Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MU > SEC Filings for MU > Form 10-Q/A on 17-Jul-2013All Recent SEC Filings

Show all filings for MICRON TECHNOLOGY INC

Form 10-Q/A for MICRON TECHNOLOGY INC


17-Jul-2013

Quarterly Report


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

As used herein, "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 "Overview" regarding our proposed acquisition of Elpida and royalty income from Nanya; in "Net Sales" regarding the timing of the closing of our sale of MIT; in "Selling, General and Administrative" regarding SG&A costs for the third quarter of 2013; in "Research and Development" regarding R&D costs for the third quarter of 2013; and in "Liquidity and Capital Resources" regarding the sufficiency of our cash and investments, cash flows from operations and available financing to meet our requirements at least through the next twelve months and regarding our pursuit of additional financing, capital spending in 2013, the timing of payments for certain contractual obligations and the timing of payments in connection with the Elpida transactions. 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 1A. Risk Factors." This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended August 30, 2012. 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 and fiscal 2013 and 2012 each contained 52 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: An overview of our business and operations and highlights of key transactions and events.

Results of Operations: An analysis of our financial results consisting of the following:

? Consolidated results;

? Operating results by business segment;

? Operating results by product; and

? Operating expenses and other.

Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and potential sources of liquidity.

Off-Balance Sheet Arrangements: Contingent liabilities, commitments and off-balance sheet arrangements.

Overview

We are one of the world's leading providers of advanced semiconductor solutions. Through our worldwide operations, we manufacture and market a full range of 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, automotive, industrial, embedded and mobile products. We market our products through our internal sales force, independent sales representatives and distributors primarily to original equipment manufacturers ("OEMs") 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 infrastructure, successful ongoing development of advanced process technologies and the return on research and development ("R&D") investments.

We obtain products from three primary sources: (1) production from our wholly-owned manufacturing facilities, (2) production from our joint venture manufacturing facilities, and (3) to a lesser degree, from third party manufacturers. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various partnering arrangements, including joint ventures, which have helped us to attain lower costs than we could otherwise achieve through internal investments alone.


We make significant investments to develop the proprietary product and process technologies that are implemented in our worldwide manufacturing facilities and through our joint ventures. These investments enable our 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, improved read/write reliability and increased memory density. To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory product and process technologies with joint venture partners. In addition, from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.

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 market, as well as NAND Flash products sold to Intel through IM Flash.
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. Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.

Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other.

Proposed Acquisition of Elpida Memory, Inc.

On July 2, 2012, we entered into an "Agreement on Support for Reorganization Companies" (the "Sponsor Agreement") with the trustees of Elpida Memory, Inc. ("Elpida") and its subsidiary, Akita Elpida Memory, Inc. ("Akita" and, together with Elpida, the "Elpida Companies"), which provides for, among other things, our acquisition of Elpida and our support for the plans of reorganization of the Elpida Companies in connection with their corporate reorganization proceedings in Japan. The Elpida Companies filed petitions for commencement of corporate reorganization proceedings with the Tokyo District Court (the "Japan Court") under the Corporate Reorganization Act of Japan on February 27, 2012. Under the Sponsor Agreement, we committed to support plans of reorganization for the Elpida Companies that would provide payments to the secured and unsecured creditors of the Elpida Companies in an aggregate amount of 200 billion yen (or the equivalent of approximately $2.17 billion, assuming approximately 92 yen per U.S. dollar, the exchange rate as of February 28, 2013), less certain expenses of the reorganization proceedings and certain other items.

The Sponsor Agreement provides that we will invest 60 billion yen (or the equivalent of approximately $650 million) in cash in Elpida at the closing in exchange for 100% ownership of Elpida's equity. As a condition to the execution of the Sponsor Agreement, we deposited 1.8 billion yen (or the equivalent of approximately $20 million) into an escrow account in July 2012, which will be applied towards our purchase price for the Elpida shares at closing. The Elpida Companies will use the proceeds of our investment to fund an initial installment payment to their creditors of 60 billion yen, which amount is subject to reduction for certain items specified in the Sponsor Agreement. The initial installment payment will be made within three months following the closing of our acquisition of Elpida. The remaining 140 billion yen (or the equivalent of approximately $1.52 billion) of installment payments payable to the Elpida Companies' creditors will be made by the Elpida Companies in six annual installments payable at the end of each calendar year beginning in the calendar year after the first installment payment is made. We or one of our subsidiaries are committed to enter into a supply agreement with Elpida following the closing, which will provide for our purchase on a cost-plus basis of all product produced by Elpida. Cash flows from such supply agreement will be used to satisfy the required installment payments under the plans of reorganization.

In a related transaction, on July 2, 2012, we entered into a share purchase agreement with Powerchip Technology Corporation and certain of its affiliates (the "Rexchip Share Purchase Agreement"), under which we will purchase approximately 714 million shares of Rexchip Electronics Corporation ("Rexchip'') common stock, which represents approximately 24% of Rexchip's outstanding common stock, for approximately 10 billion New Taiwan dollars (or the equivalent of approximately $338 million, assuming approximately 30 New Taiwan dollars per U.S. dollar, the exchange rate as of February 28, 2013). Elpida currently owns, directly and indirectly through a subsidiary, 65% of Rexchip's outstanding common stock.


Elpida's assets include, among other things: a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan; its ownership interest in Rexchip, whose assets include a 300mm DRAM wafer fabrication facility located in Taiwan; and an assembly and test facility located in Akita, Japan. We expect that the Elpida and Rexchip fabrication facilities together are capable of producing more than 180,000 300mm wafers per month, which would represent an approximate 45% increase in our current trade wafer capacity.

Elpida's semiconductor memory products include Mobile DRAM, targeted toward mobile phones and tablets. We believe that the Elpida Company's product portfolio is complementary to ours and combining the two will strengthen our position in the memory market and enable us to provide customers with a wider portfolio of high-quality solutions. We also believe that the Elpida transactions will strengthen our market position in the memory industry through increased research and development and manufacturing scale, improved access to core memory market segments, and additional wafer capacity to balance among our DRAM, NAND Flash and NOR Flash memory solutions.

The consummation of the Sponsor Agreement remains subject to completion or waiver of certain conditions, including:

i. the finalization of the order of the Japan Court approving the plans of reorganization of the Elpida Companies, which order with respect to the Elpida plan of reorganization has been appealed by certain creditors of Elpida. On February 26, 2013, the Elpida Companies' creditors approved the reorganization plans and on February 28, 2013, the Japan Court issued an order approving the plans of reorganization. On March 29, 2013, certain creditors of Elpida filed appeals with the Tokyo High Court of the Japan Court's order approving Elpida's plan of reorganization. Timing of the Tokyo High Court appeal process depends on a number of factors outside of our control and is impossible to predict with accuracy;

ii. the granting of a recognition order by the U.S. Court with respect to the Japan Court's approval of the Elpida plan of reorganization or the completion or implementation of alternative actions providing substantially equivalent benefits; and

iii. the closing of the purchase of the Rexchip shares from the Powerchip Group under the Rexchip Share Purchase Agreement described below.

There can be no assurance that the various conditions will be satisfied or that the Elpida acquisition will ultimately be consummated on the terms and conditions set forth in the Sponsor Agreement. Various creditors are challenging Elpida's proposed plan of reorganization and related requests for relief, both in the Japan Proceedings and the U.S. Proceedings. If the requisite court approvals and decisions are not obtained or the closing conditions are not satisfied or waived, we will not be able to close the acquisitions. We believe the Japan Court's approval of Elpida's reorganization plan will be upheld by the Tokyo High Court, that the other requirements for closing will be achieved and that we will close the acquisitions. However, we cannot be certain what effect, if any, challenges by the creditors will have on the timing of the closing.

In connection with the Elpida and Rexchip acquisition agreements, on July 2, 2012, we entered into a series of currency option contracts to hedge our exposure to the yen and New Taiwan dollar denominated acquisition payments under these agreements, pursuant to which we purchased call options to buy 200 billion yen, sold put options to sell 100 billion yen and sold call options to buy 100 billion yen. As a result of the mark-to-market adjustments for the yen hedge, we recorded losses to other non-operating expense of $114 million and $62 million in the second and first quarters of 2013, respectively. As of February 28, 2013, our cumulative loss on the yen hedge was $168 million. In the third quarter of 2013, we recorded additional losses of $23 million on the yen hedge through its settlement on March 26, 2013. We paid $191 million on settlement. As a result of the weaker yen since the inception of the hedge on July 2, 2012, the U.S. dollar equivalent of the 200 billion yen to be paid to the secured and unsecured creditors of the Elpida Companies had decreased by $338 million as of February 28, 2013.

On March 26, 2013, we executed a series of separate currency exchange transactions pursuant to which we purchased forward contracts to buy 80 billion yen and purchased put options to sell 80 billion yen. These forward contracts and put options, which expire on September 25, 2013, mitigate the risk of a strengthening yen for certain of our yen-denominated payments under the Sponsor Agreement while preserving some ability for us to benefit if the value of the yen weakens relative to the U.S. dollar.

See "Item 1. Financial Statements - Notes to Consolidated Financial Statements - Proposed Acquisition of Elpida Memory, Inc." for further details of the proposed transactions.


Inotera Memories, Inc.

On January 17, 2013, we entered into agreements with Nanya Technology Corporation ("Nanya") to amend the joint venture relationship involving Inotera. The amendments include a new supply agreement (the "Inotera Supply Agreement") between us and Inotera under which we will purchase for an initial three-year term substantially all of Inotera's output at a purchase price based on a discount from actual market prices for our comparable components. The Inotera Supply Agreement contemplates annual negotiations with respect to potential successive one-year extensions and if in any year the parties do not agree to an extension, the agreement will terminate following the end of the then-existing term and a subsequent three-year wind-down period. Our share of Inotera's capacity would decline over the three year wind-down period. The Inotera Supply Agreement was retroactively effective beginning on January 1, 2013. Effective through December 31, 2012, we had rights and obligations to purchase 50% of Inotera's wafer production capacity based on a margin-sharing formula among Nanya, Inotera and us. Our cost of product purchased from Inotera under the supply agreements was $200 million for the second quarter of 2013, $201 million for the first quarter of 2013 and $142 million for the second quarter of 2012. In addition to the Inotera Supply Agreement, we and Nanya also amended two technology transfer and license agreements and entered into a new technology transfer and license option agreement for the 20nm process node. The royalties payable to us under these agreements are calculated using a formula based on Nanya's adjusted revenue for the sale of various types of DRAM. The royalty rates under these agreements range from one percent up to, under very limited circumstances, ten percent. We do not believe royalty income from these agreements will be significant.

Prior to January 17, 2013, under a cost-sharing arrangement, we generally shared DRAM development costs with Nanya under a joint development program. As a result of the January 17, 2013 agreements, which were retroactively effective beginning on January 1, 2013, Nanya no longer participates in the joint development program. Pursuant to the cost-sharing arrangement with Nanya, our R&D costs were reduced by $4 million in the second quarter of 2013, $15 million in the first quarter of 2013 and $36 million in the second quarter of 2012.

Results of Operations

Consolidated Results

                                        Second Quarter                                 First Quarter                                   Six Months
                    2013       % of net sales      2012       % of net sales      2013       % of net sales      2013       % of net sales      2012       % of net sales
                                                                    (amounts in millions and as a percent of net sales)
Net sales         $ 2,078           100  %       $ 2,009           100  %       $ 1,834           100  %       $ 3,912           100  %       $ 4,099           100  %
Cost of goods
sold                1,712            82  %         1,799            90  %         1,617            88  %         3,329            85  %         3,584            87  %
Gross margin          366            18  %           210            10  %           217            12  %           583            15  %           515            13  %

SG&A                  123             6  %           174             9  %           119             6  %           242             6  %           325             8  %
R&D                   214            10  %           222            11  %           224            12  %           438            11  %           452            11  %
Other operating
(income) expense,
net                    52             3  %            18             1  %           (29 )          (2 )%            23             1  %            13             -  %
Operating loss        (23 )          (1 )%          (204 )         (10 )%           (97 )          (5 )%          (120 )          (3 )%          (275 )          (7 )%

Interest income
(expense), net        (53 )          (3 )%           (33 )          (2 )%           (54 )          (3 )%          (107 )          (3 )%           (66 )          (2 )%
Other
non-operating
income (expense),
net                  (159 )          (8 )%            37             2  %           (59 )          (3 )%          (218 )          (6 )%            26             1  %
Income tax
(provision)
benefit                 9             -  %            (9 )           -  %           (13 )          (1 )%            (4 )           -  %            (7 )           -  %
Equity in net
loss of equity
method investees      (58 )          (3 )%           (73 )          (4 )%           (52 )          (3 )%          (110 )          (3 )%          (147 )          (4 )%
Net income
attributable to
noncontrolling
interests              (2 )           -  %             -             -  %             -             -  %            (2 )           -  %             -             -  %
Net loss
attributable to
Micron            $  (286 )         (14 )%       $  (282 )         (14 )%       $  (275 )         (15 )%       $  (561 )         (14 )%       $  (469 )         (11 )%


Our net loss for the second quarter of 2013 was slightly higher than the first quarter of 2013 as a $149 million improvement in our overall gross margin was more than offset by an increase in losses recognized in other operating expense and other non-operating expense. Our gross margin for the second quarter of 2013 improved from the first quarter of 2013 primarily due to cost reductions partially offset by declines in average selling prices. Significant items in other operating expense and other non-operating expenses for the second and first quarters of 2013 included the following:

other operating loss for the second quarter of 2013 included a $62 million impairment loss as a result of an agreement to sell our 200mm wafer fabrication facility assets in Avezzano, Italy:

other operating income for the first quarter of 2013 included a $25 million gain from the termination of a lease by Transform to a portion of our manufacturing facilities in Boise, Idaho as part of Transform's operations being discontinued;

other non-operating expense for the second and first quarters of 2013 included losses of $120 million and $58 million, respectively, on currency hedges for the Elpida and Rexchip transaction; and

other non-operating expense for the second quarter of 2013 included a $31 million charge associated with the early liquidation of debt.

Our net loss attributable to Micron shareholders for the second quarter of 2013 was relatively unchanged from the second quarter of 2012 as a $156 million improvement in our gross margin was offset by losses recognized in other operating expense and other non-operating expense. Our gross margin for the second quarter of 2013 improved from the second quarter of 2012 primarily due to cost reductions partially offset by declines in average selling prices. Other non-operating income for the second quarter of 2012 included a $39 million gain from the sale of an investment.

In the second quarter of 2013, we reclassified (gains) losses from changes in currency exchange rates from other operating (income) expense, net to other non-operating income (expense), net in the consolidated statements of income. As a result, segment operating income (loss) for the comparative periods presented no longer includes the (gains) losses from changes in currency exchange rates to conform to current period presentation. (See "Item 1. Financial Statements - Notes to Consolidated Financial Statements - Business and Basis of Presentation".)

Net Sales

                                Second Quarter                        First Quarter                         Six Months
                             % of net                % of net                  % of net                % of net                % of net
                   2013        sales       2012        sales        2013         sales       2013        sales       2,012       sales
DSG              $   756       36 %      $   608       30 %      $     600       33 %      $ 1,356       35 %      $ 1,264       31 %
NSG                  713       34 %          734       37 %            617       34 %        1,330       34 %        1,417       35 %
ESG                  282       14 %          242       12 %            278       15 %          560       14 %          504       12 %
WSG                  213       10 %          307       15 %            263       14 %          476       12 %          680       17 %
All Other            114        6 %          118        6 %             76        4 %          190        5 %          234        5 %
                 $ 2,078      100 %      $ 2,009      100 %      $   1,834      100 %      $ 3,912      100 %      $ 4,099      100 %

Total net sales for the second quarter of 2013 increased 13% as compared to the first quarter of 2013 primarily due to the following:

increases in DSG sales due to increases in gigabit sales partially offset by declines in average selling prices,

increases in NSG sales due to increases in gigabit sales and average selling prices, and

decreases in WSG sales due to lower sales of NAND Flash and NOR Flash products as a result of declines in gigabit sales and average selling prices.

Total net sales for the second quarter of 2013 increased 3% as compared to the second quarter of 2012 primarily due to increases in DSG and ESG sales due to increases in gigabit sales partially offset by declines in average selling prices. WSG and NSG sales for the second quarter of 2013 decreased from the second quarter of 2012 primarily due to declines in selling prices mitigated by increases in gigabit sales for NSG. Total net sales for the first six months of 2013 decreased 5% as compared to the first six months of 2012 primarily due decreases in WSG and NSG sales partially offset by increases in DSG and ESG sales.


Sales of CMOS image sensors constitute the majority of sales for All Other segments. On February 25, 2013, we entered into an agreement to sell Micron Technology Italia, S.r.l., ("MIT") a wholly-owned subsidiary, including its 200mm wafer fabrication facility assets in Avezzano, Italy, to LFoundry Marsica S.r.l. ("LFoundry"). Under the agreements, we will assign to LFoundry our supply agreement with Aptina Imaging Corporation ("Aptina") for CMOS image sensors manufactured at the Avezzano facility. We expect to close the transaction in the third quarter of 2013 after which time we will cease to sell CMOS image sensors. In recent years, our margins on sales of CMOS image sensors have been insignificant. (See "Item 1. Financial Statements - Notes to Consolidated Financial Statements - Micron Technology Italia, S.r.l.")

Gross Margin

Our overall gross margin percentage for the second quarter of 2013 improved to 18% from 12% for the first quarter of 2013 as a result of margin improvements from sales of both NAND Flash and DRAM products due to decreases in manufacturing costs and lower costs of DRAM products purchased from Inotera.

Our overall gross margin percentage for the second quarter of 2013 improved to 18% from 10% for the second quarter of 2012 primarily due to reductions in cost per gigabit partially offset by declines in average selling prices. Our overall gross margin percentage for the first six months of 2013 improved to 15% from 13% for the first six months of 2012 primarily due to reductions in cost per gigabit partially offset by declines in average selling prices.

Operating Results by Business Segments

DRAM Solutions Group ("DSG")

                             Second Quarter       First Quarter          Six Months
                             2013       2012           2013           2013        2012
Net sales                 $   756      $ 608     $        600       $ 1,356     $ 1,264
Operating income (loss)       (46 )     (167 )           (112 )        (158 )      (302 )

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 - DRAM" for further detail.) DSG sales for the second quarter of 2013 increased 26% as compared to the first quarter of 2013 primarily due to increases in gigabit sales. Increases in gigabit sales for the second quarter of 2013 were primarily due to additional supply obtained from Inotera as a result of revisions to the supply agreement effective January 1, 2013. DSG average selling prices for the second quarter . . .

  Add MU to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MU - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.