 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 93 | 93 | 93 | |||||||||||||||||||||||||||||
| Stock issued under stock plans | 6.6 | 8 | 8 | 8 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | (229 | ) | (229 | ) | |||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.4 | ) | (20 | ) | (1 | ) | (21 | ) | (21 | ) | ||||||||||||||||||||||
| Exercise of stock rights held by Intel | 3.9 | — | — | |||||||||||||||||||||||||||||
| Acquisition of noncontrolling interests in TECH | 10 | 10 | (10 | ) | — | |||||||||||||||||||||||||||
| Balance at September 2, 2010 | 994.5 | $ | 99 | $ | 8,446 | $ | (536 | ) | $ | 11 | $ | 8,020 | $ | 1,796 | $ | 9,816 | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net income | 167 | 167 | 23 | 190 | ||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
| Net gain (loss) on foreign currency translation adjustment, net of tax | 63 | 63 | 63 | |||||||||||||||||||||||||||||
| Net gain (loss) on derivatives, net of tax | 42 | 42 | 6 | 48 | ||||||||||||||||||||||||||||
| Net unrealized gain (loss) on investments, net of tax | 11 | 11 | 11 | |||||||||||||||||||||||||||||
| Pension liability adjustment, net of tax | 5 | 5 | 5 | |||||||||||||||||||||||||||||
| Total comprehensive income (loss): | 288 | 29 | 317 | |||||||||||||||||||||||||||||
| Issuance and repurchase of convertible debts | 211 | 211 | 211 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 76 | 76 | 76 | |||||||||||||||||||||||||||||
| Stock issued under stock plans | 11.1 | 1 | 27 | 28 | 28 | |||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | (217 | ) | (217 | ) | |||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (21.3 | ) | (2 | ) | (160 | ) | (1 | ) | (163 | ) | (163 | ) | ||||||||||||||||||||
| Acquisition of noncontrolling interests in TECH | 67 | 67 | (226 | ) | (159 | ) | ||||||||||||||||||||||||||
| Purchase of capped calls | (57 | ) | (57 | ) | (57 | ) | ||||||||||||||||||||||||||
| Balance at September 1, 2011 | 984.3 | $ | 98 | $ | 8,610 | $ | (370 | ) | $ | 132 | $ | 8,470 | $ | 1,382 | $ | 9,852 | ||||||||||||||||
| Micron Shareholders | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Capital | Retained Earnings (Accumulated) Deficit | Accumulated Other Comprehensive Income (Loss) | Total Micron Shareholders’ Equity | Noncontrolling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at August 30, 2007 | 757.9 | $ | 76 | $ | 6,913 | $ | 1,153 | $ | (7 | ) | $ | 8,135 | $ | 2,607 | $ | 10,742 | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net loss | (1,655 | ) | (1,655 | ) | (10 | ) | (1,665 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net unrealized gain (loss) on investments, net of tax | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
Total comprehensive income (loss) | (1,656 | ) | (10 | ) | (1,666 | ) | ||||||||||||||||||||||||||
| Contributions from noncontrolling interests | -- | 400 | 400 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 48 | 48 | 48 | |||||||||||||||||||||||||||||
| Stock issued under stock plans | 3.7 | 3 | 3 | 3 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (132 | ) | (132 | ) | ||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (0.5 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||
| Adoption of uncertain tax position standard | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
| Balance at August 28, 2008 | 761.1 | $ | 76 | $ | 6,960 | $ | (503 | ) | $ | (8 | ) | $ | 6,525 | $ | 2,865 | $ | 9,390 | |||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net loss | (1,882 | ) | (1,882 | ) | (111 | ) | (1,993 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net unrealized gain (loss) on investments, net of tax | 12 | 12 | 12 | |||||||||||||||||||||||||||||
Pension liability adjustment, net of tax | 1 | 1 | 1 | |||||||||||||||||||||||||||||
Net gain (loss) on foreign currency translation adjustment, net of tax | (9 | ) | (9 | ) | (9 | ) | ||||||||||||||||||||||||||
Total comprehensive income (loss) | (1,878 | ) | (111 | ) | (1,989 | ) | ||||||||||||||||||||||||||
| Issuance of common stock | 69.3 | 7 | 269 | 276 | 276 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 44 | 44 | 44 | |||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | -- | 24 | 24 | |||||||||||||||||||||||||||||
| Stock issued for business acquisition | 1.8 | 12 | 12 | 12 | ||||||||||||||||||||||||||||
| Stock issued under stock plans | 4.0 | 1 | 1 | 1 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | -- | (705 | ) | (705 | ) | |||||||||||||||||||||||||||
| Reduction in noncontrolling interest from share purchase | -- | (87 | ) | (87 | ) | |||||||||||||||||||||||||||
| Purchase of capped calls | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (0.5 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||
| Exercise of stock rights held by Intel | 13.0 | 1 | (1 | ) | -- | -- | ||||||||||||||||||||||||||
| Balance at September 3, 2009 | 848.7 | $ | 85 | $ | 7,257 | $ | (2,385 | ) | $ | (4 | ) | $ | 4,953 | $ | 1,986 | $ | 6,939 | |||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income | 1,850 | 1,850 | 50 | 1,900 | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net gain (loss) on foreign currency translation adjustment, net of tax | 11 | 11 | 11 | |||||||||||||||||||||||||||||
Net unrealized gain (loss) on investments, net of tax | 5 | 5 | 5 | |||||||||||||||||||||||||||||
Net gain (loss) on derivatives, net of tax | 1 | 1 | (1 | ) | -- | |||||||||||||||||||||||||||
Pension liability adjustment, net of tax | (2 | ) | (2 | ) | (2 | ) | ||||||||||||||||||||||||||
Total comprehensive income (loss) | 1,865 | 49 | 1,914 | |||||||||||||||||||||||||||||
| Stock issued in acquisition of Numonyx | 137.7 | 14 | 1,098 | 1,112 | 1,112 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 93 | 93 | 93 | |||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | 38 | 38 | ||||||||||||||||||||||||||||||
| Stock issued under stock plans | 6.6 | 8 | 8 | 8 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (267 | ) | (267 | ) | ||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.4 | ) | (20 | ) | (1 | ) | (21 | ) | (21 | ) | ||||||||||||||||||||||
| Exercise of stock rights held by Intel | 3.9 | -- | -- | |||||||||||||||||||||||||||||
| Increase in noncontrolling interest from share purchase | 10 | 10 | (10 | ) | -- | |||||||||||||||||||||||||||
| Balance at September 2, 2010 | 994.5 | $ | 99 | $ | 8,446 | $ | (536 | ) | $ | 11 | $ | 8,020 | $ | 1,796 | $ | 9,816 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
46
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| For the year ended | September 1, 2011 | September 2, 2010 | September 3, 2009 | |||||||||
| Cash flows from operating activities | ||||||||||||
| Net income (loss) | $ | 190 | $ | 1,900 | $ | (1,993 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation expense and amortization of intangible assets | 2,105 | 1,922 | 2,114 | |||||||||
| Amortization of debt discount and other costs | 57 | 83 | 72 | |||||||||
| Equity in net losses of equity method investees, net of tax | 158 | 39 | 140 | |||||||||
| Loss on extinguishment of debt | 113 | — | — | |||||||||
| Stock-based compensation | 76 | 93 | 44 | |||||||||
| Provision to write-down inventories to estimated market values | 9 | 27 | 603 | |||||||||
| Gain from disposition of Japan Fab | (54 | ) | — | — | ||||||||
| Restructure charges (credits) | (32 | ) | (17 | ) | 156 | |||||||
| (Gain) loss from disposition of property, plant and equipment | (17 | ) | (1 | ) | 54 | |||||||
| Gain from acquisition of Numonyx | — | (437 | ) | — | ||||||||
| Gain from Inotera and Hynix JV stock issuances, net | — | (52 | ) | — | ||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Receivables | 54 | (516 | ) | 126 | ||||||||
| Inventories | (357 | ) | (121 | ) | (356 | ) | ||||||
| Accounts payable and accrued expenses | (84 | ) | 54 | 44 | ||||||||
| Deferred income | 146 | 84 | 81 | |||||||||
| Deferred income taxes, net | 103 | (45 | ) | (15 | ) | |||||||
| Other | 17 | 83 | 136 | |||||||||
| Net cash provided by operating activities | 2,484 | 3,096 | 1,206 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Expenditures for property, plant and equipment | (2,550 | ) | (616 | ) | (488 | ) | ||||||
| Acquisition of noncontrolling interests in TECH | (159 | ) | — | — | ||||||||
| Additions to equity method investments | (31 | ) | (165 | ) | (408 | ) | ||||||
| Decrease (increase) in restricted cash | 330 | (240 | ) | (56 | ) | |||||||
| Proceeds from sales of property, plant and equipment | 127 | 94 | 26 | |||||||||
| Return of equity method investment | 48 | — | 41 | |||||||||
| Proceeds from sale of interest in Hynix JV | — | 423 | — | |||||||||
| Cash acquired from acquisition of Numonyx | — | 95 | — | |||||||||
| Proceeds from maturities of available-for-sale securities | — | — | 130 | |||||||||
| Other | 34 | (39 | ) | 81 | ||||||||
| Net cash used for investing activities | (2,201 | ) | (448 | ) | (674 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Repayments of debt | (1,215 | ) | (840 | ) | (429 | ) | ||||||
| Payments on equipment purchase contracts | (322 | ) | (330 | ) | (144 | ) | ||||||
| Distributions to noncontrolling interests | (225 | ) | (267 | ) | (705 | ) | ||||||
| Cash paid to purchase common stock | (163 | ) | (21 | ) | (2 | ) | ||||||
| Cash paid to purchase capped calls | (57 | ) | — | (25 | ) | |||||||
| Proceeds from debt | 690 | 200 | 716 | |||||||||
| Proceeds from equipment sale-leaseback transactions | 268 | — | 4 | |||||||||
| Proceeds from issuance of common stock | 28 | 8 | 277 | |||||||||
| Cash received from noncontrolling interests | 8 | 38 | 24 | |||||||||
| Other | (48 | ) | (8 | ) | (6 | ) | ||||||
| Net cash used for financing activities | (1,036 | ) | (1,220 | ) | (290 | ) | ||||||
| Net increase (decrease) in cash and equivalents | (753 | ) | 1,428 | 242 | ||||||||
| Cash and equivalents at beginning of period | 2,913 | 1,485 | 1,243 | |||||||||
| Cash and equivalents at end of period | $ | 2,160 | $ | 2,913 | $ | 1,485 | ||||||
| Supplemental disclosures | ||||||||||||
| Income taxes refunded (paid), net | $ | (99 | ) | $ | 2 | $ | (43 | ) | ||||
| Interest paid, net of amounts capitalized | (59 | ) | (95 | ) | (107 | ) | ||||||
| Noncash investing and financing activities: | ||||||||||||
| Equipment acquisitions on contracts payable and capital leases | 469 | 420 | 331 | |||||||||
| Exchange of convertible notes | 175 | — | — | |||||||||
| Stock and restricted stock units issued in acquisition of Numonyx | — | 1,112 | — | |||||||||
| Acquisition of interest in Transform | — | 65 | — | |||||||||
| For the year ended | September 2, 2010 | September 3, 2009 | August 28, 2008 | |||||||||
| Cash flows from operating activities | ||||||||||||
| Net income (loss) | $ | 1,900 | $ | (1,993 | ) | $ | (1,665 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,005 | 2,186 | 2,096 | |||||||||
Stock-based compensation | 93 | 46 | 48 | |||||||||
Equity in net income (loss) of equity method investees, net of tax | 39 | 140 | -- | |||||||||
Provision to write-down inventories to estimated market values | 27 | 603 | 282 | |||||||||
Gain from acquisition of Numonyx | (437 | ) | -- | -- | ||||||||
Gain from Inotera and Hynix JV stock issuances, net | (52 | ) | -- | -- | ||||||||
Noncash restructure charges (credits) | (17 | ) | 156 | 7 | ||||||||
(Gain) loss from disposition of property, plant and equipment | (1 | ) | 54 | (66 | ) | |||||||
Goodwill impairment | -- | 58 | 463 | |||||||||
Change in operating assets and liabilities: | ||||||||||||
(Increase) decrease in receivables | (516 | ) | 126 | (26 | ) | |||||||
Increase in inventories | (121 | ) | (356 | ) | (40 | ) | ||||||
Increase (decrease) in accounts payable and accrued expenses | 54 | 44 | (130 | ) | ||||||||
Increase in deferred income | 84 | 81 | 28 | |||||||||
Other | 38 | 61 | 21 | |||||||||
Net cash provided by operating activities | 3,096 | 1,206 | 1,018 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Expenditures for property, plant and equipment | (616 | ) | (488 | ) | (2,529 | ) | ||||||
| Increase in restricted cash | (240 | ) | (56 | ) | -- | |||||||
| Acquisition of equity method investments | (165 | ) | (408 | ) | (84 | ) | ||||||
| Purchases of available-for-sale securities | (3 | ) | (6 | ) | (283 | ) | ||||||
| Proceeds from sale of the Hynix JV | 423 | -- | -- | |||||||||
| Cash acquired from acquisition of Numonyx | 95 | -- | -- | |||||||||
| Proceeds from sales of property, plant and equipment | 94 | 26 | 187 | |||||||||
| Proceeds from maturities of available-for-sale securities | -- | 130 | 547 | |||||||||
| Distributions from equity method investments | -- | 41 | -- | |||||||||
| Other | (36 | ) | 87 | 70 | ||||||||
Net cash used for investing activities | (448 | ) | (674 | ) | (2,092 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from debt | 200 | 716 | 837 | |||||||||
| Cash received from noncontrolling interests | 38 | 24 | 400 | |||||||||
| Proceeds from issuance of common stock, net of costs | 8 | 276 | 4 | |||||||||
| Proceeds from equipment sale-leaseback transactions | -- | 4 | 111 | |||||||||
| Repayments of debt | (840 | ) | (429 | ) | (698 | ) | ||||||
| Payments on equipment purchase contracts | (330 | ) | (144 | ) | (387 | ) | ||||||
| Distributions to noncontrolling interests | (267 | ) | (705 | ) | (132 | ) | ||||||
| Other | (29 | ) | (32 | ) | (10 | ) | ||||||
Net cash provided by (used for) financing activities | (1,220 | ) | (290 | ) | 125 | |||||||
Net increase (decrease) in cash and equivalents | 1,428 | 242 | (949 | ) | ||||||||
| Cash and equivalents at beginning of year | 1,485 | 1,243 | 2,192 | |||||||||
| Cash and equivalents at end of year | $ | 2,913 | $ | 1,485 | $ | 1,243 | ||||||
| Supplemental disclosures | ||||||||||||
| Income taxes refunded (paid), net | $ | 2 | $ | (43 | ) | $ | (36 | ) | ||||
| Interest paid, net of amounts capitalized | (95 | ) | (107 | ) | (84 | ) | ||||||
| Noncash investing and financing activities: | ||||||||||||
Stock and restricted stock units issued in acquisition of Numonyx | 1,112 | -- | -- | |||||||||
Equipment acquisitions on contracts payable and capital leases | 420 | 331 | 501 | |||||||||
Noncash assets contributed for interest in Transform | 65 | -- | -- | |||||||||
See accompanying notes to consolidated financial statements.
47
MICRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
Significant Accounting Policies
Basis of presentation:presentation: We are a global manufacturer and marketer of semiconductor devices, principally DRAM, NAND Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embedded and mobile products. In addition, we manufacture CMOS image sensors and other semiconductor products. The accompanying consolidated financial statements include the accounts of Micron Technology, Inc. and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Our fiscal 2010, 2009year is the 52 or 53-week period ending on the Thursday closest to August 31. Our fiscal 2011 and 20082010 contained 52 weeks and our fiscal 2009 contained 53 and 52 fiscal weeks, respectively.weeks. All period references are to our fiscal periods unless otherwise indicated.
Use of estimates:estimates: The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on historical experience, forecasted events and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Actual results could differ from estimates.
Product warranty:warranty: We generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that provided under our general terms and conditions. Our warranty obligations are not material.
Revenue recognition:recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. Since we are unable to estimate returns and changes in market price, and therefore the price is not fixed or determinable, sales made under agreements allowing pricing protection or rights of return (other than for product warranty) are deferred until customers have resold the product.
Research and development:development: Costs related to the conceptual formulation and design of products and processes are expensed as research and development as incurred. Determining when product development is complete requires judgment. Development of a product is deemed complete once the product has been thoroughly reviewed and tested for performance and reliability. Subsequent to product qualification, product costs are valued in inventory. Product design and other research and development costs for NAND Flash and DRAM are shared with our joint venture partners. Amounts receivable from these cost-sharing arrangements are reflected as a reduction of research and development exp ense.expense. (See “Equity"Equity Method Investments”Investments" and “Consolidated"Consolidated Variable Interest Entities – NAND Flash joint ventures with Intel”Intel" notes.)
Stock-based compensation:compensation: Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense under the straight-line attribution method over the requisite service period. We issue new shares upon the exercise of stock options or conversion of share units. (See “Equity Plans”"Equity Plans" note.)
Stock repurchases: When we repurchase and retire our common stock, any excess of the repurchase price paid over par value is allocated between paid-in capital and retained earnings.
Functional currency:currency: The U.S. dollar is the functional currency for all of our consolidated operations.
48
Financial instruments:instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of three months or less, readily convertible to known amounts of cash. Investments with original maturities greater than three months and remaining maturities less than one year are included in short-term investments. Investments with remaining maturities greater than one year are included in other noncurrent assets. Securities classified as available-for-sale are stated at market value. The carrying value of investment securities sold is determined using the specific identification method.
Derivative and hedging instruments:instruments: We use derivative financial instruments, primarily forward contracts, to manage exposures to foreign currency.fluctuating currency exchange rates. We do not use financial instruments for trading or speculative purposes. Derivative instruments are measured at their fair valuevalues and recognized as either assets or liabilities.
We use forward contracts not designated as hedging instruments to hedge our balance sheet exposures to foreign currencies.fluctuations in currency exchange rates. The gain or loss associated with these contracts is recognized in other income (expense).
We use forward contracts designated as cash flow hedges to hedge certain forecasted capital expenditures. The effective portion of the gain or loss on thethese derivatives is included as a component of other comprehensive income (loss) in shareholders’shareholders' equity. The amount in accumulated other comprehensive income (loss) for these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying transaction affectstransactions affect earnings. ChangesEffectiveness is measured by comparing the cumulative change in the timefair value of the hedge contract with the cumulative change in the forecasted cash flows of the hedged item. Forward points are excluded fromin measuring effectiveness and spot rates are used to value both the assessment of hedge effectiveness. Thecontract and the hedged item. Any ineffective or excluded portion of the gain or loss is included in other operating income (expense).
InventoriesInventories:: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and overhead costs, including product and process technology costs. Determining fair market values of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. When fair market values are below costs, we record a charge to cost of goods sold to write down inventories to their estimated market value in advance of when the inventories are actually sold. Inventories are categorized as memory (primarily DRAM and NAND Flash), Numonyx (primarilyFlash and NOR Fla sh)Flash), imaging and microdisplay products for purposes of determining average cost and fair market value. The major characteristics considered in determining inventory categories are product type and markets.
Product and process technology:technology: Costs incurred to acquire product and process technology or to patent technology are capitalized and amortized on a straight-line basis over periods ranging up to 10 years. We capitalize a portion of costs incurred based on the historical and projected patents issued as a percent of patents we filed.file. Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life of the technology, (ii) the patent term or (iii) the term of the technology agreement. Fully-amortized assets are removed from product and process technology and accumulated amortization.
Property, plant and equipment:equipment: Property, plant and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of 5 to 30 years for buildings, 2 to 20 years for equipment and 3 to 5 years for software. Assets held for sale are carried at the lower of cost or estimated fair value and are included in other noncurrent assets. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed and we recognize any gain or loss in our results of operations.
We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. We capitalized interest costs of $5$12 million $5, $5 million and $21$5 million in 2011, 2010 2009 and 2008,2009, respectively.
Recently Adopted Accounting Standards
49
Recently Issued Accounting Standards
In May 2011, the FASB issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. We are required to adopt this standard in the third quarter of 2012. We do not expect this adoption to have a material impact on our financial statements.
In June 2011, the FASB issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. We are required to adopt this standard as of the beginning of 2011.2013. The adoption of this standard will only impact the presentation of our financial statements.
Variable Interest Entities
We have interests in joint venture entities that are VIEs. If we are the primary beneficiary of the 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 judgment. For further information regarding our VIEs that we account for under the equity method, see "Equity Method Investments" note. For further information regarding our consolidated VIEs, see "Consolidated Variable Interest Entities" note.
Unconsolidated Variable Interest Entities
Inotera and MeiYa – Inotera Memories, Inc. ("Inotera") and MeiYa Technology Corporation ("MeiYa") are VIEs because of the terms of their supply agreements with us and our partner, Nanya Technology Corporation ("Nanya"). We have determined that we do not have power to direct the activities of Inotera and MeiYa that most significantly impact their economic performance, primarily due to (1) limitations on our governance rights that require the consent of other parties for key operating decisions and (2) our dependence on our joint venture partner for financing and the ability to operate in Taiwan. Therefore, we account for our interests in these entities under the equity method.
Transform – Transform Solar Pty Ltd. ("Transform") is a VIE because its equity is not sufficient to permit Transform to finance its activities without additional subordinated financial support from us and our partner, Origin Energy Limited ("Origin"). We have determined that we do not have power to direct the activities of Transform that most significantly impacts its economic performance, primarily due to limitations on our governance rights that require the consent of Origin for key operating decisions. Therefore, we account for our interest in Transform under the equity method.
Consolidated Variable Interest Entities
IMFT and IMFS – IM Flash Technologies, LLC ("IMFT") and IM Flash Singapore LLP ("IMFS") are both VIEs because all of their costs are passed to us and our partner, Intel Corporation ("Intel"), through product purchase agreements and they are dependent upon us and Intel for any additional cash requirements. For both IM Flash entities (i.e., IMFT and IMFS), we determined that we have the power to direct the activities of the entities that most significantly impact their economic performance. The primary activities of the IM Flash entities 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 key activities of the entities. In addition, IMFT manufactures certain products exclusively for us using our technology. As a result of our 86% ownership interest in IMFS as of September 1, 2011, we have significantly greater economic exposure than Intel. We also determined that we have the obligation to absorb losses and the right to receive benefits from the IM Flash entities that could potentially be significant to these entities. Therefore, we consolidate the IM Flash entities.
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MP Mask – MP Mask Technology Center, LLC ("MP Mask") is a VIE because all of its costs are passed to us and our partner, Photronics, Inc. ("Photronics"), through product purchase agreements and it is dependent upon us and Photronics for any additional cash requirements. We determined that we have the power to direct the activities of MP Mask that most significantly impact its economic performance, primarily due to (1) our tie-breaking voting rights over key operating decisions and (2) that nearly all key MP Mask activities are driven by our supply needs. We also determined that we have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to MP Mask. Therefore, we consolidate MP Mask.
On June 2, 2011, we sold our wafer fabrication facility in Japan (the "Japan Fab") to Tower Semiconductor Ltd. ("Tower"). Under the arrangement, Tower paid $40 million in cash and approximately 20 million of ordinary shares of Tower. In addition, we will receive an aggregate of $20 million in twelve equal monthly installments beginning in the second quarter of 2012. The net carrying value of assets sold and liabilities transferred to Tower on the transaction date prior to the effects of the transaction was $23 million and we recorded a gain of $54 million (net of transaction costs of $3 million) in connection with the sale of the Japan Fab. We also recorded a tax provision of $74 million related to the gain on the sale and to write down certain deferred tax assets associated with the Japan Fab. In connection with the sale of the Japan Fab, we entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014.
Numonyx
On May 7, 2010, we completed our acquisition of acquired Numonyx Holdings B.V. ("Numonyx"), which manufacturesmanufactured and sellssold primarily NOR Flash and NAND Flash DRAM and Phase Change memory technologies and products. We acquired Numonyx tofurther strengthen our portfolio of memory products, increase manufacturing and revenue scale, access Numonyx’sNumonyx's customer base and provide opportunities to increase multi-chip offerings in the embedded and mobile markets. In connection therewith, we issued 137.7 million shares of our common stock in exchange for all of the outstanding Numonyx capital stock and issued 4.8 million restricted stock units to employees of Numonyx in exchange for all of their outstanding restricted stock units. The total fair value of the consideration paid for Numonyx was $1,112$1,112 million and consisted of $1,091137.7 million for the shares of our common stock issued to the Numonyx shareholders and $214.8 million for the restricted stock units issued to employees of Numonyx. The fair value of the consideration was determined based on the trading price of our common shares on the acquisition date discounted for the resale restrictions on the shares. Of the shares issued to the Numonyx shareholders, 21.0 million were placed in escrow as partial security for the Numonyx shareholders’ indemnity obligations resulting from the acquisition. The shares in escrow may be sold after November 6, 2010, but the proceeds from any sale remain in escrow until May 7, 2011, at which time the escrow assets are payable to the Numonyx shareholders, net of any of our indemnification claims. Included in the selling, general and administrative expenses in the results of operations for 2010 are transaction costs of $20 million in curred in connection with this acquisition.
We determined the fair value of the assets and liabilities of Numonyx as of May 7, 2010 utilizingusing an in-exchange model. Because the purchase price was less than the fair value of the net assets of Numonyx,acquired exceeded the purchase price, we recognized a gain on the acquisition of $437 million.$437 million in the third quarter of 2010. We believe the gain realized in acquisition accounting was the result of a number of factors, including the following: significant losses recognized by Numonyx during the recent downturn in the semiconductor memory industry; substantial volatility in Numonyx’sNumonyx's primary markets; market perceptions that future opportunities for Numonyx products in certain markets arewere limited; the liquidity afforded to the sellers as a result of the limited opportunities to realize the value of their investment in Numonyx; and po tentialpotential gains to the sellers through their investment in our equity from synergies we realize with Numonyx. In addition, we recognized a $51 million income tax benefit in connection with the acquisition. The results of operations for 2010 include $635 million of net sales and $14 million of operating losses from the Numonyx operations after the May 7, 2010 acquisition date. The consideration and valuation of assets acquired and liabilities assumed were as follows:
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| Consideration: | |||
| Fair value of common stock issued | $ | 1,091 | |
| Fair value of restricted stock units issued | 21 | ||
| $ | 1,112 | ||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |||
| Cash and equivalents | $ | 95 | |
| Receivables | 256 | ||
| Inventories | 689 | ||
| Other current assets | 28 | ||
| Intangible assets | 29 | ||
| Property, plant and equipment | 344 | ||
| Equity method investment | 414 | ||
| Other noncurrent assets | 307 | ||
| Accounts payable and accrued expenses | (310 | ) | |
| Other current liabilities | (5 | ) | |
| Other noncurrent liabilities | (298 | ) | |
| Total net assets acquired | 1,549 | ||
| Gain on acquisition | (437 | ) | |
| $ | 1,112 | ||
The following unaudited pro forma financial information presents the combined results of operations as if Numonyx had been combined with us as of the beginning of 2009. The pro forma financial information includes the accounting effects of the business combination, including adjustments to the adjustment of amortization of intangible assets, depreciation of property, plant and equipment, interest expense and elimination of intercompany sales, as if Numonyx were actually combined with us as of the beginning of 2009.activities. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had Numonyx been combined with us as of the beginning of 2009.
| 2010 | 2009 | |||||||
| Net sales | $ | 9,895 | $ | 6,464 | ||||
| Net income (loss) | 1,923 | (2,230 | ) | |||||
| Net income (loss) attributable to Micron | 1,873 | (2,119 | ) | |||||
| Earnings (loss) per share: | ||||||||
| Basic | $ | 1.90 | $ | (2.31 | ) | |||
| Diluted | 1.72 | (2.31 | ) | |||||
The unaudited pro forma financial information for 2010 includes the results for the year ended September 2, 2010 and the results of Numonyx, including the adjustments described above, for the approximate fiscal year ended September 2, 2010. The pro forma information for 2009 includes our results for the year ended September 3, 2009 and the results of Numonyx, including the adjustments described above, for the year ended September 27, 2009.
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Receivables
| Receivables | 2010 | 2009 | ||||||||||||||
Trade receivables (net of allowance for doubtful accounts of $4 million and $5 million, respectively) | $ | 1,238 | $ | 591 | ||||||||||||
| As of | 2011 | 2010 | ||||||||||||||
| Trade receivables (net of allowance for doubtful accounts of $3 and $4, respectively) | $ | 1,105 | $ | 1,238 | ||||||||||||
Income and other taxes | 115 | 49 | 137 | 115 | ||||||||||||
Related party receivables | 64 | 70 | 72 | 64 | ||||||||||||
Other | 114 | 88 | 183 | 114 | ||||||||||||
| $ | 1,531 | $ | 798 | $ | 1,497 | $ | 1,531 | |||||||||
As of September 1, 2011 and September 2, 2010 and September 3, 2009,, related party receivables included $57$67 million and $69$57 million, respectively, due from Aptina Imaging Corporation (“Aptina”("Aptina") primarily for sales of image sensor products under a wafer supply agreement for image sensor products.agreement. (See "Equity Method Investments" note.)
As of September 1, 2011 and September 2, 2010 and September 3, 2009,, other receivables included $30$34 million and $29$30 million, respectively, due from Intel Corporation (“Intel”) for amounts related to NAND Flash product design and process development activities.activities under cost-sharing agreements. As of September 1, 2011 and September 2, 2010, other receivables also included $17$25 million and $17 million, respectively, due from Nanya Technology Corporation (“Nanya”) for amounts related to DRAM product design and process development costsactivities under a cost sharingcost-sharing agreement. Other receivables as of September 3, 2009 also included $40 million due from settlement of litigation.(See "Equity Method Investments" note and "Consolidated Variable Interest Entities" note.)
| Inventories | 2010 | 2009 | ||||||
Finished goods | $ | 623 | $ | 233 | ||||
Work in process | 1,031 | 649 | ||||||
Raw materials and supplies | 116 | 105 | ||||||
| $ | 1,770 | $ | 987 | |||||
Inventories
| As of | 2011 | 2010 | ||||||
| Finished goods | $ | 596 | $ | 623 | ||||
| Work in process | 1,342 | 1,031 | ||||||
| Raw materials and supplies | 142 | 116 | ||||||
| $ | 2,080 | $ | 1,770 | |||||
| Intangible Assets | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||||
Product and process technology | $ | 439 | $ | (181 | ) | $ | 439 | $ | (181 | ) | ||||||
Customer relationships | 127 | (66 | ) | 127 | (50 | ) | ||||||||||
Other | 23 | (19 | ) | 28 | (19 | ) | ||||||||||
| $ | 589 | $ | (266 | ) | $ | 594 | $ | (250 | ) | |||||||
Intangible Assets
| As of | 2011 | 2010 | ||||||||||||||
Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||||
| Product and process technology | $ | 571 | $ | (203 | ) | $ | 439 | $ | (181 | ) | ||||||
| Customer relationships | 127 | (82 | ) | 127 | (66 | ) | ||||||||||
| Other | 1 | — | 23 | (19 | ) | |||||||||||
| $ | 699 | $ | (285 | ) | $ | 589 | $ | (266 | ) | |||||||
During 20102011 and 2009,2010, we capitalized $48$170 million and $88$48 million, respectively, for product and process technology with weighted-average useful lives of 7 years and 9 years, respectively. In addition, in connection with the acquisition of Numonyx in the third quarter of 2010, we recorded other intangible assets of $29 million for to a supply agreement, which was amortized through August 2010 when the agreement ended. (See “Numonyx Holdings B.V.” note.)years.
Amortization expense was $79 million, $96 million and $75 millionfor intangible assets was $96 million, $75 million2011, 2010 and $80 million for 2010, 2009, and 2008, respectively. Annual amortization expense for intangible assets is estimated to be $68$86 million for 2011, $592012, $80 million for 2012, $532013, $71 million for 2013, $452014, $53 million for 20142015 and $29$46 million for 2015.2016.
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Property, Plant and Equipment
| Property, Plant and Equipment | 2010 | 2009 | ||||||
Land | $ | 95 | $ | 96 | ||||
Buildings (includes $184 million and $184 million, respectively, for capital leases) | 4,394 | 4,473 | ||||||
Equipment (includes $745 million and $630 million, respectively, for capital leases) | 12,970 | 11,834 | ||||||
Construction in progress | 73 | 47 | ||||||
Software | 281 | 268 | ||||||
| 17,813 | 16,718 | |||||||
Accumulated depreciation (includes $478 million and $331 million, respectively, for capital leases) | (11,212 | ) | (9,629 | ) | ||||
| $ | 6,601 | $ | 7,089 | |||||
| As of | 2011 | 2010 | ||||||
| Land | $ | 92 | $ | 95 | ||||
| Buildings (includes $163 and $184, respectively, for capital leases) | 4,481 | 4,394 | ||||||
| Equipment (includes $712 and $745, respectively, for capital leases) | 14,735 | 12,970 | ||||||
| Construction in progress | 155 | 73 | ||||||
| Software | 293 | 281 | ||||||
| 19,756 | 17,813 | |||||||
| Accumulated depreciation (includes $430 and $478, respectively, for capital leases) | (12,201 | ) | (11,212 | ) | ||||
| $ | 7,555 | $ | 6,601 | |||||
Depreciation expense was $1,826$2,026 million $2,039, $1,826 million and $1,976$2,039 million for 2011, 2010 2009 and 2008,2009, respectively.
Other noncurrent assets included buildings, equipment and equipmentother assets classified as held for sale of $56$35 million as of September 1, 2011 and $56 million as of September 2, 2010 and $81 million as of September 3, 2009.
| Equity Method Investments | ||||||||||||||||
| September 2, 2010 | September 3, 2009 | |||||||||||||||
| Carrying Value | Ownership Percentage | Carrying Value | Ownership Percentage | |||||||||||||
Inotera | $ | 434 | 29.9 | % | $ | 229 | 29.8 | % | ||||||||
MeiYa | 44 | 50.0 | % | 42 | 50.0 | % | ||||||||||
Transform | 82 | 50.0 | % | -- | -- | |||||||||||
Aptina | 22 | 35.0 | % | 44 | 35.0 | % | ||||||||||
| $ | 582 | $ | 315 | |||||||||||||
Equity Method Investments
| As of | 2011 | 2010 | ||||||||||||
| Investment Balance | Ownership Percentage | Investment Balance | Ownership Percentage | |||||||||||
| Inotera | $ | 388 | 29.7 | % | $ | 434 | 29.9 | % | ||||||
| MeiYa | 1 | 50.0 | % | 44 | 50.0 | % | ||||||||
| Transform | 87 | 50.0 | % | 82 | 50.0 | % | ||||||||
| Aptina | 7 | 35.0 | % | 22 | 35.0 | % | ||||||||
| $ | 483 | $ | 582 | |||||||||||
We recognize our share of earnings or losses from all investments under the equity method on a two-month lag. Equity in net income (loss) of equity method investees, net of tax, included:included the following:
| For the year ended | 2010 | 2009 | ||||||
| Inotera: | ||||||||
Equity method losses, net | $ | (56 | ) | $ | (166 | ) | ||
Inotera Amortization | 55 | 38 | ||||||
Other | (5 | ) | (2 | ) | ||||
| (6 | ) | (130 | ) | |||||
| MeiYa | 1 | (10 | ) | |||||
| Transform | (12 | ) | -- | |||||
| Aptina | (24 | ) | -- | |||||
| Hynix JV | 2 | -- | ||||||
| $ | (39 | ) | $ | (140 | ) | |||
| For the year ended | 2011 | 2010 | 2009 | |||||||||
| Inotera: | ||||||||||||
| Equity method loss | $ | (154 | ) | $ | (56 | ) | $ | (166 | ) | |||
| Inotera Amortization | 48 | 55 | 38 | |||||||||
| Other | (6 | ) | (5 | ) | (2 | ) | ||||||
| (112 | ) | (6 | ) | (130 | ) | |||||||
| Transform | (31 | ) | (12 | ) | — | |||||||
| Aptina | (15 | ) | (24 | ) | — | |||||||
| Hynix JV | — | 2 | — | |||||||||
| MeiYa | — | 1 | (10 | ) | ||||||||
| $ | (158 | ) | $ | (39 | ) | $ | (140 | ) | ||||
The summarized financial information in the tables below include the aggregate of all of our equity method investees on a stand-alone basis. The tables below include the respective years and periods through which we recorded our proportionate share of each of their results of operations, generally on a two-month lag. The summarized results of operations in the table below include the operating results of Inotera, Transform and Aptina only for the periods subsequent to our acquisition of our ownership interests.
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| As of | 2011 | 2010 | ||||||
| Current assets | $ | 942 | $ | 898 | ||||
| Noncurrent assets (primarily property, plant and equipment) | 4,189 | 3,537 | ||||||
| Current liabilities | 3,201 | 1,479 | ||||||
| Noncurrent liabilities | 173 | 900 | ||||||
| For the years ended | 2011 | 2010 | 2009 | |||||||||
| Net sales | $ | 1,839 | $ | 1,927 | $ | 670 | ||||||
| Gross margin | (268 | ) | 73 | (370 | ) | |||||||
| Operating loss | (559 | ) | (181 | ) | (473 | ) | ||||||
| Net loss | (594 | ) | (237 | ) | (553 | ) | ||||||
Our maximum exposure to loss from our involvement withownership in our equity method investments that are variable interest entitiesVIEs was as follows:
| As of | September 2, 2010 | |||
| Inotera | $ | 428 | ||
| Transform | 87 | |||
| MeiYa | 49 | |||
| As of | 2011 | |||
| Inotera | $ | 325 | ||
| MeiYa | 1 | |||
| Transform | 90 | |||
The maximum exposure to loss is determined based on the amounts recorded in the accompanying consolidated balance sheets and primarily includes the carrying value ofincluded our investment balance as well as the related translation adjustments in accumulated other comprehensive income and receivables.receivables, if any. We may also incur losses in connection with our obligations under thea supply agreement with Inotera (the "Inotera Supply AgreementAgreement") for rights and obligations to purchase 50% of Inotera’sInotera's wafer production under a long-term pricing arrangement.capacity of DRAM products.
Inotera and MeiYaDRAM joint ventures with Nanya:Nanya
We have partnered with Nanya in two TaiwanTaiwanese DRAM memory companies, Inotera Memories, Inc. (“Inotera”) and MeiYa Technology Corporation (“MeiYa”). We have concluded that both Inotera and MeiYa are variable interest entities because of the terms of their supply agreements with us and Nanya. Nanya is considered to be a related party under the accounting standards for consolidating variable interest entities. We reviewed several factors to determine whether we are the pr imary beneficiary of Inotera and MeiYa, including the size and nature of the entities’ operations relative to us and Nanya, the nature of day-to-day operations and certain other factors. Based on those factors, we determined that Nanya is more closely associated with, and therefore the primary beneficiary of, Inotera and MeiYa. We recognize our share of earnings or losses from these entities under the equity method onUnder a two-month lag.
Inotera: In the first quarter of 2009, we acquired a 35.5% ownership interest in Inotera,Inotera. As a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”). In August 2009, Inotera sold 640 millionresult of Inotera's sale of common shares in a public offering. As a result,offering, our equity ownership interest decreased from 35.5% to 29.8% and we recognized a gain of $56$56 million in the first quarter of 2010. On February 6,In the second quarter of 2010, as part of another Inotera offering of 640 million common shares, we and Nanya each paid $138$138 million to purchase approximately 196 millionadditional shares, slightly increasing our equity ownership interest from 29.8% to 29.9%. AsIn 2011, our ownership interest was reduced by shares issued under Inotera's employee stock plans and as of September 2, 2010,1, 2011, we held a 29.9%29.7% ownership interest in Inotera, Nanya held 30.0%a 29.8% ownership interest, and the balance was publicly held.
The carrying value of our initial investment in Inotera was less than our proportionate share of itsInotera's equity. ThatThis difference is being amortized as a credit to earnings through equity in net income (losses)(loss) of equity method investees (the “Inotera Amortization”"Inotera Amortization"). As of September 2, 2010, $1211, 2011, $74 million of Inotera Amortization remained to be recognized over a weighted-average period of 4 years.which $49 million is scheduled to be amortized in 2012 with the remaining amount to be amortized through 2034. The $56$56 million gain recognized in the first quarter of 2010 on Inotera’sInotera's issuance of shares included $33$33 million of accelerated Inotera Amortization.
Because of significant market declines in the selling price of DRAM, Inotera incurred net losses of $278 million for the six-month period ended June 30, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.3 billion as of June 30, 2011, which exposes Inotera to liquidity risk. Inotera's management has developed plans to improve its liquidity. There can be no assurance that Inotera's plan to improve its liquidity will be successful.
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In connection with the initial acquisition of our shares in Inotera, we and Nanya entered into a supply agreement withthe Inotera (the “Inotera Supply Agreement”) for rights and obligations to purchase 50% of Inotera’s wafer production capacity of trench and stack DRAM products.Agreement. Our cost forof wafers purchased under the Inotera wafersSupply Agreement is based on a margin sharingmargin-sharing formula that considersamong Nanya, Inotera, and ourselves. Under such formula, all parties’parties' manufacturing costs related to wafers purchased fromsupplied by Inotera, as well as the selling prices of our and Nanya’sNanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. Under the wafers. In 2010,Inotera Supply Agreement, we purchased $693$641 million and $693 million of DRAM products (primarily trench technology)in 2011 and 2010, respectively. In 2011, we recognized a loss on our purchase commitment under the Inotera Supply Agreement.Agreement of $28 million.
In the second quarter of 2009, Qimonda filed for bankruptcy and defaulted on its obligations to purchase trench DRAM products from Inotera under a separate supply agreement between Inotera and Qimonda (“("the Qimonda Supply Agreement”Agreement"). Pursuant to our obligation under the Inotera Supply Agreement to purchase up to 50% of Inotera’sInotera's trench DRAM capacity, less any trench DRAM products sold to Qimonda pursuant to the Qimonda Supply Agreement, we recorded $95$95 million in cost of goods sold in 2009 for underutilized capacity as a result of Qimonda’sQimonda's default.
In the third quarter of 2009, we received $50$50 million from Inotera pursuant to the terms of a technology transfer agreement and, in connection therewith, recognized $13$13 million and $15 million of revenue in 2010. Inotera’s functional currency is the New Taiwan Dollar (“NTD”)2010 and as2009, respectively.
As of September 1, 2011 and September 2, 2010, there were gains of $65 million and September 3, 2009, there was a gain of $7$7 million and a loss of $(3) million,, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our investment in Inotera. Based
As of September 1, 2011, based on the closing trading price of Inotera’sInotera's shares in an active market, on September 2, 2010, the market value of our equity interest in Inotera was $674 million.$296 million which was below our net carrying value of $323 million. The net carrying value is our investment balance of $388 million less the cumulative translation adjustments in accumulated other comprehensive income (loss) of $65 million. We evaluated our investment in Inotera and concluded that the decline in the market value below carrying value was not an other-than-temporary-impairment primarily for the following reasons: (1) the deficit in market value to carrying value existed for less than one month, (2) the deficit as a percentage of the carrying was relatively minor, (3) the market value subsequently appreciated to exceed the carrying value shortly after the end of our fiscal 2011, and (4) the market value is very volatile based on changes in pricing for Inotera's sole product, DRAM, which fluctuates significantly based on market cycles and other factors.
| As of | June 30, 2010 | June 30, 2009 | ||||||
| Current assets | $ | 600 | $ | 450 | ||||
| Noncurrent assets (primarily property, plant and equipment) | 3,506 | 3,315 | ||||||
| Current liabilities | 1,352 | 1,789 | ||||||
| Noncurrent liabilities | 882 | 740 | ||||||
| For the Year and Period Ended, Respectively | June 30, 2010 | June 30, 2009 | ||||||
| Net sales | $ | 1,399 | $ | 670 | ||||
| Gross margin | (63 | ) | (370 | ) | ||||
| Loss from operations | (125 | ) | (462 | ) | ||||
| Net loss | (181 | ) | (534 | ) | ||||
Pursuant to a technology transfer agreement, we received $50$50 million from MeiYa in the first quarter of 2009. Our technology transfer agreement with MeiYa was supplanted by our technology transfer agreement with Inotera and we returned the $50$50 million with accrued interest to MeiYa in the fourth quarter of 2009.
Transform
As of September 1, 2011 and September 2, 2010, our other noncurrent assets included $33$29 million and $33 million, respectively, for the manufacturing facilities leased to Transform and other noncurrent liabilities included $33$29 million and $33 million for deferred rent revenue on the fully-paid lease. Additionally, as of September 1, 2011 and September 2, 2010, other noncurrent assets and liabilities included $5$4 million and $5 million, respectively, for the value of certain equipment and intangible assets, which we were obligated to contribute to Transform.
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Aptina
We manufacture imaging productscomponents for CMOS image sensors for Aptina under a wafer supply agreement. InFor 2011, 2010 and 2009, we recognized net sales of $372$349 million, $372 million and $70$70 million, respectively, and cost of goods sold of $385$358 million, $385 million and $60$60 million, respectively, from products sold to Aptina.
Accounts Payable and Hynix Semiconductor (WUXI) Limited. The change in control of Numonyx gave Hynix the right to purchase all of our equity interest in the Hynix JV. Hynix exercised its right to purchase our interest in the Hynix JV and consummated the equity transfer on August 31, 2010 for $423 million. (See “Numonyx Holdings B.V.” note.)
| Accounts Payable and Accrued Expenses | 2010 | 2009 | ||||||||||||||
| As of | 2011 | 2010 | ||||||||||||||
Accounts payable | $ | 799 | $ | 526 | $ | 1,187 | $ | 799 | ||||||||
Salaries, wages and benefits | 346 | 147 | 304 | 346 | ||||||||||||
Related party payables | 194 | 83 | 141 | 194 | ||||||||||||
Income and other taxes | 51 | 32 | 30 | 51 | ||||||||||||
Customer advances | 4 | 150 | ||||||||||||||
Other | 115 | 99 | 168 | 119 | ||||||||||||
| $ | 1,509 | $ | 1,037 | $ | 1,830 | $ | 1,509 | |||||||||