UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 4, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
file number 1-10658
Micron
Technology, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
75-1618004
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
8000
S. Federal Way, Boise, Idaho
|
83716-9632
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code
|
(208)
368-4000
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
(Do
not check if a smaller reporting company)
|
Smaller
Reporting Company o
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No
x
The number of outstanding shares of the
registrant’s common stock as of July 9, 2009 was 846,844,650.
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
(Unaudited)
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,106 |
|
|
$ |
1,498 |
|
|
$ |
3,501 |
|
|
$ |
4,392 |
|
Cost
of goods sold
|
|
|
999 |
|
|
|
1,450 |
|
|
|
4,110 |
|
|
|
4,382 |
|
Gross margin
|
|
|
107 |
|
|
|
48 |
|
|
|
(609 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
80 |
|
|
|
116 |
|
|
|
272 |
|
|
|
348 |
|
Research
and development
|
|
|
162 |
|
|
|
170 |
|
|
|
508 |
|
|
|
513 |
|
Restructure
|
|
|
19 |
|
|
|
8 |
|
|
|
58 |
|
|
|
29 |
|
Goodwill
impairment
|
|
|
-- |
|
|
|
-- |
|
|
|
58 |
|
|
|
463 |
|
Other
operating (income) expense, net
|
|
|
92 |
|
|
|
(21 |
) |
|
|
121 |
|
|
|
(86 |
) |
Operating loss
|
|
|
(246 |
) |
|
|
(225 |
) |
|
|
(1,626 |
) |
|
|
(1,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
6 |
|
|
|
15 |
|
|
|
20 |
|
|
|
68 |
|
Interest
expense
|
|
|
(37 |
) |
|
|
(21 |
) |
|
|
(102 |
) |
|
|
(62 |
) |
Other
non-operating income (expense), net
|
|
|
(3 |
) |
|
|
-- |
|
|
|
(15 |
) |
|
|
(7 |
) |
|
|
|
(280 |
) |
|
|
(231 |
) |
|
|
(1,723 |
) |
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (provision) benefit
|
|
|
2 |
|
|
|
(13 |
) |
|
|
(15 |
) |
|
|
(16 |
) |
Equity
in net losses of equity method investees, net of tax
|
|
|
(45 |
) |
|
|
-- |
|
|
|
(106 |
) |
|
|
-- |
|
Noncontrolling
interests in net (income) loss
|
|
|
33 |
|
|
|
8 |
|
|
|
97 |
|
|
|
(1 |
) |
Net loss
|
|
$ |
(290 |
) |
|
$ |
(236 |
) |
|
$ |
(1,747 |
) |
|
$ |
(1,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.36 |
) |
|
$ |
(0.30 |
) |
|
$ |
(2.22 |
) |
|
$ |
(1.65 |
) |
Diluted
|
|
|
(0.36 |
) |
|
|
(0.30 |
) |
|
|
(2.22 |
) |
|
|
(1.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
813.3 |
|
|
|
772.8 |
|
|
|
786.5 |
|
|
|
772.4 |
|
Diluted
|
|
|
813.3 |
|
|
|
772.8 |
|
|
|
786.5 |
|
|
|
772.4 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value)
(Unaudited)
As
of
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
1,306 |
|
|
$ |
1,243 |
|
Short-term
investments
|
|
|
-- |
|
|
|
119 |
|
Receivables
|
|
|
750 |
|
|
|
1,032 |
|
Inventories
|
|
|
999 |
|
|
|
1,291 |
|
Other
current assets
|
|
|
73 |
|
|
|
94 |
|
Total current
assets
|
|
|
3,128 |
|
|
|
3,779 |
|
Intangible
assets, net
|
|
|
355 |
|
|
|
364 |
|
Property,
plant and equipment, net
|
|
|
7,536 |
|
|
|
8,811 |
|
Equity
method investments
|
|
|
306 |
|
|
|
84 |
|
Other
assets
|
|
|
339 |
|
|
|
392 |
|
Total assets
|
|
$ |
11,664 |
|
|
$ |
13,430 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,037 |
|
|
$ |
1,111 |
|
Deferred
income
|
|
|
183 |
|
|
|
114 |
|
Equipment
purchase contracts
|
|
|
233 |
|
|
|
98 |
|
Current
portion of long-term debt
|
|
|
372 |
|
|
|
275 |
|
Total current
liabilities
|
|
|
1,825 |
|
|
|
1,598 |
|
Long-term
debt
|
|
|
2,752 |
|
|
|
2,451 |
|
Other
liabilities
|
|
|
260 |
|
|
|
338 |
|
Total
liabilities
|
|
|
4,837 |
|
|
|
4,387 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests in subsidiaries
|
|
|
2,130 |
|
|
|
2,865 |
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value, authorized 3,000 shares, issued and outstanding
846.8 and 761.1 shares, respectively
|
|
|
85 |
|
|
|
76 |
|
Additional
capital
|
|
|
6,841 |
|
|
|
6,566 |
|
Accumulated
deficit
|
|
|
(2,203 |
) |
|
|
(456 |
) |
Accumulated
other comprehensive (loss)
|
|
|
(26 |
) |
|
|
(8 |
) |
Total shareholders’
equity
|
|
|
4,697 |
|
|
|
6,178 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
11,664 |
|
|
$ |
13,430 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
Nine
months ended
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,747 |
) |
|
$ |
(1,275 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,648 |
|
|
|
1,528 |
|
Provision to write down
inventories to estimated market values
|
|
|
603 |
|
|
|
77 |
|
Noncash restructure
charges
|
|
|
157 |
|
|
|
7 |
|
Equity in net losses of equity
method investees, net of tax
|
|
|
106 |
|
|
|
-- |
|
Goodwill
impairment
|
|
|
58 |
|
|
|
463 |
|
(Gain) loss from disposition of
equipment, net
|
|
|
55 |
|
|
|
(70 |
) |
Loss on write-down of Aptina
imaging assets
|
|
|
53 |
|
|
|
-- |
|
Noncontrolling interests in net
income (loss)
|
|
|
(97 |
) |
|
|
1 |
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease in
receivables
|
|
|
224 |
|
|
|
11 |
|
(Increase) decrease in
inventories
|
|
|
(311 |
) |
|
|
2 |
|
Decrease in accounts payable
and accrued expenses
|
|
|
(6 |
) |
|
|
(48 |
) |
Increase (decrease) in deferred
income
|
|
|
71 |
|
|
|
(4 |
) |
Other
|
|
|
35 |
|
|
|
83 |
|
Net cash provided by operating
activities
|
|
|
849 |
|
|
|
775 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
|
(439 |
) |
|
|
(1,809 |
) |
Acquisition
of equity method investment
|
|
|
(408 |
) |
|
|
-- |
|
Increase
in restricted cash
|
|
|
(57 |
) |
|
|
-- |
|
Purchases
of available-for-sale securities
|
|
|
(6 |
) |
|
|
(259 |
) |
Proceeds
from maturities of available-for-sale securities
|
|
|
130 |
|
|
|
529 |
|
Proceeds
from sales of property, plant and equipment
|
|
|
13 |
|
|
|
175 |
|
Proceeds
from sales of available-for-sale securities
|
|
|
-- |
|
|
|
24 |
|
Other
|
|
|
86 |
|
|
|
51 |
|
Net cash used for investing
activities
|
|
|
(681 |
) |
|
|
(1,289 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Distributions
to noncontrolling interests
|
|
|
(592 |
) |
|
|
(92 |
) |
Repayments
of debt
|
|
|
(373 |
) |
|
|
(653 |
) |
Payments
on equipment purchase contracts
|
|
|
(127 |
) |
|
|
(348 |
) |
Cash
paid for capped call transactions
|
|
|
(25 |
) |
|
|
-- |
|
Proceeds
from debt
|
|
|
716 |
|
|
|
507 |
|
Proceeds
from issuance of common stock, net of costs
|
|
|
276 |
|
|
|
4 |
|
Cash
received from noncontrolling interests
|
|
|
24 |
|
|
|
295 |
|
Proceeds
from equipment sale-leaseback transactions
|
|
|
4 |
|
|
|
92 |
|
Other
|
|
|
(8 |
) |
|
|
(9 |
) |
Net cash used for financing
activities
|
|
|
(105 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and equivalents
|
|
|
63 |
|
|
|
(718 |
) |
Cash
and equivalents at beginning of period
|
|
|
1,243 |
|
|
|
2,192 |
|
Cash
and equivalents at end of period
|
|
$ |
1,306 |
|
|
$ |
1,474 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Income
taxes paid, net
|
|
$ |
(14 |
) |
|
$ |
(24 |
) |
Interest
paid, net of amounts capitalized
|
|
|
(87 |
) |
|
|
(59 |
) |
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment acquisitions on
contracts payable and capital leases
|
|
|
305 |
|
|
|
404 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular
amounts in millions except per share amounts)
(Unaudited)
Business
and Significant Accounting Policies
Basis of
presentation: Micron Technology, Inc. and its subsidiaries
(hereinafter referred to collectively as the “Company”) manufacture and market
DRAM, NAND Flash memory, CMOS image sensors and other semiconductor
components. The Company has two reportable segments, Memory and
Imaging. The Memory segment’s primary products are DRAM and NAND
Flash memory products and the Imaging segment’s primary product is CMOS image
sensors. The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and include the accounts of the Company and its
consolidated subsidiaries. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments
necessary to present fairly the consolidated financial position of the Company
and its consolidated results of operations and cash flows.
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. The
Company’s fiscal 2009 contains 53 weeks and the Company’s fiscal 2008, which
ended on August 28, 2008, contained 52 weeks. All period references
are to the Company’s fiscal periods unless otherwise indicated. These
interim financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company’s Annual
Report on Form 10-K for the year ended August 28, 2008.
Risks and
uncertainties: The Company’s liquidity is highly dependent on
average selling prices for its products and the timing of capital expenditures,
both of which can vary significantly from period to period. Depending
on conditions in the semiconductor memory market, the Company’s cash flows from
operations and current holdings of cash and investments may not be adequate to
meet the Company’s needs for capital expenditures and
operations. Historically, the Company has used external financing to
fund these needs. Due to conditions in the credit markets, it may be
difficult to obtain financing on terms acceptable to the Company. The
Company has significantly reduced its capital expenditures for
2009. In addition, the Company is considering further financing
alternatives, continuing to limit capital expenditures and implementing further
cost reduction initiatives.
Recently issued accounting
standards: In June 2009, the Financial Accounting Standards
Board (“FASB”) issued Statement No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS No. 167”), which (1) replaces the quantitative-based risks and
rewards calculation for determining whether an enterprise is the primary
beneficiary in a variable interest entity with an approach that is primarily
qualitative (2) requires ongoing assessments of whether an enterprise is the
primary beneficiary of a variable interest entity and (3) requires
additional disclosures about an enterprise’s involvement in variable interest
entities. The Company is required to adopt SFAS No. 167
effective at the beginning of 2011. The Company is evaluating the
impact the adoption of SFAS No. 167 will have on its financial
statements.
In May 2008, the FASB issued FSP No.
APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement).” FSP No.
APB 14-1 requires that issuers of convertible debt instruments that may be
settled in cash upon conversion separately account for the liability and equity
components in a manner such that interest cost will be recognized at the
entity’s nonconvertible debt borrowing rate in subsequent
periods. The Company is required to adopt FSP No. APB 14-1 effective
at the beginning of 2010. Upon adoption, the Company will
retrospectively account for its $1.3 billion of 1.875% convertible senior notes
issued in May, 2007 under the provisions of FSP No. APB 14-1. The
Company estimates that the initial carrying value of its $1.3 billion
convertible senior notes would have been approximately $400 million lower under
FSP No. APB 14-1. This difference of approximately $400 million would
be accreted to interest expense over the approximate seven-year term of the
notes and the Company estimates that this will result in additional interest
expense in the first year of the notes of approximately $45 million increasing
to approximately $70 million per year in the last year of the notes, excluding
the effects of capitalized interest. The Company is continuing to
evaluate the full impact the adoption of FSP No. APB 14-1 will have on its
financial statements.
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
“Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and requirements
for how an acquirer in a business combination (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interests in the acquiree, (2) recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase,
and (3) determines what information to disclose. The Company is
required to adopt SFAS No. 141(R) effective at the beginning of
2010. The impact of the adoption of SFAS No. 141(R) will depend on
the nature and extent of business combinations occurring after the beginning of
2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the noncontrolling interest be
separately identified in the statement of operations, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. SFAS No. 160 must be applied prospectively
except for the presentation and disclosure requirements, which must be applied
retrospectively. The Company is evaluating the impact the adoption of
SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company adopted SFAS No. 159 effective at
the beginning of 2009. The Company did not elect to measure any
existing items at fair value upon the adoption of SFAS No. 159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 (as amended by
subsequent FSP’s) defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. The Company adopted SFAS No. 157 effective
at the beginning of 2009 for financial assets and financial
liabilities. The adoption did not have a significant impact on the
Company’s financial statements. The Company is required to adopt SFAS
No. 157 for all other assets and liabilities effective at the beginning of 2010
and is evaluating the impact the adoption will have on its financial
statements.
Supplemental
Balance Sheet Information
Receivables
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Trade receivables (net of
allowance of $5 and $2, respectively)
|
|
$ |
601 |
|
|
$ |
741 |
|
Income and other
taxes
|
|
|
24 |
|
|
|
43 |
|
Other
|
|
|
125 |
|
|
|
248 |
|
|
|
$ |
750 |
|
|
$ |
1,032 |
|
As of June 4, 2009 and August 28, 2008,
other receivables included amounts due from Intel Corporation (“Intel”) of $61
million and $71 million, respectively, related to NAND Flash product design and
process development activities. As of June 4, 2009 and August 28,
2008, other receivables also included $39 million and $75 million, respectively,
due from settlement of litigation (an additional $39 million of the settlement
receivable was included as other noncurrent assets as of August 28,
2008). Other receivables as of August 28, 2008 also included $58
million due from settlements of pricing adjustments with certain
suppliers.
Inventories
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
286 |
|
|
$ |
444 |
|
Work in process
|
|
|
596 |
|
|
|
671 |
|
Raw materials and
supplies
|
|
|
117 |
|
|
|
176 |
|
|
|
$ |
999 |
|
|
$ |
1,291 |
|
The Company’s results of operations for
the second and first quarters of 2009 included charges of $234 million and $369
million, respectively, to write down the carrying value of work in process and
finished goods inventories of memory products (both DRAM and NAND Flash) to
their estimated market values. For the fourth, second and first
quarters of 2008, the Company recorded charges for inventory write-downs of $205
million, $15 million and $62 million, respectively.
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
4, 2009
|
|
|
August
28, 2008
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and process
technology
|
|
$ |
437 |
|
|
$ |
(174 |
) |
|
$ |
577 |
|
|
$ |
(320 |
) |
Customer
relationships
|
|
|
127 |
|
|
|
(46 |
) |
|
|
127 |
|
|
|
(35 |
) |
Other
|
|
|
28 |
|
|
|
(17 |
) |
|
|
29 |
|
|
|
(14 |
) |
|
|
$ |
592 |
|
|
$ |
(237 |
) |
|
$ |
733 |
|
|
$ |
(369 |
) |
During the first nine months of 2009
and 2008, the Company capitalized $82 million and $33 million, respectively, for
product and process technology with weighted-average useful lives of 9 years and
10 years, respectively.
Amortization expense for intangible
assets was $18 million and $58 million for the third quarter and first nine
months of 2009, respectively, and $20 million and $60 million for the third
quarter and first nine months of 2008, respectively. Annual
amortization expense for intangible assets is estimated to be $69 million for
2009, $66 million for 2010, $62 million for 2011, $54 million for 2012 and $49
million for 2013.
Property,
Plant and Equipment
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
99 |
|
|
$ |
99 |
|
Buildings
|
|
|
4,496 |
|
|
|
3,829 |
|
Equipment
|
|
|
12,483 |
|
|
|
13,591 |
|
Construction in
progress
|
|
|
54 |
|
|
|
611 |
|
Software
|
|
|
270 |
|
|
|
283 |
|
|
|
|
17,402 |
|
|
|
18,413 |
|
Accumulated
depreciation
|
|
|
(9,866 |
) |
|
|
(9,602 |
) |
|
|
$ |
7,536 |
|
|
$ |
8,811 |
|
Depreciation expense was $487 million
and $1,571 million for the third quarter and first nine months of 2009,
respectively, and $493 million and $1,467 million for the third quarter and
first nine months of 2008, respectively.
The Company, through its IM Flash joint
venture, has an unequipped wafer manufacturing facility in Singapore that has
been idle since it was completed in the first quarter of 2009. The
Company has depreciated the facility since it was completed and its net book
value was $633 million as of June 4, 2009. Utilization of the
facility is dependent upon market conditions, including, but not limited to,
worldwide market supply of, and demand for, semiconductor products, availability
of financing, agreement between the Company and its joint venture partner and
the Company’s operations, cash flows and alternative capacity utilization
opportunities. (See “Consolidated Variable Interest Entities – IM
Flash” note.)
As part of a restructure plan initiated
in 2009 to shut down 200mm manufacturing operations at its Boise, Idaho
facilities, the Company recorded impairment charges of $7 million and $150
million for the third quarter and first nine months of 2009,
respectively. In connection therewith, assets with a carrying value
of $27 million (original acquisition cost of $704 million) were classified as
held for sale and included in other noncurrent assets as of June 4,
2009. (See “Restructure” note.)
Goodwill
As of August 28, 2008, other noncurrent
assets included goodwill of $58 million, all of which related to the Company’s
Imaging segment. In the second quarter of 2009, the Company wrote off
the $58 million of Imaging goodwill based on the results of its test for
impairment. In the second quarter of 2008, the Company wrote off the
$463 million of goodwill relating to its Memory segment based on the results of
its test for impairment.
SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires that goodwill be tested for impairment at a
reporting unit level. The Company has determined that its reporting
units are its Memory and Imaging segments based on its organizational structure
and the financial information that is provided to and reviewed by
management. The Company tests goodwill for impairment annually and
whenever events or circumstances make it more likely than not that an impairment
may have occurred. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of a reporting unit is
compared to its carrying value. If the carrying value of the net
assets assigned to a reporting unit exceeds the fair value of a reporting unit,
the second step of the impairment test is performed in order to determine the
implied fair value of a reporting unit’s goodwill. If the carrying
value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is
deemed impaired and is written down to the extent of the
difference.
In the second quarter of 2009, the
Company’s Imaging 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, the Company’s Imaging segment and its
competitors experienced significant declines in market value. As a
result, the Company concluded that there were sufficient factual circumstances
for interim impairment analyses under SFAS No. 142. Accordingly, in
the second quarter of 2009, the Company performed an assessment of goodwill for
impairment.
In the first step of the impairment
analysis, the Company performed valuation analyses utilizing both income and
market approaches to determine the fair value of its reporting
units. Under the income approach, the Company determined the fair
value based on estimated future cash flows discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent
risk of the Imaging segment and the rate of return an outside investor would
expect to earn. Estimated future cash flows were based on the
Company’s internal projection models, industry projections and other assumptions
deemed reasonable by management. Under the market-based approach, the
Company derived the fair value of its Imaging segment based on revenue multiples
of comparable publicly-traded peer companies. In the second step of
the impairment analysis, the Company determined the implied fair value of
goodwill for the Imaging segment by allocating the fair value of the segment to
all of its assets and liabilities in accordance with SFAS No. 141, “Business
Combinations,” as if the reporting unit had been acquired in a business
combination and the price paid to acquire it was the fair value.
Based on the results of the Company’s
assessment of goodwill for impairment, it was determined that the carrying value
of the Imaging segment exceeded its estimated fair value as of the end of the
second quarter of 2009. Therefore, the Company performed a
preliminary second step of the impairment test to estimate the implied fair
value of goodwill. The preliminary analysis indicated that there
would be no remaining implied value attributable to goodwill in the Imaging
segment and accordingly, the Company wrote off the $58 million of goodwill
associated with its Imaging segment in the second quarter of 2009. In
the third quarter of 2009, the Company finalized the second step of the
impairment analysis and the results confirmed that there was no implied value
attributable to goodwill in the Imaging segment.
Equity
Method Investments
The Company has a partnering
arrangement with Nanya Technology Corporation (“Nanya”) pursuant to which the
Company and Nanya jointly develop process technology and designs to manufacture
stack DRAM products. Each party generally bears its own development
costs and the Company’s development costs in the near term are expected to
exceed Nanya’s development costs by a significant amount. In
addition, the Company has transferred and licensed certain intellectual property
related to the manufacture of stack DRAM products to Nanya and licensed certain
intellectual property from Nanya. As a result, the Company is to
receive an aggregate of $207 million from Nanya through 2010. The
Company recognized $25 million and $79 million of license revenue in net sales
from this agreement in the third quarter and first nine months of 2009,
respectively, and since May 2008 through June 4, 2009, has recognized $115
million of cumulative license revenue. In addition, the Company
expects to receive royalties in future periods from Nanya for sales of stack
DRAM products manufactured by or for Nanya.
The Company has also partnered with
Nanya in investments in two Taiwan DRAM memory companies: Inotera
Memories, Inc. (“Inotera”) and MeiYa Technology Corporation
(“MeiYa”). As of June 4, 2009, the ownership of Inotera was held
35.6% by Nanya, 35.5% by the Company and the balance was publicly
held. As of June 4, 2009, the ownership of MeiYa was held 50% by
Nanya and 50% by the Company.
The Company has concluded that both
Inotera and MeiYa are variable interest entities as defined in FIN 46(R),
“Consolidation of Variable Interest Entities – an interpretation of ARB No. 51,”
because of the Inotera and MeiYa supply agreements with Micron and
Nanya. Nanya and the Company are considered related parties under the
provisions of FIN 46(R). The Company reviewed several factors to
determine whether it is the primary beneficiary of Inotera and MeiYa, including
the size and nature of the entities’ operations relative to Nanya and the
Company, nature of the day-to-day operations and certain other
factors. Based on those factors, the Company determined that Nanya is
most closely associated with, and therefore the primary beneficiary of, Inotera
and MeiYa. The Company accounts for its interests using the equity
method of accounting and does not consolidate these entities.
Inotera and MeiYa each have fiscal
years that end on December 31. The Company recognizes its share of
Inotera’s and MeiYa’s quarterly earnings or losses for the calendar quarter that
ends within the Company’s fiscal quarter. This results in the
recognition of the Company’s share of earnings or losses from these entities for
a period that lags the Company’s fiscal periods by approximately two
months.
Inotera:
In the first quarter of 2009, the Company acquired a 35.5% ownership interest in
Inotera, a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for
$398 million. The interest in Inotera was acquired for cash, a portion of
which was funded from loan proceeds of $200 million received by the Company from
Nan Ya Plastics Corporation, an affiliate of Nanya, and $85 million received
from Inotera. The loans were recorded at their fair values, which reflect
an aggregate discount of $31 million from their face amounts. This
aggregate discount was recorded as a reduction of the Company’s basis in its
investment in Inotera. The Company also capitalized $10 million of costs
and other fees incurred in connection with the acquisition. As a result of
the above transactions, total consideration for the Company’s equity investment
in Inotera was $377 million. The Company estimated that, as of the date of
acquisition, its proportionate share of Inotera’s equity was approximately $250
million higher than the Company’s total consideration of $377 million.
Substantially all of this difference will be amortized over the estimated
five-year weighted-average remaining useful life of Inotera’s production
equipment and facilities as of the acquisition date (the “Inotera
Amortization”). (See “Debt” note.)
In connection with the acquisition of
the shares in Inotera, the Company and Nanya entered into a supply agreement
with Inotera (the “Supply Agreement”) pursuant to which Inotera will sell trench
and stack DRAM products to the Company and Nanya. In addition, Inotera
charges the Company and Nanya for a portion of the costs associated with its
underutilized capacity. The Company has rights and obligations to purchase
up to 50% of Inotera’s wafer production capacity. Inotera’s actual wafer
production will vary from time to time based on market and other conditions and
its trench production capacity is expected to transition to the Company’s stack
process technology. The pricing formula in the Supply Agreement is based
on manufacturing costs and margins associated with the resale of purchased DRAM
products. Under the Supply Agreement, the Company will purchase 50% of
Inotera’s aggregate trench DRAM production (less the trench DRAM products sold
to Qimonda pursuant to a separate supply agreement between Inotera and Qimonda
(the “Qimonda Supply Agreement”)) and 50% of the aggregate stack DRAM
production. Under the Qimonda Supply Agreement, Qimonda was obligated to
purchase trench DRAM products resulting from wafers started for it by Inotera
through July 2009 in accordance with a ramp down schedule specified in the
Qimonda Supply Agreement. In the second quarter of 2009, Qimonda filed for
bankruptcy and defaulted on its obligations to purchase products from
Inotera.
The Company’s results of operations for
the third quarter of 2009 include a loss of $43 million for the Company’s share
of Inotera’s loss for the first calendar quarter of 2009. The Company’s
results of operations for the first nine months of 2009 includes losses of $99
million for the Company’s share of Inotera’s losses from the acquisition date
through the first calendar quarter of 2009. The losses recorded by the
Company in the third quarter and first nine months of 2009 are net of $15
million and $23 million, respectively, of amortization of the basis difference
referred to above as the Inotera Amortization. During the third quarter of
2009, the Company received $50 million from Inotera pursuant to the terms of a
technology transfer agreement. As of June 4, 2009, the carrying value
of the Company’s equity investment in Inotera was $236 million and is included
in equity method investments in the accompanying consolidated balance
sheet. As of June 4, 2009, the Company had recorded $18 million to
accumulated other comprehensive income in the accompanying consolidated balance
sheet for cumulative translation adjustments on its investment in
Inotera. Based on the closing trading price of Inotera’s shares on
June 4, 2009, the estimated market value of the Company’s shares in Inotera was
approximately $618 million.
Pursuant to the Company’s obligations
under the Supply Agreement, the Company recorded $15 million and $66 million of
charges in cost of goods sold in the third quarter and first nine months of 2009
related to underutilized capacity. As of June 4, 2009, accounts payable
and other accrued expenses included $33 million of amounts payable to
Inotera. As of June 4, 2009, the Company’s maximum exposure to loss on its
investment in Inotera equaled the $254 million recorded in the Company’s
consolidated balance sheet for its investment in Inotera. In addition, the
Company may incur further losses in connection with its obligations under the
Supply Agreement to purchase up to 50% of Inotera’s wafer production and for
charges for Inotera’s underutilized capacity.
MeiYa: In
the fourth quarter of 2008, the Company and Nanya formed MeiYa to manufacture
stack DRAM products and sell such products exclusively to the Company and
Nanya. As of June 4, 2009 and August 28, 2008, the carrying value of
the Company’s equity investment in MeiYa was $70 million and $84 million,
respectively, and is included in the consolidated balance sheets under the
caption of equity method investments. As of June 4, 2009, the Company
had recorded $8 million to accumulated other comprehensive income in the
accompanying consolidated balance sheet for cumulative translation adjustments
on its investment in MeiYa. In the third quarter and first nine
months of 2009, the Company recognized losses of $2 million and $7 million,
respectively, for its share of MeiYa’s results of operations for the three and
nine-month periods ended March 31, 2009, respectively. In addition,
during the first quarter of 2009, the Company received $50 million from MeiYa,
half of which was accounted for as a technology transfer fee and half as a
reduction of the Company’s investment in MeiYa. The Company
recognized $3 million and $10 million of licensing fee revenue in the third
quarter and first nine months of 2009, respectively. As of June 4,
2009, the Company had deferred income of $11 million related to the technology
transfer fee. As of June 4, 2009, accounts payable and accrued
expenses includes $51 million to reimburse MeiYa for technology transfer fees,
pursuant to the terms of the Company’s technology transfer agreement with
Inotera, under which the Company received $50 million during the third quarter
of 2009. In connection with the purchase of its ownership interest in
Inotera, the Company entered into a series of agreements with Nanya pursuant to
which both parties ceased future funding of, and resource commitments to,
MeiYa. As of June 4, 2009, the Company’s maximum exposure to loss on
its MeiYa investment equaled the $78 million recorded in the Company’s
consolidated balance sheet for its investment in MeiYa.
Accounts
Payable and Accrued Expenses
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
483 |
|
|
$ |
597 |
|
Customer
advances
|
|
|
169 |
|
|
|
130 |
|
Salaries, wages and
benefits
|
|
|
151 |
|
|
|
244 |
|
Payable to equity method
investees
|
|
|
86 |
|
|
|
-- |
|
Income and other
taxes
|
|
|
38 |
|
|
|
27 |
|
Other
|
|
|
110 |
|
|
|
113 |
|
|
|
$ |
1,037 |
|
|
$ |
1,111 |
|
As of June 4, 2009 and August 28, 2008,
customer advances included $167 million and $129 million, respectively, for the
Company’s obligation through December 2010 to provide certain NAND Flash memory
products to Apple Inc. (“Apple”) pursuant to a prepaid NAND Flash supply
agreement. An additional $83 million related to this obligation was
included in other noncurrent liabilities as of August 28, 2008. As of
June 4, 2009 and August 28, 2008, other accounts payable and accrued expenses
included $23 million and $16 million, respectively, for amounts due to Intel for
NAND Flash product design and process development and licensing fees pursuant to
a research and development cost-sharing arrangement. (See “Equity
Method Investments” note.)
Debt
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Convertible senior notes payable,
interest rate of 1.875%, due June 2014
|
|
$ |
1,300 |
|
|
$ |
1,300 |
|
TECH credit facility, effective
interest rates of 4.1% and 5.0% , respectively, net of discount of $2
million and $3 million, respectively, due in periodic installments through
May 2012
|
|
|
573 |
|
|
|
597 |
|
Capital lease obligations,
weighted-average imputed interest rate of 6.6%, due in monthly
installments through February 2023
|
|
|
564 |
|
|
|
657 |
|
Convertible senior notes payable,
interest rate of 4.25%, due October 2013
|
|
|
230 |
|
|
|
-- |
|
EDB notes payable, interest rate
of 5.4%, due February 2012
|
|
|
207 |
|
|
|
-- |
|
Nan Ya Plastics notes payable,
effective imputed interest rate of 12.1%, net of discount of $21 million,
due November 2010
|
|
|
179 |
|
|
|
-- |
|
Convertible subordinated notes
payable, interest rate of 5.6%, due April 2010
|
|
|
70 |
|
|
|
70 |
|
Notes payable, weighted-average
effective interest rates of 9.5% and 1.6%, respectively, due in periodic
installments through July 2015
|
|
|
1 |
|
|
|
102 |
|
|
|
|
3,124 |
|
|
|
2,726 |
|
Less current
portion
|
|
|
(372 |
) |
|
|
(275 |
) |
|
|
$ |
2,752 |
|
|
$ |
2,451 |
|
As of June 4, 2009, notes payable and
capital lease obligations above included an aggregate of $289 million,
denominated in Singapore dollars, at a weighted-average interest rate of
5.5%.
On April 15, 2009, the Company issued
$230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25%
Senior Notes”). Issuance costs for the 4.25% Senior Notes totaled $7
million. The initial conversion rate for the 4.25% Senior Notes is
196.7052 shares of common stock per $1,000 principal amount, equivalent to
approximately $5.08 per share of common stock, and is subject to adjustment upon
the occurrence of certain events specified in the indenture for the 4.25% Senior
Notes. Holders of the 4.25% Senior Notes may convert them at any time
prior to October 15, 2013. If there is a change in control, as
defined in the indenture, in certain circumstances the Company may pay a
make-whole premium by increasing the conversion rate to holders that convert
their 4.25% Senior Notes in connection with such make-whole changes in
control. The Company may not redeem the 4.25% Senior Notes prior to
April 20, 2012. On or after April 20, 2012, the Company may redeem
for cash all or part of the 4.25% Senior Notes if the closing price of its
common stock has been at least 135% of the conversion price for at least 20
trading days during a 30 consecutive trading day period. The
redemption price will equal 100% of the principal amount plus a make-whole
premium equal to the present value of the remaining interest payments from the
redemption date to the date of maturity of the 4.25% Senior
Notes. Upon a change in control or a termination of trading, the
Company may be required to repurchase for cash all or a portion of the 4.25%
Senior Notes at a repurchase price equal to 100% of the principal plus any
accrued and unpaid interest to, but excluding, the repurchase date.
On February 23, 2009, the Company
entered into a term loan agreement with the Singapore Economic Development Board
(“EDB”) enabling the Company to borrow up to $300 million Singapore dollars at
5.38%. The terms of the loan agreement require the Company to use the
proceeds from any borrowings under the agreement to make equity contributions to
its joint venture subsidiary, TECH Semiconductor Singapore Pte. Ltd.
(“TECH”). The loan agreement further requires that TECH use the
proceeds from the Company’s equity contributions to purchase production assets
and meet certain production milestones related to the implementation of advanced
process manufacturing. The loan contains a covenant that limits the
amount of indebtedness TECH can incur without approval from the
EDB. The loan is collateralized by the Company’s shares in TECH up to
a maximum of 66% of TECH’s outstanding shares. The Company drew $150
million Singapore dollars under the facility on February 27, 2009 and another
$150 million Singapore dollars on June 2, 2009 (aggregate of $207 million U.S.
dollars as of June 4, 2009), which is due in February 2012 with interest payable
quarterly.
In the first quarter of 2009, in
connection with its purchase of a 35.5% interest in Inotera, the Company entered
into a two-year, variable-rate term loan with Nan Ya Plastics and received loan
proceeds of $200 million. Under the terms of the loan agreement,
interest is payable quarterly at LIBOR plus 2%. The interest rate
resets quarterly and was 2.7% per annum as of June 4, 2009. The
Company recorded the debt in the first quarter of 2009 net of a discount of $28
million, which is recognized as interest expense over the life of the loan,
based on an imputed interest rate of 12.1%. The loan is
collateralized by a first priority security interest in the Inotera shares owned
by the Company (approximate carrying value of $261 million as of June 4,
2009). (See “Equity Method Investments” note.)
Also in the first quarter of 2009, in
connection with its purchase of a 35.5% interest in Inotera, the Company entered
into a six-month, variable-rate term loan with Inotera and received loan
proceeds of $85 million, which was repaid with accrued interest in the third
quarter of 2009. The Company imputed an interest rate of 11.6% and
recorded the debt net of a discount of $3 million, which was recognized as
interest expense over the term of the loan. (See “Equity Method
Investments” note.)
Several of the Company’s credit
facilities, one of which was modified during the second quarter of 2009, have
covenants which require the Company to maintain minimum levels of tangible net
worth and cash and investments. As of June 4, 2009, the Company was
in compliance with its debt covenants.
Contingencies
The Company has accrued a liability and
charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date,
including those described below. The Company is currently a party to
other legal actions arising out of the normal course of business, none of which
is expected to have a material adverse effect on the Company’s business, results
of operations or financial condition.
In the normal course of business, the
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party. It is not possible to predict
the maximum potential amount of future payments under these types of agreements
due to the conditional nature of the Company’s obligations and the unique facts
and circumstances involved in each particular
agreement. Historically, payments made by the Company under these
types of agreements have not had a material effect on the Company’s business,
results of operations or financial condition.
The Company is involved in the
following patent, antitrust and securities matters.
Patent
Matters: As is typical in the semiconductor and other high
technology industries, from time to time, others have asserted, and may in the
future assert, that the Company’s products or manufacturing processes infringe
their intellectual property rights. In this regard, the Company is
engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of
Rambus’ patents and certain of the Company’s claims and
defenses. Lawsuits between Rambus and the Company are pending in the
U.S. District Court for the District of Delaware, U.S. District Court for the
Northern District of California, Germany, France, and Italy. On
January 9, 2009, the Delaware Court entered an opinion in favor of the Company
holding that Rambus had engaged in spoliation and that the twelve Rambus patents
in the suit were unenforceable against the Company. Rambus
subsequently appealed the decision to the U.S. Court of Appeals for the Federal
Circuit. That appeal is pending. In the U.S. District
Court for the Northern District of California, trial on a patent phase of the
case has been stayed pending resolution of Rambus' appeal of the Delaware
spoliation decision or further order of the California Court.
On March 6, 2009, Panavision Imaging,
LLC filed suit against the Company and Aptina Imaging Corporation, a subsidiary
of the Company (“Aptina”), in the U.S. District Court for the Central District
of California. The complaint alleges that certain of the Company and
Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and
seeks injunctive relief, damages, attorneys’ fees, and costs.
On March 24, 2009, Accolade
Systems LLC filed suit against the Company and Aptina in the U.S. District Court
for the Eastern District of Texas alleging that certain of the Company and
Aptina’s image sensor products infringe one Accolade Systems U.S.
patent. The complaint seeks injunctive relief, damages, attorneys’
fees, and costs.
On July 24, 2006, the Company filed a
declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the
U.S. District Court for the Northern District of California seeking, among other
things, a court determination that fourteen Mosaid patents are invalid, not
enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a
lawsuit against the Company and others in the U.S. District Court for the
Eastern District of Texas alleging infringement of nine Mosaid
patents. On August 31, 2006, Mosaid filed an amended complaint adding
three additional Mosaid patents. On January 31, 2009, the Company and
Mosaid agreed to dismiss the litigation, granting the Company a license under
certain Mosaid patents, and transferring certain Company patents to
Mosaid.
Among other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM,
RLDRAM and image sensor products, which account for a significant portion of net
sales.
The Company is unable to predict the
outcome of assertions of infringement made against the Company and therefore
cannot estimate the range of possible loss. A court determination
that the Company’s products or manufacturing processes infringe the intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect
on the Company’s business, results of operations or financial
condition.
Antitrust
Matters: At least sixty-eight purported class action
price-fixing lawsuits have been filed against the Company and other DRAM
suppliers in various federal and state courts in the United States and in Puerto
Rico on behalf of indirect purchasers alleging price-fixing in violation of
federal and state antitrust laws, violations of state unfair competition law,
and/or unjust enrichment relating to the sale and pricing of DRAM products
during the period from April 1999 through at least June 2002. The
complaints seek joint and several damages, trebled, in addition to restitution,
costs and attorneys’ fees. A number of these cases have been removed
to federal court and transferred to the U.S. District Court for the Northern
District of California for consolidated pre-trial proceedings. On
January 29, 2008, the Northern District of California court granted in part and
denied in part the Company’s motion to dismiss plaintiffs’ second amended
consolidated complaint. Plaintiffs subsequently filed a motion
seeking certification for interlocutory appeal of the decision. On
February 27, 2008, plaintiffs filed a third amended complaint. On
June 26, 2008, the United States Court of Appeals for the Ninth Circuit agreed
to consider plaintiffs’ interlocutory appeal.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Thereafter, three states, Ohio, New Hampshire, and Texas,
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware,
Kentucky, and Vermont subsequently voluntarily dismissed their
claims. The amended complaint alleges, among other things, violations
of the Sherman Act, Cartwright Act, and certain other states’ consumer
protection and antitrust laws and seeks joint and several damages, trebled, as
well as injunctive and other relief. Additionally, on July 13, 2006,
the State of New York filed a similar suit in the U.S. District Court for the
Southern District of New York. That case was subsequently transferred
to the U.S. District Court for the Northern District of California for pre-trial
purposes. The State of New York filed an amended complaint on October
1, 2007. On October 3, 2008, the California Attorney General filed a
similar lawsuit in California Superior Court, purportedly on behalf of local
California government entities, alleging, among other things, violations of the
Cartwright Act and state unfair competition law.
Three purported class action DRAM
lawsuits also have been filed against the Company in Quebec, Ontario, and
British Columbia, Canada, on behalf of direct and indirect purchasers, alleging
violations of the Canadian Competition Act. The substantive
allegations in these cases are similar to those asserted in the DRAM antitrust
cases filed in the United States. Plaintiffs’ motion for class
certification was denied in the British Columbia and Quebec cases in May and
June 2008, respectively. Plaintiffs subsequently filed an appeal of
each of those decisions. Those appeals are pending.
In February and March 2007, All
American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers
in the U.S. District Court for the Northern District of California after
opting-out of a direct purchaser class action suit that was
settled. The complaints allege, among other things, violations of
federal and state antitrust and competition laws in the DRAM industry, and seek
joint and several damages, trebled, as well as restitution, attorneys’ fees,
costs and injunctive relief.
On October 11, 2006, the Company
received a grand jury subpoena from the U.S. District Court for the Northern
District of California seeking information regarding an investigation by the
U.S. Department of Justice (“DOJ”) into possible antitrust violations in the
“Static Random Access Memory” or “SRAM” industry. In December 2008,
the Company was informed that the DOJ closed its investigation of the SRAM
industry.
Subsequent to the issuance of subpoenas
to the SRAM industry, a number of purported class action lawsuits have been
filed against the Company and other SRAM suppliers. Six 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
purchased SRAM directly from various SRAM suppliers during the period from
November 1, 1996 through December 31, 2005. Additionally, at least 74
cases have been filed in various U.S. district courts asserting claims on behalf
of a purported class of individuals and entities that indirectly purchased SRAM
and/or products containing SRAM from various SRAM suppliers during the time
period from November 1, 1996 through December 31, 2006. In September
2008, a class of direct purchasers was certified, and plaintiffs were granted
leave to amend their complaint to cover Pseudo-Static RAM or “PSRAM” products as
well. The complaints allege price fixing in violation of federal
antitrust laws and state antitrust and unfair competition laws and seek treble
monetary damages, restitution, costs, interest and attorneys’
fees. On March 19, 2009, the Company executed settlement agreements
with both the direct purchaser class and the purported indirect purchaser
class. If approved by the Court, the agreements would resolve the
pending U.S. class action SRAM litigation against the Company and release the
Company from those claims.
Three purported class action SRAM
lawsuits also have been filed against the Company in Canada, on behalf of direct
and indirect purchasers, alleging violations of the Canadian Competition
Act. The substantive allegations in these cases are similar to those
asserted in the SRAM cases filed in the United States.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers. The complaint
alleges various causes of action under California state law including conspiracy
to restrict output and fix prices of Rambus DRAM (“RDRAM”) and unfair
competition. Trial is currently scheduled to begin in September
2009. The complaint seeks joint and several damages, trebled,
punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining
the defendants from the conduct alleged in the complaint.
The Company is unable to predict the
outcome of these lawsuits and investigations and therefore cannot estimate the
range of possible loss. The final resolution of these alleged
violations of antitrust laws could result in significant liability and could
have a material adverse effect on the Company’s business, results of operations
or financial condition.
Securities
Matters: On February 24, 2006, a putative class action
complaint was filed against the Company and certain of its officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of the Company’s stock
during the period from February 24, 2001 to September 18, 2002.
In addition, on March 23, 2006, a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Supreme Court. That appeal is pending.
The Company is unable to predict the
outcome of these cases and therefore cannot estimate the range of possible
loss. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Shareholders’
Equity
Issuance of
common stock: On April 15, 2009, the
Company issued 69.3 million shares of common stock for $4.15 per share in a
public offering. The Company received net proceeds of $276 million
after deducting underwriting fees and other offering costs of $12
million.
Capped call
transactions: Concurrent with the offering of the 4.25% Senior
Notes on April 15, 2009, the Company entered into capped call transactions (the
“2009 Capped Calls”) that have an initial strike price of approximately $5.08
per share, subject to certain adjustments, which was set to equal initial
conversion price of the 4.25% Senior Notes. The 2009 Capped Calls
have a cap price of $6.64 per share and cover an approximate combined total of
45.2 million shares of common stock, and are subject to standard adjustments for
instruments of this type. The 2009 Capped Calls are intended to
reduce the potential dilution upon conversion of the 4.25% Senior
Notes. If, however, the market value per share of the common stock,
as measured under the terms of the 2009 Capped Calls, exceeds the applicable cap
price of the 2009 Capped Calls, there would be dilution to the extent that the
then market value per share of the common stock exceeds the cap
price. The 2009 Capped Calls expire in October and November of
2012. The Company paid approximately $25 million to purchase the 2009
Capped Calls which was recorded as a charge to additional capital.
Fair
Value Measurements
SFAS No. 157 establishes three levels
of inputs that may be used to measure fair value: quoted prices in active
markets for identical assets or liabilities (referred to as Level 1), observable
inputs other than Level 1 that are observable for the asset or liability either
directly or indirectly (referred to as Level 2) and unobservable inputs to the
valuation methodology that are significant to the measurement of fair value of
assets or liabilities (referred to as Level 3).
Fair value
measurements on a recurring basis: Assets measured at fair value on a
recurring basis as of June 4, 2009 were as follows:
|
|
Level
1
|
|
|
Level
2
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Money
market(1)
|
|
$ |
1,061 |
|
|
$ |
-- |
|
|
$ |
1,061 |
|
Certificates
of deposit(2)
|
|
|
-- |
|
|
|
216 |
|
|
|
216 |
|
Marketable
equity investments(3)
|
|
|
11 |
|
|
|
-- |
|
|
|
11 |
|
|
|
$ |
1,072 |
|
|
$ |
216 |
|
|
$ |
1,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Included in cash and
equivalents
|
|
(2)$185 million included in
cash and equivalents and $31 million
included in other noncurrent assets
|
|
(3)Included in other noncurrent
assets
|
|
Level 2 assets are valued using
observable inputs in active markets for similar assets or alternative pricing
sources and models utilizing market observable inputs. During the
first quarter of 2009, the Company recognized an other-than-temporary impairment
of $7 million for marketable equity instruments.
Fair value
measurements on a nonrecurring basis: As of June 4, 2009, non-marketable
equity investments of $7 million were valued using Level 3 inputs. In
the third quarter and first nine months of 2009, the Company identified events
and circumstances that indicated the fair value of certain non-marketable equity
investments sustained an other-than-temporary declines in value and recognized
charges of $5 million and $8 million, respectively, to write down the carrying
values of these investments to their estimated fair values. The fair
value measurements were determined using market multiples derived from
industry-comparable companies which were classified as Level 3 inputs as they
were unobservable and required management’s judgment due to the absence of
quoted market prices, inherent lack of liquidity and the long-term nature of
such investments.
During the first quarter of 2009, the
Company recorded loans with Nan Ya Plastics and Inotera at fair value because
the stated interest rates were substantially lower than the prevailing rates for
loans with comparable terms and collateral and for borrowers with similar credit
ratings. In the third quarter of 2009, the Company repaid the loan to
Inotera. During the second quarter of 2009, the Company recorded
other noncurrent contractual liabilities at fair values of $36 million (net of
$39 million of discounts) based on prevailing rates for comparable
obligations. The fair values of these obligations were determined
based on discounted cash flows using inputs that are observable in the market or
that could be derived from or corroborated with observable market data, as well
as significant unobservable inputs (Level 3), including interest rates based on
published rates for transactions involving parties with similar credit ratings
as the Company. (See “Debt” note.)
Equity
Plans
As of June 4, 2009, the Company had an
aggregate of 196.2 million shares of its common stock reserved for issuance
under various equity plans, of which 128.4 million shares were subject to
outstanding stock awards and 67.8 million shares were available for future
grants. Awards are subject to terms and conditions as determined by
the Company’s Board of Directors.
Stock
options: The Company granted 0.3 million and 21.1 million
stock options during the third quarter and first nine months of 2009,
respectively, with weighted-average grant-date fair values per share of $2.70
and $1.67, respectively. The Company granted 0.4 million and 6.9
million stock options during the third quarter and first nine months of 2008,
respectively, with weighted-average grant-date fair values per share of $2.67
and $2.54, respectively.
The fair values of option awards were
estimated as of the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable and requires the input of subjective assumptions, including
the expected stock price volatility and estimated option life. The
expected volatilities utilized by the Company were based on implied volatilities
from traded options on the Company’s stock and on historical
volatility. The expected lives of options granted in 2009 were based,
in part, on historical experience and on the terms and conditions of the
options. The expected lives of options granted prior to 2009 were
based on the simplified method provided by the Securities and Exchange
Commission. The risk-free interest rates utilized by the Company were
based on the U.S. Treasury yield in effect at the time of the
grant. No dividends were assumed in the Company’s estimated option
values. Assumptions used in the Black-Scholes model are presented
below:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average expected life in
years
|
|
|
5.02 |
|
|
|
4.25 |
|
|
|
4.91 |
|
|
|
4.25 |
|
Weighted-average expected
volatility
|
|
|
71 |
% |
|
|
48 |
% |
|
|
73 |
% |
|
|
46 |
% |
Weighted-average risk-free
interest rate
|
|
|
1.9 |
% |
|
|
2.5 |
% |
|
|
1.9 |
% |
|
|
2.9 |
% |
Restricted
stock: The Company awards restricted stock and restricted
stock units (collectively, “Restricted Awards”) under its equity
plans. During the third quarter of 2008, the Company granted 0.6
million and 0.1 million shares of service-based and performance-based Restricted
Awards, respectively. During the first nine months of 2009 and 2008,
the Company granted 1.9 million and 4.2 million shares, respectively, of
service-based Restricted Awards, and 1.7 million and 1.4 million shares,
respectively, of performance-based Restricted Awards. The
weighted-average grant-date fair values per share were $4.40 for Restricted
Awards granted during the first nine months of 2009, and $7.56 and $8.42 for
Restricted Awards granted during the third quarter and first nine months of
2008, respectively.
Stock-based
compensation expense: Total compensation costs for the
Company’s equity plans were as follows:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by caption:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
12 |
|
|
$ |
11 |
|
Selling, general and
administrative
|
|
|
4 |
|
|
|
6 |
|
|
|
12 |
|
|
|
18 |
|
Research and
development
|
|
|
4 |
|
|
|
4 |
|
|
|
10 |
|
|
|
11 |
|
|
|
$ |
12 |
|
|
$ |
14 |
|
|
$ |
34 |
|
|
$ |
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
22 |
|
|
$ |
19 |
|
Restricted
stock
|
|
|
5 |
|
|
|
7 |
|
|
|
12 |
|
|
|
21 |
|
|
|
$ |
12 |
|
|
$ |
14 |
|
|
$ |
34 |
|
|
$ |
40 |
|
As of June 4, 2009, $85 million of
total unrecognized compensation costs related to non-vested awards was expected
to be recognized through the third quarter of 2013, resulting in a
weighted-average period of 1.2 years. Stock-based compensation
expense in the above presentation does not reflect any significant income taxes,
which is consistent with the Company’s treatment of income or loss from its U.S.
operations. (See “Income Taxes” note.)
Restructure
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, the Company
initiated restructure plans in 2009 primarily attributable to the Company’s
Memory segment. In the first quarter of 2009, IM Flash, a joint
venture between the Company and Intel, terminated its agreement with the Company
to obtain NAND Flash memory supply from the Company’s Boise facility, reducing
the Company’s NAND Flash production by approximately 35,000 200mm wafers per
month. In addition, the Company and Intel agreed to suspend tooling
and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication
facility. In the second quarter of 2009, the Company announced that
it would phase out all remaining 200mm wafer manufacturing operations at its
Boise, Idaho by the end of 2009. Excluding any gains or additional
losses from disposition of equipment, the Company expects to incur additional
restructure costs through the end of 2009 of approximately $7 million, comprised
primarily of severance and other employee related costs. The
following table summarizes restructure charges (credits) resulting from the
Company’s 2009 restructure activities:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
June
4,
2009
|
|
|
|
|
|
|
|
|
Write-down
of equipment
|
|
$ |
7 |
|
|
$ |
150 |
|
Severance
and other termination benefits
|
|
|
11 |
|
|
|
50 |
|
Gain
from termination of NAND Flash supply agreement
|
|
|
-- |
|
|
|
(144 |
) |
Other
|
|
|
1 |
|
|
|
2 |
|
|
|
$ |
19 |
|
|
$ |
58 |
|
During the third quarter and first nine
months of 2009, the Company made cash payments of $18 million and $51 million,
respectively, for severance and other termination benefits. As of
June 4, 2009, $7 million of restructure costs, primarily related to severance
and other termination benefits, remained unpaid and were included in accounts
payable and accrued expenses. In connection with the termination of
the NAND Flash memory supply agreement with IM Flash, in the first quarter of
2009, the Company recorded a receivable from Intel of $208 million that was
settled in the second quarter of 2009.
Under a previous restructure plan
initiated in the fourth quarter of 2007, the Company recorded charges of $8
million and $29 million for the third quarter and first nine months of 2008,
respectively, for severance and other employee-related costs and to write down
certain facilities to their fair values.
Other
Operating (Income) Expense, Net
Other operating (income) expense for
the third quarter of 2009 included a loss of $53 million to write down the
carrying value of certain long-lived assets classified as held for sale in
connection with the Company’s sale of a majority interest in its Aptina imaging
solutions business. Other operating (income) expense for the third
quarter and first nine months of 2009 included losses of $12 million and $55
million, respectively, on disposals of semiconductor equipment and losses of $28
million and $25 million, respectively, from changes in currency exchange
rates. Other operating (income) expense for the third quarter and
first nine months of 2008 included gains of $13 million and $70 million,
respectively, on disposals of semiconductor equipment. Other
operating (income) expense for the first nine months of 2008 included a gain of
$38 million for receipts from the U.S. government in connection with
anti-dumping tariffs received in the first quarter of 2008 and losses of $33
million from changes in currency exchange rates. (See “Aptina Imaging
Corporation” note.)
Income
Taxes
Income taxes for 2009 and 2008
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2009 and 2008 was substantially offset
by changes in the valuation allowance.
Earnings
Per Share
Basic earnings per share is computed
based on the weighted-average number of common shares and stock rights
outstanding. Diluted earnings per share is computed based on the
weighted-average number of common shares outstanding plus the dilutive effects
of stock options and convertible notes. Potential common shares that
would increase earnings per share amounts or decrease loss per share amounts are
antidilutive and are therefore excluded from earnings per share
calculations. Antidilutive potential common shares that could dilute
basic earnings per share in the future were 271.2 million for the third quarter
and first nine months of 2009 and 223.8 million for the third quarter and first
nine months of 2008.
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$ |
(290 |
) |
|
$ |
(236 |
) |
|
$ |
(1,747 |
) |
|
$ |
(1,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
813.3 |
|
|
|
772.8 |
|
|
|
786.5 |
|
|
|
772.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.36 |
) |
|
$ |
(0.30 |
) |
|
$ |
(2.22 |
) |
|
$ |
(1.65 |
) |
Diluted
|
|
|
(0.36 |
) |
|
|
(0.30 |
) |
|
|
(2.22 |
) |
|
|
(1.65 |
) |
Comprehensive
Income (Loss)
Comprehensive loss for the third
quarter of 2009 was ($309) million and included ($22) million, net of tax, from
the change in cumulative translation adjustments for the Company’s equity method
investments and $3 million, net of tax, of unrealized gains on investments.
Comprehensive loss for the first nine months of 2009 was ($1,765) million and
included ($26) million, net of tax, from the change in cumulative translation
adjustments for the Company’s equity method investments and $7 million, net of
tax, of unrealized gains on investments. Comprehensive loss for the
third quarter and first nine months of 2008 was ($244) million and ($1,282)
million, respectively, and included ($8) million and ($7) million net of tax,
respectively, of unrealized losses on investments.
Consolidated
Variable Interest Entities
NAND Flash joint
ventures with Intel (“IM Flash”): The Company has formed two
joint ventures with Intel (IM Flash Technologies, LLC formed January 2006 and IM
Flash Singapore LLP formed February 2007) to manufacture NAND Flash memory
products for the exclusive benefit of the partners. IMFT and IMFS are
each governed by a Board of Managers, with Micron and Intel initially appointing
an equal number of managers to each of the boards. The number of
managers appointed by each party adjusts depending on the parties’ ownership
interests. These ventures will operate until 2016 but are subject to
prior termination under certain terms and conditions. IMFT and IMFS
are aggregated as IM Flash in the following disclosure due to the similarity of
their ownership structure, function, operations and the way the Company’s
management reviews the results of their operations. At inception and
through June 4, 2009, the Company owned 51% and Intel owned 49% of IM
Flash.
IM Flash is a variable interest entity
as defined by FIN 46(R) because all costs of IM Flash are passed to the Company
and Intel through purchase agreements. IM Flash is dependent upon the
Company and Intel for any additional cash requirements. The Company
and Intel are also considered related parties under the provisions of FIN
46(R). As a result, the primary beneficiary of IM Flash is the entity
that is most closely associated with IM Flash. The Company considered
several factors to determine whether it or Intel is most closely associated with
IM Flash, including the size and nature of IM Flash’s operations relative to the
Company and Intel, and which entity had the majority of economic exposure under
the purchase agreements. Based on those factors, the Company
determined that it is most closely associated with IM Flash and is therefore the
primary beneficiary. Accordingly, the financial results of IM Flash
are included in the Company’s consolidated financial statements and all amounts
pertaining to Intel’s interests in IM Flash are reported as noncontrolling
interests in subsidiaries. (See “Business and Significant Accounting
Policies” note.)
IM Flash manufactures NAND Flash memory
products based on NAND Flash designs developed by the Company and Intel and
licensed to the Company. Product design and other research and
development (“R&D”) costs for NAND Flash are generally shared equally
between the Company and Intel. As a result of reimbursements received
from Intel under a NAND Flash R&D cost-sharing arrangement, the Company’s
R&D expenses were reduced by $26 million and $83 million for the third
quarter and first nine months of 2009, respectively, and $34 million and $116
million for the third quarter and first nine months of 2008,
respectively.
IM Flash sells products to the joint
venture partners generally in proportion to their ownership at long-term
negotiated prices approximating cost. IM Flash sales to Intel were
$195 million and $728 million for the third quarter and first nine months of
2009, respectively, and $280 million and $744 million for the third quarter and
first nine months of 2008, respectively. As of June 4, 2009 and
August 28, 2008, IM Flash had receivables from Intel primarily for sales of NAND
Flash products of $124 million and $144 million, respectively. In
addition, as of June 4, 2009 and August 28, 2008, the Company had receivables
from Intel of $61 million and $71 million, respectively, related to NAND Flash
product design and process development activities. As of June 4, 2009
and August 28, 2008, IM Flash had payables to Intel of $1 million and $4
million, respectively, for various services.
Under the terms of a wafer supply
agreement, the Company manufactured wafers for IM Flash in its Boise, Idaho
facility. In the first quarter of 2009, the Company and Intel agreed
to discontinue production of NAND flash memory for IM Flash at the Boise
facility. Pursuant to the terms of the termination agreement, the
Company received $208 million from Intel in the second quarter of
2009. Also in the first quarter of 2009, IM Flash substantially
completed construction of a new 300mm wafer fabrication facility structure in
Singapore and the Company and Intel agreed to suspend tooling and the ramp of
production at this facility.
IM Flash distributed $119 million and
$582 million to Intel in the third quarter and first nine months of 2009,
respectively, and $124 million and $606 million to the Company in the third
quarter and first nine months of 2009, respectively. IM Flash
distributed $92 million to Intel in the third quarter and first nine months of
2008, and $95 million to the Company in the third quarter and first nine months
of 2008. In the first nine months of 2009, Intel contributed $24
million and the Company contributed $25 million to IM Flash. In the
third quarter and first nine months of 2008, Intel contributed $103 million and
$295 million, respectively, to IM Flash and the Company contributed $108 million
and $308 million, respectively, to IM Flash. The Company’s ability to
access IM Flash’s cash and marketable investment securities ($145 million as of
June 4, 2009) to finance the Company’s other operations is subject to agreement
by the joint venture partners.
Total IM Flash assets and liabilities
included in the Company’s consolidated balance sheets are as
follows:
As
of
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
145 |
|
|
$ |
393 |
|
Receivables
|
|
|
143 |
|
|
|
169 |
|
Inventories
|
|
|
152 |
|
|
|
225 |
|
Other
current assets
|
|
|
4 |
|
|
|
14 |
|
Total current
assets
|
|
|
444 |
|
|
|
801 |
|
Property,
plant and equipment, net
|
|
|
3,559 |
|
|
|
3,998 |
|
Other
assets
|
|
|
64 |
|
|
|
58 |
|
Total assets
|
|
$ |
4,067 |
|
|
$ |
4,857 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
99 |
|
|
$ |
166 |
|
Deferred
income
|
|
|
139 |
|
|
|
67 |
|
Equipment
purchase contracts
|
|
|
-- |
|
|
|
18 |
|
Current
portion of long-term debt
|
|
|
6 |
|
|
|
5 |
|
Total current
liabilities
|
|
|
244 |
|
|
|
256 |
|
Long-term
debt
|
|
|
67 |
|
|
|
38 |
|
Other
liabilities
|
|
|
4 |
|
|
|
5 |
|
Total
liabilities
|
|
$ |
315 |
|
|
$ |
299 |
|
|
|
|
|
|
|
|
|
|
Amounts exclude intercompany
balances that are eliminated in consolidation of the Company’s
consolidated balance sheets. IMFT and IMFS are aggregated
as IM Flash in this disclosure due to the similarity of their ownership
structure, function, operations and the way the Company’s management
reviews the results of their operations.
|
|
The creditors of IM Flash have recourse
only to the assets of IM Flash and do not have recourse to any other assets of
the Company.
MP Mask
Technology Center, LLC (“MP Mask”): In 2006, the Company
formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce
photomasks for leading-edge and advanced next generation
semiconductors. At inception and through June 4, 2009, the Company
owned 50.01% and Photronics owned 49.99% of MP Mask. The Company
purchases a substantial majority of the reticles produced by MP Mask pursuant to
a supply arrangement. In connection with the formation of the joint
venture, the Company received $72 million in 2006 in exchange for entering into
a license agreement with Photronics, which is being recognized over the term of
the 10-year agreement. As of June 4, 2009, deferred income and other
noncurrent liabilities included an aggregate of $50 million related to this
agreement. MP Mask made distributions to both the Company and
Photronics of $5 million and $10 million each in the third quarter and first
nine months of 2009, respectively.
MP Mask is a variable interest entity
as defined by FIN 46(R) because all costs of MP Mask are passed on to the
Company and Photronics through purchase agreements and MP Mask is dependent upon
the Company and Photronics for any additional cash requirements. The
Company and Photronics are also considered related parties under the provisions
of FIN 46(R). As a result, the primary beneficiary of MP Mask is the
entity that is most closely associated with MP Mask. The Company
considered several factors to determine whether it or Photronics is more closely
associated with the joint venture. The most important factor was the
nature of the joint venture’s operations relative to the Company and
Photronics. Based on those factors, the Company determined that it
most closely associated with the joint venture and therefore it is the primary
beneficiary. Accordingly, the financial results of MP Mask are
included in the Company’s consolidated financial statements and all amounts
pertaining to Photonics’ interest in MP Mask are reported as noncontrolling
interests in subsidiaries. (See “Business and Significant Accounting
Policies” note.)
Total MP Mask assets and liabilities
included in the Company’s consolidated balance sheets are as
follows:
As
of
|
|
June
4,
2009
|
|
|
August
28,
2008
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
20 |
|
|
$ |
27 |
|
Noncurrent
assets (primarily property, plant and equipment)
|
|
|
103 |
|
|
|
121 |
|
Current
liabilities
|
|
|
10 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Amounts
exclude intercompany balances that are eliminated in consolidation of the
Company’s consolidated balance sheets.
|
|
The creditors of MP Mask have recourse
only to the assets of MP Mask and do not have recourse to any other assets of
the Company.
In 2008, the Company completed the
construction of a facility to produce photomasks and sold the facility to
Photronics under a build to suit lease agreement, with quarterly payments
through January 2013. On May 19, 2009, the Company and Photronics
entered into an agreement whereby the Company repurchased the facility from
Photronics for $50 million and leased the facility to Photronics under an
operating lease providing for quarterly lease payments aggregating $41 million
through October 2014.
TECH
Semiconductor Singapore Pte. Ltd.
Since 1998, the Company has
participated in TECH Semiconductor Singapore Pte. Ltd. (“TECH”), a semiconductor
memory manufacturing joint venture in Singapore among the Company, Canon Inc.
and Hewlett-Packard Company (“HP”). The financial results of TECH are
included in the Company’s consolidated financial statements and all amounts
pertaining to Canon Inc. and HP are reported as noncontrolling interests in
subsidiaries.
In the second quarter of 2009, the
Company entered into a term loan agreement with the EDB that enabled the Company
to borrow up to $300 million Singapore dollars at 5.38%. The Company
is required to use the proceeds from any borrowings under the facility to make
equity contributions to TECH. On February 27, 2009, the Company drew
$150 million Singapore dollars under the facility and used the proceeds to
purchase 85.1 million shares of TECH for $99 million. On June 2,
2009, the Company drew the remaining $150 million Singapore dollars under the
facility and purchased an additional 282.0 million shares of TECH for $99
million. As a result, the Company’s interest in TECH increased from
approximately 73% to approximately 76% by the February 2009 share purchase and
to approximately 83% by the June 2009 share purchase. As a result of
the share purchases, the Company reduced noncontrolling interests by $69
million. Because the cost of the noncontrolling interest acquired was
below carrying value, the Company’s carrying value for TECH’s property, plant
and equipment was also reduced $69 million. (See “Debt”
note.)
TECH’s cash and marketable investment
securities ($175 million as of June 4, 2009) are not anticipated to be available
to finance the Company’s other operations. As of June 4, 2009, TECH
had $573 million outstanding under a credit facility which is collateralized by
substantially all of the assets of TECH (carrying value of approximately $1,532
million as of June 4, 2009) and contains covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. As of June 4, 2009, the Company was in
compliance with these covenants. The Company has guaranteed
approximately 73% of the outstanding amount of the facility, with the Company’s
obligation increasing to 100% of the outstanding amount of the facility upon the
occurrence of certain conditions.
Aptina
Imaging Corporation
On July 10, 2009, the Company sold a
65% interest in Aptina Imaging Corporation (“Aptina”), a wholly-owned subsidiary
of the Company and a significant component of its Imaging segment, to Riverwood
Capital (“Riverwood”) and TPG Capital (“TPG”). Under the agreement,
the Company received approximately $35 million in cash and retained a 35%
minority stake in Aptina after Riverwood and TPG contributed significant
debt-free capital to the independent, privately-held, company. The
Company also retained all cash held by Aptina and its
subsidiaries. The Company will account for its remaining interest in
Aptina under the equity method. The Company’s Imaging segment will
continue to manufacture products for Aptina under a wafer supply agreement and
will provide services to Aptina. In the third quarter of 2009, the
Company recorded a charge of $53 million, the estimated loss on the transaction,
to write down certain Aptina intangible assets and property, plant and equipment
to estimated fair values.
Segment
Information
The Company’s reportable segments are
Memory and Imaging. The Memory segment’s primary products are DRAM
and NAND Flash memory and the Imaging segment’s primary product is CMOS image
sensors. Subsequent to the sale of a 65% interest in Aptina, the
Company’s Imaging segment will continue to manufacture products for Aptina under
a wafer supply agreement and will provide services to Aptina. Segment
information reported below is consistent with how it is reviewed and evaluated
by the Company’s chief operating decision makers and is based on the nature of
the Company’s operations and products offered to customers. The
Company does not identify or report depreciation and amortization, capital
expenditures or assets by segment.
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
June
4,
2009
|
|
|
May
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
979 |
|
|
$ |
1,327 |
|
|
$ |
3,111 |
|
|
$ |
3,917 |
|
Imaging
|
|
|
127 |
|
|
|
171 |
|
|
|
390 |
|
|
|
475 |
|
Total consolidated net
sales
|
|
$ |
1,106 |
|
|
$ |
1,498 |
|
|
$ |
3,501 |
|
|
$ |
4,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
(149 |
) |
|
$ |
(228 |
) |
|
$ |
(1,430 |
) |
|
$ |
(1,230 |
) |
Imaging
|
|
|
(97 |
) |
|
|
3 |
|
|
|
(196 |
) |
|
|
(27 |
) |
Total consolidated operating
loss
|
|
$ |
(246 |
) |
|
$ |
(225 |
) |
|
$ |
(1,626 |
) |
|
$ |
(1,257 |
) |
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion contains
trend information and other forward-looking statements that involve a number of
risks and uncertainties. Forward-looking statements include, but are not limited
to, statements such as those made in “Overview” regarding the Company’s DRAM
development costs relative to Nanya, royalty payments to be received from Nanya
in future periods, Inotera's transition to the Company's stack process
technology and anticipated margins and operating expenses for the Imaging
segment in future periods; in “Net Sales” regarding production levels for the
fourth quarter of 2009; in “Gross Margin” regarding the effects of production
slowdowns on product costs for the fourth quarter of 2009 and future charges for
inventory write-downs; in “Research and Development”
regarding research and development expenses for the fourth quarter of 2009;in
Stock-Based Compensation regarding future costs to be recognized; in
“Restructure” regarding the remaining costs of restructure plans; in “Liquidity
and Capital Resources” regarding capital spending in 2009 and 2010, future
distributions from IM Flash to Intel and capital contributions to TECH; and in
“Recently Issued Accounting Standards” regarding the impact from the adoption of
new accounting standards. The Company’s actual results could differ
materially from the Company’s historical results and those discussed in the
forward-looking statements. Factors that could cause actual results
to differ materially include, but are not limited to, those identified in “PART
II. OTHER INFORMATION – Item 1A. Risk
Factors.” This discussion should be read in conjunction with the
Consolidated Financial Statements and accompanying notes and with the Company’s
Annual Report on Form 10-K for the year ended August 28, 2008. All
period references are to the Company’s fiscal periods unless otherwise
indicated. The Company’s fiscal year is the 52 or 53-week period
ending on the Thursday closest to August 31. The Company’s fiscal
2009, which ends on September 3, 2009, contains 53 weeks. All
production data reflects production of the Company and its consolidated joint
ventures.
Overview
The Company is a global manufacturer of
semiconductor devices, principally semiconductor memory products (including DRAM
and NAND Flash) and CMOS image sensors. The Company operates in two
reportable segments: Memory and Imaging. Its products are
used in a broad range of electronic applications including personal computers,
workstations, network servers, mobile phones and other consumer applications
including Flash memory cards, USB storage devices, digital still cameras, MP3/4
players and in automotive applications. The Company markets its
products through its internal sales force, independent sales representatives and
distributors primarily to original equipment manufacturers and retailers located
around the world. The Company’s success is largely dependent on the
market acceptance of a diversified portfolio of semiconductor products,
efficient utilization of the Company’s manufacturing infrastructure, successful
ongoing development of advanced process technologies and generation of
sufficient return on research and development investments.
The Company has made significant
investments to develop proprietary product and process technology that is
implemented in its worldwide manufacturing facilities and through its joint
ventures to enable the production of semiconductor products with increasing
functionality and performance at lower costs. The Company generally
reduces the manufacturing cost of each generation of product through
advancements in product and process technology such as its leading-edge
line-width process technology and innovative array architecture. The
Company continues to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package
size, lower power consumption and increased memory density. To
leverage its significant investments in research and development, the Company
has formed various strategic joint ventures under which the costs of developing
memory product and process technologies are shared with its joint venture
partners. In addition, from time to time, the Company has also sold
and/or licensed technology to other parties. The Company is pursuing
additional opportunities to recover its investment in intellectual property
through partnering and other arrangements.
The semiconductor memory industry is
experiencing a severe downturn due to a significant oversupply of
products. The downturn has been exacerbated by global economic
conditions which have adversely affected demand for semiconductor memory
products. Average selling prices per gigabit for the Company’s DRAM
and NAND Flash products for the first nine months of 2009 decreased 53% and 58%,
respectively, compared to the first nine months of 2008. Average
selling prices per gigabit for the Company’s DRAM and NAND Flash products in
2008 were down 51% and 67%, respectively, compared to 2007 and down 63% and 85%,
respectively, in 2008 compared to 2006. These declines significantly
outpaced the long-term historical pricing trend. As a result of these
market conditions, the Company and other semiconductor memory manufacturers have
generally reported negative gross margins and substantial losses in recent
periods. In the first nine months of 2009, the Company reported a net
loss of $1.7 billion after reporting a net loss of $1.6 billion for its entire
fiscal 2008.
In response to adverse market
conditions, the Company initiated restructure plans in 2009, primarily
attributable to the Company’s Memory segment. In the first quarter of
2009, IM Flash, a joint venture between the Company and Intel, terminated its
agreement with the Company to obtain NAND Flash memory supply from the Company’s
Boise facility, reducing the Company’s NAND Flash production by approximately
35,000 200mm wafers per month. In addition, the Company and Intel
agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s
Singapore wafer fabrication facility. In the second quarter of 2009,
the Company announced that it will phase out all remaining 200mm wafer
manufacturing operations at its Boise, Idaho, facility by the end of
2009. The Company has also undertaken additional cost savings
measures to increase its competitiveness, including reductions in executive and
employee salary and bonuses, a continued hiring freeze, suspension of matching
contributions under the Company’s 401(k) employee savings plan, and reductions
of other discretionary costs such as outside services, travel and
overtime.
The state of the global economy and
credit markets are also making it increasingly difficult for semiconductor
memory manufacturers to obtain external sources of financing to fund their
operations. Although the Company believes that it is better
positioned than some of its competitors, it faces challenges that require it to
continue to make significant improvements in its
competitiveness. Additionally, the Company is considering further
financing alternatives, continuing to limit capital expenditures and
implementing further cost reduction initiatives.
DRAM joint
ventures with Nanya Technology Corporation (“Nanya”): The Company has a
partnering arrangement with Nanya Technology Corporation (“Nanya”) pursuant to
which the Company and Nanya jointly develop process technology and designs to
manufacture stack DRAM products. Each party generally bears its own
development costs and the Company’s development costs are expected to exceed
Nanya’s development costs in the near term by a significant
amount. In addition, the Company has transferred and licensed certain
intellectual property related to the manufacture of stack DRAM products to Nanya
and licensed certain intellectual property from Nanya. As a result,
the Company is to receive an aggregate of $207 million from Nanya through
2010. The Company recognized $25 million and $79 million of license
revenue in net sales from this agreement in the third quarter and first nine
months of 2009, respectively, and from May 2008 through June 4, 2009 has
recognized $115 million of cumulative license revenue. In addition,
the Company expects to receive royalties in future periods from Nanya for sales
of stack DRAM products manufactured by or for Nanya.
The Company has also partnered with
Nanya in investments in two Taiwan DRAM memory companies: Inotera
Memories, Inc. (“Inotera”) and MeiYa Technology Corporation
(“MeiYa”). As of June 4, 2009, the ownership of Inotera was held
35.6% by Nanya, 35.5% by the Company and the balance was publicly
held. As of June 4, 2009, the ownership of MeiYa was held 50% by
Nanya and 50% by the Company. The Company accounts for its interests
using the equity method of accounting and does not consolidate these
entities.
Inotera and MeiYa each have fiscal
years that end on December 31. As these fiscal years differ from that
of the Company’s fiscal year, the Company recognizes its share of Inotera’s and
MeiYa’s quarterly earnings or losses for the calendar quarter that ends within
the Company’s fiscal quarter. This results in the recognition of the
Company’s share of earnings or losses from these entities for a period that lags
the Company’s fiscal periods by approximately two months.
Inotera: In the first quarter
of 2009, the Company acquired a 35.5% ownership interest in Inotera, a
publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for $398
million. The interest in Inotera was acquired for cash, a portion of which
was funded from loan proceeds of $200 million received by the Company from Nan
Ya Plastics Corporation, an affiliate of Nanya, and $85 million received from
Inotera. The loans were recorded at their fair values, which reflect an
aggregate discount of $31 million from their face amounts. This aggregate
discount was recorded as a reduction of the Company’s basis in its investment in
Inotera. The Company also capitalized $10 million of costs and other fees
incurred in connection with the acquisition. As a result of the above
transactions, total consideration for the Company’s equity investment in Inotera
was $377 million.
In connection with the acquisition of
the shares in Inotera, the Company and Nanya entered into a supply agreement
with Inotera (the “Supply Agreement”) pursuant to which Inotera will sell trench
and stack DRAM products to the Company and Nanya. In addition, Inotera
charges the Company and Nanya for a portion of the costs associated with its
underutilized capacity. The Company has rights and obligations to purchase
up to 50% of Inotera’s wafer production capacity. Inotera’s actual wafer
production will vary from time to time based on market and other conditions and
its trench production capacity is expected to transition to the Company’s stack
process technology. The pricing formula in the Supply Agreement is based
upon manufacturing costs and margins associated with the resale of purchased
DRAM products. Under the Supply Agreement, the Company will purchase 50%
of Inotera’s aggregate trench DRAM production (less the trench DRAM products
sold to Qimonda pursuant to a separate supply agreement between Inotera and
Qimonda (the “Qimonda Supply Agreement”)) and 50% of the aggregate stack DRAM
production. Under the Qimonda Supply Agreement, Qimonda was obligated to
purchase trench DRAM products resulting from wafers started for it by Inotera
through July 2009 in accordance with a ramp down schedule specified in the
Qimonda Supply Agreement. In the second quarter of 2009, Qimonda filed for
bankruptcy and defaulted on its obligations to purchase products from
Inotera. Pursuant to the Company’s obligations under the Supply
Agreement, the Company recorded $15 million and $66 million of charges in cost
of goods sold in the third quarter and first nine months of 2009 related to
underutilized capacity.
The Company’s results of operations for
the third quarter of 2009 include a loss of $43 million for the Company’s share
of Inotera’s loss for the first calendar quarter of 2009. The Company’s
results of operations for the first nine months of 2009 includes losses of $99
million for the Company’s share of Inotera’s losses from the acquisition date
through the first calendar quarter of 2009. As of June 4, 2009, the
Company had recorded $18 million to accumulated other comprehensive income in
the accompanying consolidated balance sheet for cumulative translation
adjustments for its investment in Inotera. During the third quarter
of 2009, the Company received $50 million from Inotera pursuant to the terms of
a technology transfer agreement. As of June 4, 2009, the carrying
value of the Company’s equity investment in Inotera was $236
million.
(See “Item 1. Financial Statements –
Notes to Consolidated Financial Statements – Supplemental Balance Sheet
Information – Equity Method Investments”)
Inventory
Write-Downs: The Company’s results
of operations for the second and first quarters of 2009 included charges of $234
million and $369 million, respectively, to write down the carrying value of work
in process and finished goods inventories of memory products (both DRAM and NAND
Flash) to their estimated market values. For the fourth, second and
first quarters of 2008, the Company recorded inventory charges of $205 million,
$15 million and $62 million, respectively.
Aptina Imaging
Business (“Aptina”): On July 10, 2009, the Company sold a 65%
interest in Aptina, a wholly-owned subsidiary of the Company and a significant
component of its Imaging segment, to Riverwood Capital (“Riverwood”) and TPG
Capital (“TPG”). Under the agreement, the Company received
approximately $35 million in cash and retained a 35% minority stake in Aptina
after Riverwood and TPG contributed significant debt-free capital to the
independent, privately-held, company. The Company also retained all
cash held by Aptina and its subsidiaries. The Company will account
for its remaining interest in Aptina under the equity method. The
Company’s Imaging segment will continue to manufacture products for Aptina under
a wafer supply agreement and will provide services to Aptina at its worldwide
facilities. The Company anticipates that pricing under the wafer
supply agreement will generally result in lower gross margins than historically
realized on sales of Imaging products to end customers. The Company
also anticipates that the sale of Aptina will significantly reduce the Imaging
segment’s research and development costs and other operating
expenses. In the third quarter of 2009, the Company recorded a charge
of $53 million, the estimated loss on the transaction, to write down Aptina
intangible assets and property, plant and equipments to estimated fair
values.
Results
of Operations
|
|
Third
Quarter
|
|
|
|
Second
Quarter
|
|
|
|
Nine
Months
|
|
|
|
|
2009
|
|
|
%
of net sales
|
|
|
|
2008
|
|
|
%
of net sales
|
|
|
|
2009
|
|
|
%
of net sales
|
|
|
|
2009
|
|
|
%
of net sales
|
|
|
|
2008
|
|
|
%
of net sales
|
|
|
|
|
(amounts
in millions and as a percent of net sales)
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
979 |
|
|
|
89 |
|
% |
|
$ |
1,327 |
|
|
|
89 |
|
% |
|
$ |
910 |
|
|
|
92 |
|
% |
|
$ |
3,111 |
|
|
|
89 |
|
% |
|
$ |
3,917 |
|
|
|
89 |
|
% |
Imaging
|
|
|
127 |
|
|
|
11 |
|
% |
|
|
171 |
|
|
|
11 |
|
% |
|
|
83 |
|
|
|
8 |
|
% |
|
|
390 |
|
|
|
11 |
|
% |
|
|
475 |
|
|
|
11 |
|
% |
|
|
$ |
1,106 |
|
|
|
100 |
|
% |
|
$ |
1,498 |
|
|
|
100 |
|
% |
|
$ |
993 |
|
|
|
100 |
|
% |
|
$ |
3,501 |
|
|
|
100 |
|
% |
|
$ |
4,392 |
|
|
|
100 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
104 |
|
|
|
11 |
|
% |
|
$ |
(11 |
) |
|
|
(1 |
) |
% |
|
$ |
(269 |
) |
|
|
(30 |
) |
% |
|
$ |
(667 |
) |
|
|
(21 |
) |
% |
|
$ |
(126 |
) |
|
|
(3 |
) |
% |
Imaging
|
|
|
3 |
|
|
|
2 |
|
% |
|
|
59 |
|
|
|
35 |
|
% |
|
|
2 |
|
|
|
2 |
|
% |
|
|
58 |
|
|
|
15 |
|
% |
|
|
136 |
|
|
|
29 |
|
% |
|
|
$ |
107 |
|
|
|
10 |
|
% |
|
$ |
48 |
|
|
|
3 |
|
% |
|
$ |
(267 |
) |
|
|
(27 |
) |
% |
|
$ |
(609 |
) |
|
|
(17 |
) |
% |
|
$ |
10 |
|
|
|
0 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$ |
80 |
|
|
|
7 |
|
% |
|
$ |
116 |
|
|
|
8 |
|
% |
|
$ |
90 |
|
|
|
9 |
|
% |
|
$ |
272 |
|
|
|
8 |
|
% |
|
$ |
348 |
|
|
|
8 |
|
% |
R&D
|
|
|
162 |
|
|
|
15 |
|
% |
|
|
170 |
|
|
|
11 |
|
% |
|
|
168 |
|
|
|
17 |
|
% |
|
|
508 |
|
|
|
15 |
|
% |
|
|
513 |
|
|
|
12 |
|
% |
Restructure
|
|
|
19 |
|
|
|
2 |
|
% |
|
|
8 |
|
|
|
1 |
|
% |
|
|
105 |
|
|
|
11 |
|
% |
|
|
58 |
|
|
|
2 |
|
% |
|
|
29 |
|
|
|
1 |
|
% |
Goodwill
impairment
|
|
|
-- |
|
|
|
-- |
|
|
|
|
-- |
|
|
|
-- |
|
|
|
|
58 |
|
|
|
6 |
|
% |
|
|
58 |
|
|
|
2 |
|
% |
|
|
463 |
|
|
|
11 |
|
% |
Other
operating (income) expense, net
|
|
|
92 |
|
|
|
8 |
|
% |
|
|
(21 |
) |
|
|
(1 |
) |
% |
|
|
20 |
|
|
|
2 |
|
% |
|
|
121 |
|
|
|
3 |
|
% |
|
|
(86 |
) |
|
|
(2 |
) |
% |
Net
income (loss)
|
|
|
(290 |
) |
|
|
(26 |
) |
% |
|
|
(236 |
) |
|
|
(16 |
) |
% |
|
|
(751 |
) |
|
|
(76 |
) |
% |
|
|
(1,747 |
) |
|
|
(50 |
) |
% |
|
|
(1,275 |
) |
|
|
(29 |
) |
% |
Net
Sales
Total net sales for the third quarter
of 2009 increased 11% as compared to the second quarter of 2009 primarily due to
an 8% increase in Memory sales and a 53% increase in Imaging
sales. Both Memory and Imaging sales for the third quarter of 2009
reflect significant increases in sales volumes as compared to the second quarter
of 2009. Memory sales were 89% of total net sales for the third
quarter of 2009 as compared to 92% and 89%, respectively, for the second quarter
of 2009 and third quarter of 2008. Total net sales for the third
quarter of 2009 decreased 26% as compared to the third quarter of 2008 due to a
26% decrease in both Memory and Imaging sales. Total net sales for
the first nine months of 2009 decreased 20% as compared to the first nine months
of 2008 due to a 21% decrease in Memory sales and an 18% decrease in Imaging
sales.
In response to adverse market
conditions, the Company began to shut down production of NAND for IM Flash at
the Company’s Boise fabrication facility in the second quarter of 2009 and
announced that it would shut down the remainder of its production at the Boise
fabrication facility by the end of 2009. In addition, the Company
implemented production slowdowns at some of its manufacturing facilities during
the third and second quarters of 2009. Production of Memory and
Imaging products in the third and second quarters of 2009 was affected by the
ongoing shutdown of the Boise fabrication facility and slowdowns at other
facilities. The Company expects that production for the fourth
quarter of 2009 will also be affected by these factors. The Company
will adjust utilization of 200mm wafer processing capacity as product demand
varies.
The Company has formed partnering
arrangements under which it has sold and/or licensed technology to other
parties. The Company recognized royalty and license revenue of $32
million in the third quarter of 2009, $33 million in the second quarter of 2009
and $10 million in the third quarter of 2008.
Memory: Memory
sales for the third quarter of 2009 increased 8% from the second quarter of 2009
as sales of DRAM products increased by 14% while sales of NAND Flash products
were relatively unchanged.
Sales of DRAM products for the third
quarter of 2009 increased from the second quarter of 2009 primarily due to an
18% increase in gigabit sales. Overall average selling prices for
DRAM for the third quarter of 2009 were relatively flat compared to the second
quarter of 2009 as increases in average selling prices for both specialty DRAM
products and DDR2 and DDR3 DRAM products were offset by the effect of a shift in
product mix to a higher percentage of DDR2 and DDR3 DRAM products which
generally realize lower selling prices per bit than specialty DRAM
products. Gigabit production of DRAM products increased approximately
15% for the third quarter of 2009 as compared to the second quarter of 2009,
primarily due to production efficiencies achieved through transitions to higher
density, advanced geometry devices. Sales of DDR2 and DDR3 DRAM
products were 30% of the Company’s total net sales in the third quarter of 2009,
as compared to 26% for the second quarter of 2009 and 29% for the third quarter
of 2008.
The Company sells NAND Flash products
in three principal channels: 1) to Intel Corporation (“Intel”) through its IM
Flash consolidated joint venture at long-term negotiated prices approximating
cost, 2) to original equipment manufacturers (“OEM’s”) and other resellers and
3) to retail customers. Aggregate sales of NAND Flash products for
the third quarter of 2009 were relatively unchanged from the second quarter of
2009 and represented 39% of the Company’s total net sales for the third quarter
of 2009 as compared to 43% for the second quarter of 2009 and 37% for the third
quarter of 2008.
Sales through IM Flash to Intel were
$195 million for the third quarter of 2009, $215 million for the second quarter
of 2009 and $280 million for the third quarter of 2008. IM Flash
sales to Intel were $728 million for the first nine months of 2009 and $744
million for the first nine months of 2008. In the third quarter of
2009, average selling prices for IM Flash sales to Intel decreased significantly
due to reduction in costs per gigabit of approximately 35%. However,
gigabit sales to Intel were 55% higher in the third quarter compared to the
second quarter due to a 36% increase in gigabit production of NAND Flash
products over the same period primarily due to the Company’s continued
transition to higher density 34 nanometer (nm) NAND Flash products and other
improvements in product and process technologies.
Aggregate sales of NAND Flash products
to the Company’s OEM, resellers and retail customers were approximately 10%
higher in the third quarter of 2009 compared to the second quarter of 2009
primarily due to a 13% increase in average selling prices, partially offset by a
slight decrease in gigabit sales. Average selling prices to the
Company’s OEM and reseller customers in the third quarter of 2009 increased
approximately 27% compared to the second quarter of 2009 while average selling
prices of the Company’s Lexar brand, directed primarily at the retail market,
were relatively unchanged.
Memory sales for the third quarter of
2009 decreased 26% from the third quarter of 2008 as sales of DRAM products
decreased by 29% and sales of NAND Flash products decreased 23%. The
decrease in sales of DRAM products for the third quarter of 2009 from the third
quarter of 2008 was primarily the result of a 55% decline in average selling
prices mitigated by a 50% increase in gigabits sold. Gigabit
production of DRAM products increased 49% for the third quarter of 2009 as
compared to the third quarter of 2008, primarily due to production efficiencies
from the Company’s improvements in product and process
technologies. The decrease in sales of NAND Flash products for the
third quarter of 2009 from the third quarter of 2008 was primarily due to a 55%
decline in average selling prices mitigated by a 71% increase in gigabits
sold. The significant increase in gigabit sales of NAND Flash
products was primarily due to a 69% increase in production primarily as a result
of the continued ramp of NAND Flash products at the Company’s 300mm fabrication
facilities and transitions to higher density, advanced geometry
devices. The increase in NAND Flash production was achieved despite
the shutdown of 200mm NAND Flash production, which began in the second quarter
of 2009.
Memory sales for the first nine months
of 2009 decreased 21% from the first nine months of 2008 as sales of DRAM
products decreased by 27% and sales of NAND Flash products decreased
10%. The decrease in sales of DRAM products for the first nine months
of 2009 from the first nine months of 2008 was primarily the result of a 53%
decline in average selling prices mitigated by a 46% increase in gigabits
sold. Gigabit production of DRAM products increased 49% for the first
nine months of 2009 as compared to the first nine months of 2008, primarily due
to production efficiencies from improvements in product and process
technologies. The decrease in sales of NAND Flash products for the
first nine months of 2009 from the first nine months of 2008 was primarily due
to a 58% decline in average selling prices mitigated by a 112% increase in
gigabits sold. The significant increase in gigabit sales of NAND
Flash products was primarily due to a 94% increase in production primarily as a
result of the continued ramp of NAND Flash products at the Company’s 300mm
fabrication facilities and transitions to higher density, advanced geometry
devices. The increase in NAND Flash production was achieved despite
the shutdown of 200mm NAND Flash production which began in the second quarter of
2009.
Imaging: Imaging
sales for the third quarter of 2009 increased 53% as compared to the second
quarter of 2009 primarily due to a 51% increase in unit
sales. Imaging sales for the third quarter and first nine months of
2009 decreased by 26% and 18%, respectively, from the corresponding periods of
2008 primarily due to decreased unit sales, particularly for products with
2-megapixel or lower resolution, and declines in average selling
prices. Demand for Imaging products in 2009 was adversely impacted by
weakness in the mobile phone markets. Imaging sales were 11% of the
Company’s total net sales for the third quarter of 2009 as compared to 8% for
the second quarter of 2009 and 11% for the third quarter of 2008.
Gross
Margin
The Company’s overall gross margin
percentage for the third quarter of 2009 improved to 10% from negative 27% for
the second quarter of 2009, primarily due to an improvement in the gross margin
for Memory as a result of cost reductions and the effect of selling products in
the current quarter that were subject to inventory write-downs in previous
quarters. The Company’s overall gross margin percentage in the third
quarter of 2009 improved from 3% for the third quarter of 2008 primarily due to
an improvement in the gross margin for Memory partially offset by a decline in
the gross margin for Imaging. The Company’s overall gross margin
percentage declined from essentially breakeven for the first nine months of 2008
to negative 17% for the first nine months of 2009 due to declines in the gross
margins for both Memory and Imaging. Production slowdowns and
shutdowns implemented at some of the Company’s manufacturing facilities during
the third and second quarters of 2009 adversely affected per gigabit costs of
Memory products and per unit costs of Imaging products, and the continuation of
these slowdowns is expected to have an adverse effect on product costs in the
fourth quarter of 2009.
Memory: The
Company’s gross margin percentage for Memory products improved to 11% for the
third quarter of 2009 from negative 30% for the second quarter of 2009 primarily
due to significant improvements in the gross margins for both DRAM and NAND
Flash products. Gross margins for the third quarter of 2009 reflected
significant cost reductions for DRAM and NAND Flash products and the effects of
selling products in the current quarter that were subject to inventory
write-downs in prior quarters, as discussed in more detail
below. Gross margins for Memory products for the third and second
quarters of 2009 were also adversely affected by $39 million and $67 million,
respectively, of costs associated with underutilized capacity primarily from
Inotera and IM Flash’s Singapore facility.
The Company’s gross margins for Memory
in 2009 and 2008 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 periods are higher than they otherwise would
be. The impact of inventory write-downs on gross margins for all
periods reflects the period-end inventory write-down less the estimated net
effect of prior period write-downs. The effects of inventory
write-downs on gross margin by period were as follows:
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
Nine
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end
inventory write-downs
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
(234 |
) |
|
$ |
(603 |
) |
|
$ |
(77 |
) |
Estimated
effect of previous inventory write-downs
|
|
|
242 |
|
|
|
21 |
|
|
|
277 |
|
|
|
676 |
|
|
|
85 |
|
Net effect of inventory
write-downs
|
|
$ |
242 |
|
|
$ |
21 |
|
|
$ |
43 |
|
|
$ |
73 |
|
|
$ |
8 |
|
In future periods, the Company will be
required to record additional inventory write-downs if estimated average selling
prices of products held in finished goods and work in process inventories at a
quarter-end date are below the manufacturing cost of those
products.
The Company’s gross margin for NAND
Flash products for the third quarter of 2009 improved from the second quarter of
2009, despite a 17% decrease in overall average selling prices per gigabit,
primarily due to the effects of inventory write-downs and a 35% reduction in
costs per gigabit. The reduction in NAND Flash costs per gigabit was
primarily due to lower manufacturing costs as a result of increased production
of higher-density, advanced-geometry devices. Gross margins on sales of
NAND Flash products reflect sales of approximately half of IM Flash’s output to
Intel at long-term negotiated prices approximating cost.
The Company’s gross margin for DRAM
products for the third quarter of 2009 improved from the second quarter of 2009,
primarily due to reductions in cost per gigabit partially offset by the 2%
decrease in average selling prices per gigabit. The Company’s DRAM
costs per gigabit were 39% lower in the third quarter of 2009 compared to the
second quarter of 2009 (24% of which was due to the effects of previous
inventory write-downs) due to production efficiencies achieved through
transitions to higher-density, advanced-geometry devices.
The Company’s gross margin percentage
for Memory products improved to 11% for the third quarter of 2009 from negative
1% for the third quarter of 2008 primarily due to improvements in the gross
margins for NAND Flash products partially offset by slight declines in the gross
margins for DRAM products. Gross margins on NAND Flash products for
the third quarter of 2009 improved from the third quarter of 2008 primarily due
to per gigabit cost reductions of 66% partially offset by the 55% decline in
overall average selling prices. Declines in gross margins on sales of
DRAM products for the third quarter of 2009 as compared to the third quarter of
2008 were primarily due to the 55% decline in average selling prices mitigated
by per gigabit cost reductions of 52% (19% of which was due to the effects of
previous inventory write-downs).
The Company’s gross margin percentage
for Memory products declined from negative 3% for the first nine months of 2008
to negative 21% for the first nine months of 2009 primarily due to declines in
the gross margin for DRAM products. Declines in gross margins on
sales of DRAM products for the first nine months of 2009 as compared to the
first nine months of 2008 were primarily due to the 53% decline in average
selling prices mitigated by per gigabit cost reductions. The
Company’s DRAM costs per gigabit were 34% lower in the first nine months of 2009
compared to the first nine months of 2008. Gross margins on NAND
Flash products for the first nine months of 2009 were approximately the same as
for the first nine months of 2008 as the 58% decline in average selling prices
was offset by per gigabit cost reductions.
Imaging: The
Company’s gross margin percentage for Imaging for the third quarter of 2009
remained approximately the same as for the second quarter of 2009 due to
relatively stable average selling prices and production
costs. Imaging production costs for the third and second quarters of
2009 were adversely affected by production slowdowns implemented by the Company
in response to reduced market demand. The Company’s gross margin
percentage for Imaging declined from 35% for the third quarter of 2008,
primarily due to declines in average selling prices and increased costs due to
production slowdowns. The Company’s gross margin percentage for
Imaging declined from 29% for the first nine months of 2008 to 15% for the first
nine months of 2009 primarily due to declines in average selling prices
mitigated by a shift in product mix to products with 3-megapixels or more, which
realized higher margins.
Selling,
General and Administrative
Selling, general and administrative
(“SG&A”) expenses for the third quarter of 2009 decreased 11% from the
second quarter of 2009 due to lower bad debt expense and lower expenses as a
result of the Company’s restructure initiatives. SG&A expenses
for the third quarter of 2009 decreased 31% from the third quarter of 2008
primarily due to lower payroll expenses and other costs related to the Company’s
restructure initiatives and lower legal expenses. SG&A expenses
for the first nine months of 2009 decreased 22% from the first nine months of
2008, primarily due to lower payroll expenses and other costs related to the
Company’s restructure initiatives and lower legal expenses. Future
SG&A expense is expected to vary, potentially significantly, depending on,
among other things, the number of legal matters that are resolved relatively
early in their life-cycle and the number of matters that progress to
trial. SG&A expenses as a percent of net sales were as
follows:
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
Nine
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(SG&A
expenses as a percent of net sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory segment
|
|
|
7 |
% |
|
|
7 |
% |
|
|
9 |
% |
|
|
8 |
% |
|
|
8 |
% |
Imaging segment
|
|
|
7 |
% |
|
|
11 |
% |
|
|
12 |
% |
|
|
9 |
% |
|
|
11 |
% |
Research
and Development
Research and development (“R&D”)
expenses vary primarily with the number of development wafers processed, the
cost of advanced equipment dedicated to new product and process development, and
personnel costs. Because of the lead times necessary to manufacture
its products, the Company typically begins to process wafers before completion
of performance and reliability testing. The Company deems development
of a product complete once the product has been thoroughly reviewed and tested
for performance and reliability. R&D expenses can vary
significantly depending on the timing of product qualification as costs incurred
in production prior to qualification are charged to R&D.
R&D expenses for the third quarter
of 2009 decreased 4% from the second quarter of 2009 primarily due to decreases
in development wafers processed. R&D expenses for the third
quarter of 2009 decreased 5% from the third quarter of 2008 primarily due to
lower payroll costs from the Company’s cost reduction
initiatives. R&D expenses for the first nine months of 2009 were
relatively unchanged from the first nine months of 2008, as decreases in costs
of development wafers processed and lower payroll costs were offset by lower
reimbursements under a NAND Flash R&D cost-sharing arrangement with Intel
Corporation. As a result of reimbursements received under this
cost-sharing arrangement, R&D expenses were reduced by $26 million for the
third quarter of 2009, $25 million for the second quarter of 2009, $34 million
for the third quarter of 2008, $83 million for the first nine months of 2009 and
$116 million for the first nine months of 2008. The Company
anticipates R&D expenses to approximate between $140 million to $150 million
in the fourth quarter of 2009. The Company expects that R&D
expenses in future periods will be lower due to the sale in of a majority
interest in Aptina in the fourth quarter of 2009. R&D expenses as
a percent of net sales were as follows:
|
|
Third
Quarter
|
|
|
Second
Quarter
|
|
|
Nine
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(R&D
expenses as a percent of net sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory segment
|
|
|
13 |
% |
|
|
10 |
% |
|
|
15 |
% |
|
|
13 |
% |
|
|
10 |
% |
Imaging segment
|
|
|
25 |
% |
|
|
20 |
% |
|
|
42 |
% |
|
|
27 |
% |
|
|
23 |
% |
The Company’s process technology
R&D efforts are focused primarily on development of successively smaller
line-width process technologies which are designed to facilitate the Company’s
transition to next-generation memory products. Additional
process technology R&D efforts focus on advanced computing and mobile memory
architectures and new manufacturing materials. Product design and
development efforts are concentrated on the Company’s 1 Gb and 2 Gb DDR2 and
DDR3 products as well as high density and mobile NAND Flash memory (including
multi-level cell technology) and specialty memory products.
Restructure
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, the Company
initiated restructure plans in 2009 primarily attributable to the Company’s
Memory segment. In the first quarter of 2009, IM Flash, a joint
venture between the Company and Intel, terminated its agreement with the Company
to obtain NAND Flash memory supply from the Company’s Boise facility, reducing
the Company’s NAND Flash production by approximately 35,000 200mm wafers per
month. In addition, the Company and Intel agreed to suspend tooling
and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication
facility. In the second quarter of 2009, the Company announced that
it would phase out all remaining 200mm wafer manufacturing operations at its
Boise, Idaho, facility by the end of 2009. Excluding any gains or
additional losses from disposition of equipment, the Company expects to incur
additional restructure costs through the end of 2009 of approximately $7
million, comprised primarily of severance and other employee related
costs. The following table summarizes restructure charges (credits)
resulting from the Company’s 2009 restructure activities:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
June
4,
2009
|
|
|
March
5,
2009
|
|
|
June
4,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Write-down
of equipment
|
|
$ |
7 |
|
|
$ |
87 |
|
|
$ |
150 |
|
Severance
and other termination benefits
|
|
|
11 |
|
|
|
17 |
|
|
|
50 |
|
Gain
from termination of NAND Flash supply agreement
|
|
|
-- |
|
|
|
-- |
|
|
|
(144 |
) |
Other
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
$ |
19 |
|
|
$ |
105 |
|
|
$ |
58 |
|
Under a previous restructure plan
initiated in the fourth quarter of 2007, the Company recorded charges of $8
million and $29 million for the third quarter and first nine months of 2008,
respectively, for severance and other employee-related costs and to write down
certain facilities to their fair values.
Goodwill
Impairment
In the second quarter of 2009, the
Company’s Imaging 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, the Company’s Imaging segment and its
competitors experienced significant declines in market value. As a
result, the Company concluded that there were sufficient factual circumstances
for interim impairment analyses under SFAS No. 142. Accordingly, in
the second quarter of 2009, the Company performed an assessment of goodwill for
impairment. Based on the results, it was determined that the carrying
value of the Imaging segment exceeded its estimated fair value as of the end of
the Company’s second quarter of 2009. Therefore, the Company
performed a preliminary second step of the impairment test to estimate the
implied fair value of goodwill. The preliminary analysis indicated
that there would be no remaining implied value attributable to goodwill in the
Imaging segment and accordingly, the Company wrote off all $58 million of
goodwill associated with its Imaging segment in the second quarter of
2009. In the third quarter of 2009, the Company finalized the second
step of the impairment analysis and the results confirmed that there was no
implied value attributable to goodwill in the Imaging segment. (See
“Item 1. Financial Statements – Notes to Consolidated Financial Statements –
Supplemental Balance Sheet Information – Goodwill.”)
In the second quarter of 2008, the
Company wrote off all $463 million of its goodwill relating to its Memory
segment based on the results of its test for impairment.
Other
Operating (Income) Expense, Net
Other operating (income) expense for
the third quarter of 2009 includes $53 million to write-down the carrying value
of certain long-lived assets classified as held for sale in connection with the
Company’s sale of a majority interest in its Aptina imaging solutions business.
Other operating (income) expense for the third quarter and first nine months of
2009 included losses of $12 million and $55 million, respectively, on disposals
of semiconductor equipment and losses of $28 million and $25 million,
respectively, from changes in currency exchange rates. Other
operating (income) expense for the second quarter of 2009 included losses of $29
million on disposals of semiconductor equipment. Other operating
(income) expense for the third quarter and first nine months of 2008 included
gains of $13 million and $70 million, respectively, on disposals of
semiconductor equipment. Other operating (income) expense for the
first nine months of 2008 included a gain of $38 million for receipts from the
U.S. government in connection with anti-dumping tariffs received in the first
quarter of 2008 and losses of $33 million from changes in currency exchange
rates. (See “Item 1. Financial Statements – Notes to Consolidated
Financial Statements – Aptina Imaging Corporation.)
Income
Taxes
Income taxes for 2009 and 2008
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2009 and 2008 was substantially offset
by changes in the valuation allowance.
Equity
in Net Losses of Equity Method Investees
In connection with its DRAM partnering
arrangements with Nanya, the Company has investments in two Taiwan DRAM memory
companies accounted for as equity method investments: Inotera and
MeiYa. Inotera and MeiYa each have fiscal years that end on December
31. The Company recognizes its share of Inotera’s and MeiYa’s
quarterly earnings or losses for the calendar quarter that ends within the
Company’s fiscal quarter. This results in the recognition of the
Company’s share of earnings or losses from these entities for a period that lags
the Company’s fiscal periods by approximately two months. The Company
recognized losses from these equity method investments of $45 million and $56
million, respectively, for the third and second quarters of 2009 and a loss of
$106 million for the first nine months of 2009. (See “Item 1.
Financial Statements – Notes to Consolidated Financial Statements – Supplemental
Balance Sheet Information – Equity Method Investments.”)
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling interests for 2009 and
2008 primarily reflects the share of income or losses of the Company’s TECH
joint venture attributed to the noncontrolling interests in TECH. On
February 27, 2009, the Company purchased 85.1 million shares of TECH for $99
million. On June 2, 2009, the Company purchased an additional 282.0
million shares of TECH for $99 million. As a result, noncontrolling
interests in TECH were reduced from approximately 27% to approximately 24% by
the February 2009 share purchase and to approximately 17% by the June 2009 share
purchase. (See “Item 1. Financial Statements – Notes to Consolidated
Financial Statements – TECH Semiconductor Singapore Pte. Ltd.”)
Stock-Based
Compensation
Total compensation cost for the
Company’s equity plans for the third quarter of 2009, the second quarter of 2009
and third quarter of 2008 was $12 million, $13 million and $14 million,
respectively. Total compensation cost for the Company’s equity plans
for the first nine months of 2009 and 2008 was $34 million and $40 million,
respectively. Stock compensation expenses fluctuate based on
assessments of whether performance conditions will be achieved for the Company’s
performance-based stock grants. As of June 4, 2009, $85 million of
total unrecognized compensation cost related to non-vested awards was expected
to be recognized through the third quarter of 2013.
Liquidity
and Capital Resources
As of June 4, 2009, the Company had
cash and equivalents and short-term investments totaling $1,306 million compared
to $1,362 million as of August 28, 2008. The balance as of June 4,
2009, included $145 million held at the Company’s IM Flash joint venture and
$175 million held at the Company’s TECH joint venture. The Company’s
ability to access funds held by joint ventures to finance the Company’s other
operations is subject to agreement by the joint venture
partners. Amounts held by TECH are not anticipated to be available to
finance the Company’s other operations.
The Company’s liquidity is highly
dependent on average selling prices for its products and the timing of capital
expenditures, both of which can vary significantly from period to
period. Depending on conditions in the semiconductor memory market,
the Company’s cash flows from operations and current holdings of cash and
investments may not be adequate to meet the Company’s needs for capital
expenditures and operations. Historically, the Company has used
external sources of financing to fund these needs. Due to conditions
in the credit markets, it may be difficult to obtain financing on terms
acceptable to the Company. The Company has significantly reduced its
planned capital expenditures for 2009. In addition, the Company is
considering further financing alternatives, continuing to limit capital
expenditures and implementing further cost reduction initiatives.
Operating
activities: Net cash provided from operating activities was
$849 million in the first nine months of 2009 which reflected $616 million
provided from the management of working capital and approximately $233 million
generated from the production and sales of the Company’s
products. Specifically, the Company reduced the amount of working
capital as of June 4, 2009 invested in inventories by $292 million and
receivables by $224 million as compared to August 28, 2008.
Investing
activities: Net cash used by investing activities was $681
million in the first nine months of 2009, which included cash expenditures of
$439 million for property, plant and equipment and cash expenditures of $408
million for the acquisition of a 35.5% interest in Inotera, partially offset by
the net effect of maturities and purchases of marketable investment securities
of $124 million. A significant portion of the capital expenditures
related to the ramp of IM Flash facilities and the 300mm conversion of
manufacturing operations at TECH. The Company believes that to
develop new product and process technologies, support future growth, achieve
operating efficiencies and maintain product quality, it must continue to invest
in manufacturing technologies, facilities and capital equipment and research and
development. The Company expects that capital spending will be
approximately $100 million for the fourth quarter of 2009 and approximately $700
million for 2010. As of June 4, 2009, the Company had commitments of
approximately $265 million for the acquisition of property, plant and equipment,
of which approximately one-half is expected to be paid within one
year.
Financing
activities: Net cash used by financing activities was $105
million in the first nine months of 2009, which primarily reflects $592 million
of distributions to joint venture partners, $373 million in debt payments and
$127 million in payments on equipment purchase contracts, partially offset by
$716 million in proceeds from borrowings and $276 million in net proceeds from
the issuance of common stock.
On April 15, 2009, the Company issued
69.3 million shares of common stock for $4.15 per share in a registered public
offering. The Company received net proceeds of $276 million after
deducting underwriting fees and other offering costs of $12
million.
On April 15, 2009, the Company issued
$230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25%
Senior Notes”). The issuance costs associated with the 4.25% Senior
Notes totaled $7 million. The initial conversion rate for the 4.25% Senior Notes
is 196.7052 shares of common stock per $1,000 principal amount of the 4.25%
Senior Notes. This is equivalent to an initial conversion price of approximately
$5.08 per share of common stock. Holders of the 4.25% Senior Notes may convert
them at any time prior to maturity, unless previously redeemed or
repurchased. The Company may not redeem the 4.25% Senior Notes prior
to April 20, 2012. On or after April 20, 2012, the Company may redeem
for cash all or part of the 4.25% Senior Notes if the closing price of its
common stock has been at least 135% of the conversion price for at least 20
trading days during a 30 consecutive trading day period.
Concurrent with the offering of the
4.25% Senior Notes, the Company also entered into capped call transactions (the
“2009 Capped Calls”) that have an initial strike price of approximately $5.08
per share, subject to certain adjustments, which was set to equal the initial
conversion price of the 4.25% Senior Notes. The 2009 Capped Calls
have a cap price of $6.64 per share and cover an approximate combined total of
45.2 million shares of common stock, and are subject to standard adjustments for
instruments of this type. The 2009 Capped Calls are intended to
reduce the potential dilution upon conversion of the 4.25% Senior
Notes. If, however, the market value per share of the common stock,
as measured under the terms of the 2009 Capped Calls, exceeds the applicable cap
price of the 2009 Capped Calls, there would be dilution to the extent that the
then market value per share of the common stock exceeds the cap
price. The 2009 Capped Calls expire in October and November of
2012. The Company paid approximately $25 million to purchase the 2009
Capped Calls.
On February 23, 2009, the Company
entered into a term loan agreement with the Singapore Economic Development Board
(“EDB”) enabling the Company to borrow up to $300 million Singapore dollars at
5.38%. The terms of the agreement require the Company to use the
proceeds from any borrowings under the agreement to make equity contributions to
its joint venture subsidiary, TECH Semiconductor Singapore Pte. Ltd.
(“TECH”). The loan agreement further requires that TECH use the
proceeds from the Company’s equity contributions to purchase production assets
and meet certain production milestones related to the implementation of advanced
process manufacturing. The loan contains a covenant that limits the
amount of indebtedness TECH can incur without approval from the
EDB. The loan is collateralized by the Company’s shares in TECH up to
a maximum of 66% of TECH’s outstanding shares. The Company drew $150
million Singapore dollars in the second quarter of 2009 and remaining $150
million Singapore dollars in the third quarter of 2009. The total
$300 million Singapore dollars outstanding ($207 million U.S. dollars as of June
4, 2009) is due in February 2012 with interest payable quarterly.
In the first quarter of 2009, in
connection with its purchase of a 35.5% interest in Inotera, the Company entered
into a two-year, variable rate term loan with Nan Ya Plastics and a six-month,
variable rate term loan with Inotera. On November 26, 2008, the
Company received loan proceeds of $200 million from Nan Ya Plastics and $85
million from Inotera. Under the terms of the loan agreements,
interest is payable quarterly at LIBOR plus 2%. The interest rates
reset quarterly and were 2.7% per annum as of June 4, 2009. The
Company recorded the debt net of aggregate discounts of $31 million, which is
recognized as interest expense over the respective lives of the loans, based on
imputed interest rates of 12.1% for the Nan Ya Plastics loan and 11.6% for the
Inotera loan. The Nan Ya Plastics loan is collateralized by a first
priority security interest in the Inotera shares owned by the Company
(approximate carrying value of $261 million as of June 4, 2009). The
Company repaid the $85 million Inotera loan in the third quarter of
2009.
(See “Item 1. Financial Statements –
Notes to Consolidated Financial Statements – Supplemental Balance Sheet
Information – Debt.”)
Joint
ventures: In the first nine months of 2009, IM Flash
distributed $582 million to Intel and the Company estimates that it will make
additional distributions to Intel of approximately $180 million in the fourth
quarter of 2009. Timing of these distributions and any future
contributions, however, is subject to market conditions and approval of the
partners.
On February 27, 2009, the Company
purchased 85.1 million shares of TECH for $99 million, increasing its interest
in TECH from approximately 73% to approximately 76%. On June 2, 2009,
the Company purchased an additional 282.0 million shares of TECH for $99
million, increasing its interest in TECH from to approximately 83%. The Company
expects to make additional capital contributions to TECH in 2009 and 2010 to
support its transition to 50nm wafer processing. The timing and
amount of these contributions is subject to market conditions.
Contractual
obligations: As of June 4, 2009, contractual obligations for
notes payable, capital lease obligations and operating leases were as
follows:
|
|
Total
|
|
|
Remainder
of 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
and thereafter
|
|
|
|
(amounts
in millions)
|
|
Notes payable1
|
|
$ |
2,826 |
|
|
$ |
34 |
|
|
$ |
342 |
|
|
$ |
453 |
|
|
$ |
402 |
|
|
$ |
34 |
|
|
$ |
1,561 |
|
Capital lease obligations1
|
|
|
661 |
|
|
|
39 |
|
|
|
168 |
|
|
|
267 |
|
|
|
51 |
|
|
|
20 |
|
|
|
116 |
|
Operating leases
|
|
|
76 |
|
|
|
4 |
|
|
|
17 |
|
|
|
14 |
|
|
|
10 |
|
|
|
10 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Includes
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Arrangements
Concurrent with the with the offering
of the 4.25% Senior Notes on April 15, 2009, the Company paid approximately $25
million for three capped call instruments that have an initial strike price of
approximately $5.08 per share (the “2009 Capped Calls”). The 2009
Capped Calls have a cap price of $6.64 per share and cover an aggregate of
approximately 45.2 million shares of common stock. The Capped Calls
expire in October and November of 2012. (See “Item 1. Financial
Statements – Notes to Consolidated Financial Statements – Supplemental Balance
Sheet Information – Equity Method Investments – Capped Call
Transactions.”)
Recently
Issued Accounting Standards
In June 2009, the Financial Accounting
Standards Board (“FASB”) issued Statement No. 167, “Amendments to FASB
Interpretation No. 46(R)” (“SFAS No. 167”), which (1) replaces the
quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an
approach that is primarily qualitative (2) requires ongoing assessments of
whether an enterprise is the primary beneficiary of a variable interest entity
and (3) requires
additional disclosures about an enterprise’s involvement in variable interest
entities. The Company is required to adopt SFAS No. 167
effective at the beginning of 2011. The Company is evaluating the
impact the adoption of SFAS No. 167 will have on its financial
statements.
In May 2008, the FASB issued FSP No.
APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement).” FSP No.
APB 14-1 requires that issuers of convertible debt instruments that may be
settled in cash upon conversion separately account for the liability and equity
components in a manner such that interest cost will be recognized at the
entity’s nonconvertible debt borrowing rate in subsequent
periods. The Company is required to adopt FSP No. APB 14-1 effective
at the beginning of 2010. Upon adoption, the Company will
retrospectively account for its $1.3 billion of 1.875% convertible senior notes
issued in May, 2007 under the provisions of FSP No. APB 14-1. The
Company estimates that the initial carrying value of its $1.3 billion
convertible senior notes would have been approximately $400 million lower under
FSP No. APB 14-1. This difference of approximately $400 million would
be accreted to interest expense over the approximate seven-year term of the
notes and the Company estimates that this will result in additional interest
expense in the first year of the notes of approximately $45 million increasing
to approximately $70 million per year in the last year of the notes, excluding
the effects of capitalized interest. The Company is continuing to
evaluate the full impact the adoption of FSP No. APB 14-1 will have on its
financial statements.
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
“Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and requirements
for how an acquirer in a business combination (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interests in the acquiree, (2) recognizes and measures
goodwill acquired in the business combination or a gain from a bargain purchase,
and (3) determines what information to disclose. The Company is
required to adopt SFAS No. 141(R) effective at the beginning of
2010. The impact of the adoption of SFAS No. 141(R) will depend on
the nature and extent of business combinations occurring after the beginning of
2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the noncontrolling interest be
separately identified in the statement of operations, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. SFAS No. 160 must be applied prospectively
except for the presentation and disclosure requirements, which must be applied
retrospectively. The Company is evaluating the impact the adoption of
SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company adopted SFAS No. 159 effective at
the beginning of 2009. The Company did not elect to measure any
existing items at fair value upon the adoption of SFAS No. 159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 (as amended by
subsequent FSP’s) defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. The Company adopted SFAS No. 157 effective
at the beginning of 2009 for financial assets and financial
liabilities. The adoption did not have a significant impact on the
Company’s financial statements. The Company is required to adopt SFAS
No. 157 for all other assets and liabilities effective at the beginning of 2010
and is evaluating the impact the adoption will have on its financial
statements.
Critical
Accounting Estimates
The preparation of financial statements
and related disclosures in conformity with U.S. GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Estimates and judgments
are based on historical experience, forecasted future events and various other
assumptions that the Company believes to be reasonable under the
circumstances. Estimates and judgments may vary under different
assumptions or conditions. The Company evaluates its estimates and
judgments on an ongoing basis. Management believes the accounting
policies below are critical in the portrayal of the Company’s financial
condition and results of operations and requires management’s most difficult,
subjective or complex judgments.
Acquisitions and
consolidations: Determination and the allocation of the
purchase price of acquired operations significantly influences the period in
which costs are recognized. Accounting for acquisitions and
consolidations requires the Company to estimate the fair value of the individual
assets and liabilities acquired as well as various forms of consideration given,
which involves a number of judgments, assumptions and estimates that could
materially affect the amount and timing of costs recognized. The
Company typically obtains independent third party valuation studies to assist in
determining fair values, including assistance in determining future cash flows,
appropriate discount rates and comparable market values.
Contingencies: The
Company is subject to the possibility of losses from various
contingencies. Considerable judgment is necessary to estimate the
probability and amount of any loss from such contingencies. An
accrual is made when it is probable that a liability has been incurred or an
asset has been impaired and the amount of loss can be reasonably
estimated. The Company accrues a liability and charges operations for
the estimated costs of adjudication or settlement of asserted and unasserted
claims existing as of the balance sheet date.
Goodwill and
intangible assets: The Company tests goodwill for impairment
annually and whenever events or circumstances make it more likely than not that
an impairment may have occurred, such as a significant adverse change in the
business climate (including declines in selling prices for products) or a
decision to sell or dispose of a reporting unit. Goodwill is tested
for impairment using a two-step process. In the first step, the fair
value of each reporting unit is compared to the carrying value of the net assets
assigned to the unit. If the fair value of the reporting unit exceeds
its carrying value, goodwill is considered not impaired. If the
carrying value of the reporting unit exceeds its fair value, then the second
step of the impairment test must be performed in order to determine the implied
fair value of the reporting unit’s goodwill. Determining the implied
fair value of goodwill requires valuation of all of the Company’s tangible and
intangible assets and liabilities. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, then the Company would
record an impairment loss equal to the difference.
Determining when to test for
impairment, the Company’s reporting units, the fair value of a reporting unit
and the fair value of assets and liabilities within a reporting unit, requires
judgment and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market
comparables. The Company bases fair value estimates on assumptions it
believes to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those
estimates. In addition, judgments and assumptions are required to
allocate assets and liabilities to reporting units. In the second
quarter of 2009, the Company wrote off all $58 million of its goodwill related
to the Imaging segment based on the results of its test for
impairment. In the second quarter of 2008, the Company wrote off all
$463 million of its goodwill relating to its Memory segment based on the results
of its test for impairment.
The Company tests other identified
intangible assets with definite useful lives and subject to amortization when
events and circumstances indicate the carrying value may not be recoverable by
comparing the carrying amount to the sum of undiscounted cash flows expected to
be generated by the asset. The Company tests intangible assets with
indefinite lives annually for impairment using a fair value method such as
discounted cash flows. Estimating fair values involves significant
assumptions, especially regarding future sales prices, sales volumes, costs and
discount rates.
Income
taxes: The Company is required to estimate its provision for
income taxes and amounts ultimately payable or recoverable in numerous tax
jurisdictions around the world. Estimates involve interpretations of
regulations and are inherently complex. Resolution of income tax
treatments in individual jurisdictions may not be known for many years after
completion of any fiscal year. The Company is also required to
evaluate the realizability of its deferred tax assets on an ongoing basis in
accordance with U.S. GAAP, which requires the assessment of the Company’s
performance and other relevant factors when determining the need for a valuation
allowance with respect to these deferred tax assets. Realization of
deferred tax assets is dependent on the Company’s ability to generate future
taxable income.
Inventories: Inventories
are stated at the lower of average cost or market value and the Company recorded
charges to write down the carrying value of inventories of memory products to
their estimated market values of $234 million for the second quarter of 2009,
$369 million for the first quarter of 2009 and $282 million in aggregate for
2008. Cost includes labor, material and overhead costs, including
product and process technology costs. Determining market value of
inventories involves numerous judgments, including projecting average selling
prices and sales volumes for future periods and costs to complete products in
work in process inventories. To project average selling prices and
sales volumes, the Company reviews recent sales volumes, existing customer
orders, current contract prices, industry analysis of supply and demand,
seasonal factors, general economic trends and other information. When
these analyses reflect estimated market values below the Company’s manufacturing
costs, the Company records a charge to cost of goods sold in advance of when the
inventory is actually sold. Differences in forecasted average selling
prices used in calculating lower of cost or market adjustments can result in
significant changes in the estimated net realizable value of product inventories
and accordingly the amount of write-down recorded. For example, a 5%
variance in the estimated selling prices would have changed the estimated market
value of the Company’s semiconductor memory inventory by approximately $60
million at June 4, 2009. Due to the volatile nature of the
semiconductor memory industry, actual selling prices and volumes often vary
significantly from projected prices and volumes and, as a result, the timing of
when product costs are charged to operations can vary
significantly.
U.S. GAAP provides for products to be
grouped into categories in order to compare costs to market
values. The amount of any inventory write-down can vary significantly
depending on the determination of inventory categories. The Company’s
inventories have been categorized as Memory products or Imaging
products. The major characteristics the Company considers in
determining inventory categories are product type and markets.
Product and
process technology: Costs incurred to acquire product and
process technology or to patent technology developed by the Company are
capitalized and amortized on a straight-line basis over periods currently
ranging up to 10 years. The Company capitalizes a portion of costs
incurred based on its analysis of historical and projected patents issued as a
percent of patents filed. Capitalized product and process technology
costs are amortized over the shorter of (i) the estimated useful life of the
technology, (ii) the patent term or (iii) the term of the technology
agreement.
Property, plant
and equipment: The Company reviews the carrying value of
property, plant and equipment for impairment when events and circumstances
indicate that the carrying value of an asset or group of assets may not be
recoverable from the estimated future cash flows expected to result from its use
and/or disposition. In cases where undiscounted expected future cash
flows are less than the carrying value, an impairment loss is recognized equal
to the amount by which the carrying value exceeds the estimated fair value of
the assets. The estimation of future cash flows involves numerous
assumptions which require judgment by the Company, including, but not limited
to, future use of the assets for Company operations versus sale or disposal of
the assets, future selling prices for the Company’s products and future
production and sales volumes. In addition, judgment is required by
the Company in determining the groups of assets for which impairment tests are
separately performed.
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development when
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability.
Stock-based
compensation: Under the provisions of SFAS No. 123(R),
stock-based compensation cost is estimated at the grant date based on the
fair-value of the award and is recognized as expense ratably over the requisite
service period of the award. For stock-based compensation awards with
graded vesting that were granted after 2005, the Company recognizes compensation
expense using the straight-line amortization method. For
performance-based stock awards, the expense recognized is dependent on the
probability of the performance measure being achieved. The Company
utilizes forecasts of future performance to assess these probabilities and this
assessment requires considerable judgment.
Determining the appropriate fair-value
model and calculating the fair value of stock-based awards at the grant date
requires considerable judgment, including estimating stock price volatility,
expected option life and forfeiture rates. The Company develops its
estimates based on historical data and market information which can change
significantly over time. A small change in the estimates used can
result in a relatively large change in the estimated valuation. The
Company uses the Black-Scholes option valuation model to value employee stock
awards. The Company estimates stock price volatility based on an
average of its historical volatility and the implied volatility derived from
traded options on the Company’s stock.
Item
3. Quantitative and
Qualitative Disclosures about Market Risk
Interest
Rate Risk
As of June 4, 2009, $2,363 million of
the Company’s $3,124 million of debt was at fixed interest rates. As
a result, the fair value of the debt fluctuates based on changes in market
interest rates. The estimated fair value of the Company’s debt was
$2,615 million as of June 4, 2009 and was $2,167 million as of August 28,
2008. The Company estimates that as of June 4, 2009, a 1% decrease in
market interest rates would change the fair value of the fixed-rate debt by
approximately $64 million. As of June 4, 2009, $761 million of the
Company’s debt was at variable interest rates and an increase of 1% would
increase annual interest expense by approximately $8 million.
Foreign
Currency Exchange Rate Risk
The information in this section should
be read in conjunction with the information related to changes in the exchange
rates of foreign currency in “Item 1A. Risk Factors.” Changes in
foreign currency exchange rates could materially adversely affect the Company’s
results of operations or financial condition.
The functional currency for
substantially all of the Company’s operations is the U.S. dollar. The
Company held cash and other assets in foreign currencies valued at an aggregate
of U.S. $206 million as of June 4, 2009 and U.S. $425 million as of August 28,
2008. The Company also had foreign currency liabilities valued at an
aggregate of U.S. $731 million as of June 4, 2009, and U.S. $580 million as of
August 28, 2008. Significant components of the Company’s assets and
liabilities denominated in foreign currencies were as follows (in U.S. dollar
equivalents):
|
|
June
4, 2009
|
|
|
August
28, 2008
|
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
13 |
|
|
$ |
16 |
|
|
$ |
6 |
|
|
$ |
84 |
|
|
$ |
130 |
|
|
$ |
25 |
|
Net
deferred tax assets
|
|
|
-- |
|
|
|
97 |
|
|
|
2 |
|
|
|
-- |
|
|
|
85 |
|
|
|
2 |
|
Accounts
payable and accrued expenses
|
|
|
(75 |
) |
|
|
(140 |
) |
|
|
(92 |
) |
|
|
(105 |
) |
|
|
(127 |
) |
|
|
(61 |
) |
Debt
|
|
|
(289 |
) |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(49 |
) |
|
|
(108 |
) |
|
|
(4 |
) |
Other
liabilities
|
|
|
(6 |
) |
|
|
(53 |
) |
|
|
(40 |
) |
|
|
(8 |
) |
|
|
(45 |
) |
|
|
(43 |
) |
The Company estimates that, based on
its assets and liabilities denominated in currencies other than the U.S. dollar
as of June 4, 2009, a 1% change in the exchange rate versus the U.S. dollar
would result in foreign currency gains or losses of approximately U.S. $3
million for the Singapore dollar and U.S. $1 million for euro and the
yen. Historically, the Company has not used derivative instruments to
hedge its foreign currency exchange rate risk.
Item
4. Controls and
Procedures
An evaluation was carried out under the
supervision and with the participation of the Company’s management, including
its principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, the principal executive officer
and principal financial officer concluded that those disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms and that such information is accumulated and
communicated to the Company’s management, including the principal executive
officer and principal financial officer, to allow timely decision regarding
disclosure.
During the quarterly period covered by
this report, there were no changes in the Company’s internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
Patent
Matters
On August 28, 2000, the Company filed a
complaint against Rambus, Inc. (“Rambus”) in the U.S. District Court for the
District of Delaware seeking monetary damages and declaratory and injunctive
relief. Among other things, the Company’s 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) that certain Rambus patents are
not infringed by the Company, are invalid, and/or are unenforceable, (b) that
the Company has an implied license to those patents, and (c) that Rambus is
estopped from enforcing those patents against the Company. On
February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying
that the Company is entitled to relief, alleging infringement of the eight
Rambus patents (later amended to add four additional patents) named in the
Company’s declaratory judgment claim, and seeking monetary damages and
injunctive relief. In the Delaware action, the Company subsequently
added claims and defenses based on Rambus’s 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 the Company holding that Rambus had engaged in spoliation and that the twelve
Rambus patents in the suit were unenforceable against the
Company. Rambus subsequently appealed the decision to the U.S. Court
of Appeals for the Federal Circuit. That appeal is
pending.
A number of other suits involving
Rambus are currently pending in Europe alleging that certain of the Company’s
SDRAM and DDR SDRAM products infringe various of 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 the
Company and Reptronic (a distributor of the Company’s products) in the Court of
First Instance of Paris, France; on September 29, 2000, the Company filed suit
against Rambus in the Civil Court of Milan, Italy, alleging invalidity and
non-infringement. In addition, on December 29, 2000, the Company
filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging
invalidity and non-infringement of 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 the Company’s DDR SDRAM products infringe
Rambus’ country counterparts to its European patent 1 022 642. In the
European suits against the Company, Rambus is seeking monetary damages and
injunctive relief. Subsequent to the filing of the various European
suits, the European Patent Office (the “EPO”) declared Rambus’ 525 068 and 1 004
956 European patents invalid and revoked the patents. The declaration
of invalidity with respect to the ‘068 patent 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 the Company in the U.S. District Court for the Northern District
of California. The complaint alleges that certain of the Company’s
DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as fourteen Rambus
patents and seeks monetary damages, treble damages, and injunctive
relief. On June 2, 2006, the Company filed an answer and counterclaim
against Rambus alleging among other things, antitrust and fraud
claims. The Northern District of California Court subsequently
consolidated the antitrust and fraud claims and certain equitable defenses of
the Company and other parties against Rambus in a jury trial that began on
January 29, 2008. On March 26, 2008, a jury returned a verdict in
favor of Rambus on the Company’s antitrust and fraud claims. On
November 24, 2008, the Court granted partial summary judgment of infringement in
favor of Rambus on one of the patent claims at issue in the
case. Trial on the patent phase of that case has been stayed pending
resolution of Rambus’ appeal of the Delaware spoliation decision or further
order of the California Court.
On July 24, 2006, the Company filed a
declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the
U.S. District Court for the Northern District of California seeking, among other
things, a court determination that fourteen Mosaid patents are invalid, not
enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a
lawsuit against the Company and others in the U.S. District Court for the
Eastern District of Texas alleging infringement of nine Mosaid
patents. On August 31, 2006, Mosaid filed an amended complaint adding
three additional Mosaid patents. On January 31, 2009, the Company and
Mosaid agreed to dismiss the litigation, granting the Company a license under
certain Mosaid patents, and transferring certain Company patents to
Mosaid.
On March 6, 2009, Panavision Imaging,
LLC filed suit against the Company and Aptina Imaging Corporation, a subsidiary
of the Company (“Aptina”), in the U.S. District Court for the Central District
of California. The complaint alleges that certain of the Company and
Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and
seeks injunctive relief, damages, attorneys’ fees, and costs.
On March 24, 2009, Accolade Systems LLC
filed suit against the Company and Aptina in the U.S. District Court for the
Eastern District of Texas alleging that certain of the Company and Aptina’s
image sensor products infringe one Accolade Systems U.S. patent. The
complaint seeks injunctive relief, damages, attorneys’ fees, and
costs.
The Company is unable to predict the
outcome of these suits. A court determination that the Company’s
products or manufacturing processes infringe the product or process intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing results could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Antitrust
Matters
A number of purported class action
price-fixing lawsuits have been filed against the Company 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’ fees. In addition, at least sixty-four cases
have been filed in various state courts asserting claims on behalf of a
purported class of indirect purchasers of DRAM. Cases have been filed
in the following states: Arkansas, Arizona, California, Florida,
Hawaii, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi,
Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New
Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Utah,
Vermont, Virginia, Wisconsin, and West Virginia, and also in the District of
Columbia and Puerto Rico. The complaints purport to be on behalf of a
class of individuals and entities that indirectly purchased DRAM and/or products
containing DRAM in the respective jurisdictions during various time periods
ranging from April 1999 through at least June 2002. The complaints
allege violations of the various jurisdictions’ antitrust, consumer protection
and/or unfair competition laws relating to the sale and pricing of DRAM products
and seek joint and several damages, trebled, as well as restitution, costs,
interest and attorneys’ fees. A number of these cases have been
removed to federal court and transferred to the U.S. District Court for the
Northern District of California (San Francisco) for consolidated pre-trial
proceedings. On January 29, 2008, the Northern District of California
Court granted in part and denied in part the Company’s motion to dismiss
plaintiff’s second amended consolidated complaint. Plaintiffs
subsequently filed a motion seeking certification for interlocutory appeal of
the decision. On February 27, 2008, plaintiffs filed a third amended
complaint. On June 26, 2008, the United States Court of Appeals for
the Ninth Circuit agreed to consider plaintiffs’ interlocutory
appeal.
Additionally, three cases have been
filed against the Company 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’ 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. Those appeals are pending.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Thereafter, three states, Ohio, New Hampshire, and Texas,
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware,
Kentucky, and Vermont subsequently voluntarily dismissed their
claims. The amended complaint alleges, among other things, violations
of the Sherman Act, Cartwright Act, and certain other states’ consumer
protection and antitrust laws and seeks joint and several damages, trebled, as
well as injunctive and other relief. Additionally, on July 13, 2006,
the State of New York filed a similar suit in the U.S. District Court for the
Southern District of New York. That case was subsequently transferred
to the U.S. District Court for the Northern District of California for pre-trial
purposes. The State of New York filed an amended complaint on October
1, 2007. On October 3, 2008, the California Attorney General filed a
similar lawsuit in California Superior Court, purportedly on behalf of local
California government entities, alleging, among other things, violations of the
Cartwright Act and state unfair competition law.
On February 28, 2007, February 28, 2007
and March 8, 2007, cases were filed against the Company 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’ fees, costs, and injunctive relief.
On October 11, 2006, the Company
received a grand jury subpoena from the U.S. District Court for the Northern
District of California seeking information regarding an investigation by the
U.S. Department of Justice (“DOJ”) into possible antitrust violations in the
“Static Random Access Memory” or “SRAM” industry. In December 2008,
the Company was informed that the DOJ closed its investigation of the SRAM
industry.
Subsequent to the issuance of subpoenas
to the SRAM industry, a number of purported class action lawsuits have been
filed against the Company and other SRAM suppliers. Six 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
purchased SRAM directly from various SRAM suppliers during the period from
November 1, 1996 through December 31, 2005. Additionally, at least 74
cases have been filed in various U.S. district courts asserting claims on behalf
of a purported class of individuals and entities that indirectly purchased SRAM
and/or products containing SRAM from various SRAM suppliers during the time
period from November 1, 1996 through December 31, 2006. In September
2008, a class of direct purchasers was certified, and plaintiffs were granted
leave to amend their complaint to cover Pseudo-Static RAM or “PSRAM” products as
well. The complaints allege price fixing in violation of federal
antitrust laws and state antitrust and unfair competition laws and seek treble
monetary damages, restitution, costs, interest and attorneys’
fees. On March 19, 2009, the Company executed settlement agreements
with both the direct purchaser class and the purported indirect purchaser
class. If approved by the Court, the agreements would resolve the
pending U.S. class action SRAM litigation against the Company and release the
Company from those claims.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers. The complaint
alleges various causes of action under California state law including a
conspiracy to restrict output and fix prices of Rambus DRAM (“RDRAM”) and unfair
competition. Trial is currently scheduled to begin in September
2009. The complaint seeks joint and several damages, trebled,
punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining
the defendants from the conduct alleged in the complaint.
The Company is unable to predict the
outcome of these lawsuits and investigations. The final resolution of
these alleged violations of antitrust laws could result in significant liability
and could have a material adverse effect on the Company’s business, results of
operations or financial condition.
Securities
Matters
On February 24, 2006, a putative class
action complaint was filed against the Company and certain of its officers in
the U.S. District Court for the District of Idaho alleging claims under Section
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct or the Company’s operations and
financial results. The complaint seeks unspecified damages, interest,
attorneys’ fees, costs, and expenses. On December 19, 2007, the Court
issued an order certifying the class but reducing the class period to purchasers
of the Company’s stock during the period from February 24, 2001 to September 18,
2002.
In addition, on March 23, 2006 a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and was
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Supreme Court. That appeal is pending.
The Company is unable to predict the
outcome of these cases. A court determination in any of these actions
against the Company could result in significant liability and could have a
material adverse effect on the Company’s business, results of operations or
financial condition.
(See
“Item 1A. Risk Factors.”)
Item
1A. Risk
Factors
In addition to the factors discussed
elsewhere in this Form 10-Q, 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 the Company.
We
have experienced dramatic declines in average selling prices for our
semiconductor memory products which have adversely affected our
business.
For the first nine months of 2009,
average selling prices of DRAM and NAND Flash products decreased 53% and 58%,
respectively, as compared to the first nine months of 2008. For 2008,
average selling prices of DRAM and NAND Flash products decreased 51% and 67%,
respectively, as compared to 2007. For 2007, average selling prices
of DRAM and NAND Flash products decreased 23% and 56%, respectively, as compared
to 2006. Currently, and at times in the past, average selling prices
for our memory products have been below our manufacturing costs. We
recorded aggregate inventory write-downs of $234 million for the second quarter
of 2009, $369 million for the first quarter of 2009, $282 million in 2008 and
$20 million in 2007 as a result of the significant decreases in average selling
prices for our semiconductor memory products. If the estimated market
values of products held in finished goods and work in process inventories at a
quarter-end date are below the manufacturing cost of these products, we
recognize charges to cost of goods sold to write down the carrying value of our
inventories to market value. Future charges for inventory write-downs
could be larger than the amounts recorded in 2009 and 2008. If
average selling prices for our memory products remain depressed or decrease
faster than we can decrease per gigabit costs, as they recently have, our
business, results of operations or financial condition could be materially
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, research and development, and
product and process technology. We currently estimate our capital
spending to be approximately $100 million for the fourth quarter of 2009 and
approximately $700 million for 2010. Cash and investments of IM Flash
and TECH are generally not available to finance our other
operations. In the past we have utilized external sources of
financing when needed and access to capital markets has historically been very
important to us. As a result of the severe downturn in the
semiconductor memory market, the downturn in general economic conditions, and
the adverse conditions in the credit markets, it may be difficult to obtain
financing on terms acceptable to us. We significantly reduced our
planned capital expenditures for 2009. In addition, we are
considering further financing alternatives, continuing to limit capital
expenditures and implementing further cost-cutting initiatives. There
can be no assurance that we will be able to generate sufficient cash flows or
find other sources of financing to fund our operations; make adequate capital
investments to remain competitive in terms of technology development and cost
efficiency; or access capital markets. Our inability to do the
foregoing could have a material adverse effect on our business and results of
operations.
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 increase gross
margins due to factors including, but not limited to, strategic product
diversification decisions affecting product mix, the increasing complexity of
manufacturing processes, 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. Production slowdowns that we implemented at some of our
manufacturing facilities adversely affected per gigabit costs of Memory products
during the third and second quarters of 2009. We expect that our per
gigabit costs for the fourth quarter of 2009 will also be affected by production
slowdowns.
Consolidation
of industry participants and governmental assistance may contribute to
uncertainty in the semiconductor market and negatively impact our ability to
compete.
The semiconductor industry is highly
competitive and, despite historically high levels of overall demand,
manufacturing capacity in the semiconductor industry exceeds
demand. Some of our competitors may try to enhance their capacity and
lower their cost structure through consolidation. In particular, the
some governments are considering a wide range of proposals to assist some of our
competitors. In addition, significant declines in the average selling
prices of DRAM and NAND Flash products as well as limited access to sources of
financing have led to the deterioration in the financial condition of a number
of industry participants. Consolidation of industry competitors could
put us at a competitive disadvantage.
Economic
conditions may harm our business.
Economic and business conditions,
including a continuing downturn in the semiconductor memory industry or the
overall economy is having an adverse effect on our business. Adverse
conditions affect consumer demand for devices that incorporate our products such
as personal computers, mobile phones, Flash memory cards and USB
devices. Reduced demand for our products could result in continued
market oversupply and significant decreases in our selling prices. A
continuation of current conditions in credit markets would limit our ability to
obtain external financing to fund our operations and capital
expenditures. In addition, we may experience 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.
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; Toshiba Corporation and from emerging companies in Taiwan and
China, who have significantly expanded the scale of their
operations. 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 semiconductor memory and will likely lead
to future increases. 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. We and
several of our competitors have significantly increased production in recent
periods through construction of new facilities or expansion of existing
facilities. 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.
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 DRAM joint ventures with Nanya, our
TECH DRAM joint venture and our MP Mask joint venture with Photronics. These strategic
partnerships and joint ventures 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 in the future or we may not be
able to agree with partners on the amount, timing or nature of further
investments in our joint venture;
|
·
|
due
to financial constraints, our partners may be unable to meet their
commitments to us or our joint ventures and may pose credit risks for our
transactions with them;
|
·
|
the
terms of our arrangements may turn out to be
unfavorable;
|
·
|
cash
flows may be inadequate to fund increased capital
requirements;
|
·
|
we may experience difficulties in transferring technology to joint ventures;
|
·
|
we
may experience difficulties and delays in ramping production at joint
ventures;
|
·
|
these
operations may be less cost efficient as a result of underutilized
capacity; and
|
·
|
political
or economic instability may occur
in the countries where our joint ventures and/or partners are
located.
|
If our joint ventures and strategic partnerships are unsuccessful,
our business, results of operations or financial
condition may be adversely affected.
Our
acquisition of a 35.5% interest in Inotera Memories, Inc. involves numerous
risks.
In the first quarter of 2009, we
acquired a 35.5% ownership interest in Inotera Memories, Inc., a Taiwanese DRAM
memory manufacturer, for $398 million in cash. As a result of this
acquisition, we have rights and obligations to purchase 50% of the wafer
production of Inotera. Our acquisition of an interest in Inotera
involves numerous risks including the following:
·
|
Inotera’s
ability to meet its ongoing
obligations;
|
·
|
charges
to us resulting from underutilized
capacity;
|
·
|
difficulties
in converting Inotera production from Qimonda’s trench technology to our
stack technology;
|
·
|
difficulties
in obtaining financing for capital expenditures necessary to convert
Inotera production to our stack
technology;
|
·
|
increasing
debt to finance the acquisition;
|
·
|
uncertainties
around the timing and amount of wafer supply
received;
|
·
|
risks
relating to our purchase of the Inotera shares and related agreements
arising in connection with Qimonda’s bankruptcy
proceedings;
|
·
|
Inotera’s
operations may become less cost efficient as a result of underutilized
capacity;
|
·
|
obligations
during the technology transition period to procure product based on a
competitor’s technology which may be difficult to sell and provide for
product support due to our limited understanding of the
technology;
|
·
|
recognition
in our results of operation of our share of potential Inotera losses;
and
|
·
|
the
impact of on margins associated with our obligation to purchase product
utilizing Qimonda’s trench technology at a relatively higher cost than
other products manufactured by us and selling them potentially at a lower
price than other products produced
us.
|
In the second quarter of 2009, Qimonda
filed for bankruptcy and defaulted on its obligations to purchase trench
products from Inotera under a supply agreement. Pursuant to our
obligations under a supply agreement with Inotera, we recorded $15 million and
$51 million to cost of goods sold in the third and second quarters of 2009,
respectively, for our obligations to Inotera under the supply
agreement.
Our
NAND Flash memory operations involve numerous risks.
As a result of severe oversupply in the
NAND Flash market, our average selling prices of NAND Flash products decreased
58% for the first nine months of 2009 as compared to the first nine months of
2008 after decreasing 67% for 2008 as compared to 2007 and 56% for 2007 as
compared to 2006. As a result, we experienced negative gross margins
on sales of our NAND Flash products in 2009 and 2008. In the first
quarter of 2009, we discontinued production of NAND flash memory for IM Flash at
our Boise facility. The NAND Flash production shutdown reduces IM
Flash’s NAND flash production by approximately 35,000 200mm wafers per
month. In addition, we and Intel agreed to suspend tooling and the
ramp of production of NAND Flash at IM Flash’s Singapore wafer fabrication
plant. A continuation of the challenging conditions in the NAND Flash
market will materially adversely affect our business, results of operations and
financial condition.
We
may incur additional restructure charges or not realize the expected benefits of
new initiatives to reduce costs across our operations.
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, we initiated
restructure plans in 2009. In the first quarter of 2009, our IM Flash
joint venture between us and Intel terminated its agreement with us to obtain
NAND Flash memory supply from our Boise facility, reducing our NAND Flash
production by approximately 35,000 200mm wafers per month. In
addition, we and Intel agreed to suspend tooling and the ramp of NAND Flash
production at IM Flash’s Singapore wafer fabrication facility. In the
second quarter of 2009, we announced that we will phase out all 200mm wafer
manufacturing operations at our Boise, Idaho, facility by the end of
2009. As a result of these actions, we recorded total restructure
charges of $19 million and $105 million in the third and second quarters of
2009, respectively, and a net $66 million credit to restructure in the first
quarter of 2009. The net credit for the first quarter of 2009
includes a $144 million gain in connection with the termination of the NAND
Flash supply agreement. We expect to incur additional restructure
costs through 2009 of approximately $7 million, comprised primarily of severance
and other employee related costs. As a result of these initiatives,
we expect to lose production output, incur restructuring or other infrequent
charges and we may experience disruptions in our operations, loss of key
personnel and difficulties in delivering products timely.
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, Inc.
(“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. Trial on the patent phase of that case has been stayed
pending appeal of the Delaware spoliation decision or further order of the
California court. (See “Item 1. Legal Proceedings” for
additional details on this lawsuit and other Rambus matters pending in the U.S.
and Europe.)
On March 6, 2009, Panavision Imaging
LLC filed suit against the Company and Aptina Imaging Corporation, a subsidiary
of the Company, in the U.S. District Court for the Central District of
California. The complaint alleges that certain of the Company and
Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and
seeks injunctive relief, damages, attorneys’ fees, and costs.
On March 24, 2009, Accolade Systems LLC
filed suit against the Company and Aptina in the U.S. District Court for the
Eastern District of Texas alleging that certain of the Company and Aptina’s
image sensor products infringe one Accolade Systems U.S. patent. The
complaint seeks injunctive relief, damages, attorneys’ fees, and
costs.
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.
An
adverse outcome relating to allegations of anticompetitive conduct could
materially adversely affect our business, results of operations or financial
condition.
A number of purported class action
price-fixing lawsuits have been filed against us and other DRAM
suppliers. Numerous cases have been filed in various state and
federal courts 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 violations of the various
jurisdictions’ antitrust, consumer protection and/or unfair competition laws
relating to the sale and pricing of DRAM products and seek joint and several
damages, trebled, restitution, costs, interest and attorneys’ fees. A
number of these cases have been removed to federal court and transferred to the
U.S. District Court for the Northern District of California (San Francisco) for
consolidated pre-trial proceedings. On January 29, 2008, the Northern
District of California Court granted in part and denied in part our motion to
dismiss the plaintiff’s second amended consolidated complaint. The
District Court subsequently certified the decision for interlocutory
appeal. On February 27, 2008, plaintiffs filed a third amended
complaint. On June 26, 2008, the United States Court of Appeals for
the Ninth Circuit agreed to consider plaintiffs’ interlocutory
appeal. (See “Item 1. Legal Proceedings” for additional
details on these cases and related matters.)
Various states, through their Attorneys
General, have filed suit against us and other DRAM manufacturers alleging
violations of state and federal competition laws. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and 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. (See “Item 1. Legal Proceedings” for
additional details on these cases and related matters.)
Three purported class action lawsuits
alleging price-fixing of Flash products have been filed against us in Canada
asserting violations of the Canadian Competition Act. These cases
assert claims on behalf of a purported class of individuals and entities that
purchased Flash memory directly and indirectly from various Flash memory
suppliers. (See “Item 1. Legal Proceedings” for additional
details on these cases and related matters.)
On May 5, 2004, Rambus filed a lawsuit
in the Superior Court of the State of California (San Francisco County) against
us and other DRAM suppliers. The complaint alleges various causes of
action under California state law including conspiracy to restrict output and
fix prices of Rambus DRAM ("RDRAM"), and unfair competition. The
complaint seeks joint and several damages, trebled, punitive damages, attorneys’
fees, costs, and a permanent injunction enjoining the defendants from the
conduct alleged in the complaint. Trial is currently scheduled to
begin in September 2009. (See “Item 1. Legal Proceedings”
for additional details on this case and other Rambus matters pending in the U.S.
and Europe.)
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.
Covenants
in our debt instruments may obligate us to repay debt, increase contributions to
our TECH joint venture and limit our ability to obtain financing.
Our ability to comply with the
financial and other covenants contained in our debt may be affected by economic
or business conditions or other events. As of June 4, 2009, our 83%
owned TECH Semiconductor Singapore Pte. Ltd., (“TECH”) subsidiary, had $573
million outstanding under a credit facility with covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios for TECH and restrict TECH’s ability to incur indebtedness, create liens
and acquire or dispose of assets. If TECH does not comply with these
debt covenants and restrictions, this debt may be deemed to be in default and
the debt declared payable. There can be no assurance that TECH will
be able to comply with its covenants. Additionally, if TECH is unable
to repay its borrowings when due, the lenders under TECH’s credit facility could
proceed against substantially all of TECH’s assets. We have
guaranteed approximately 73% of the outstanding amount of TECH’s credit
facility, and our obligation increases to 100% of the outstanding amount of the
facility in April 2010. If TECH’s debt is accelerated, we may not
have sufficient assets to repay amounts due. Existing covenant
restrictions may limit our ability to obtain additional debt financing and to
avoid covenant defaults we may have to pay off debt obligations and make
additional contributions to TECH, which could adversely affect our liquidity and
financial condition.
An
adverse outcome relating to allegations of violations of securities laws could
materially adversely affect our business, results of operations or financial
condition.
On February 24, 2006, a number of
purported class action complaints were 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. 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. The complaint seeks
unspecified damages, interest, attorneys' fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of our stock during the
period from February 24, 2001 to September 18, 2002. (See “Item
1. Legal Proceedings” for additional details on these cases and
related matters.)
We are unable to predict the outcome of
these cases. An adverse court determination in any of the class
action lawsuits against us could result in significant liability and could have
a material adverse effect on our business, results of operations or financial
condition.
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.
Because the design and production
process for semiconductor memory 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. If, despite
design review, quality control and product qualification procedures, problems
with nonconforming, defective or incompatible products occur after we have
shipped such products, we could be adversely affected in several ways, including
the following:
·
|
we
may 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.
|
Our
debt level is higher than compared to historical periods.
We currently have a higher level of
debt compared to historical periods. As of June 4, 2009, we had $3.1
billion of debt. We may need to incur additional debt in the future. Our debt
level could adversely impact us. For example it could:
·
|
make
it more difficult for us to make payments on our
debt;
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations and
other capital resources to debt
service;
|
·
|
limit
our future ability to raise funds for capital expenditures, acquisitions,
research and development and other general corporate
requirements;
|
·
|
increase
our vulnerability to adverse economic and semiconductor memory industry
conditions;
|
·
|
expose
us to fluctuations in interest rates with respect to that portion of our
debt which is at variable rate of interest;
and
|
·
|
require
us to make additional investments in joint ventures to maintain compliance
with financial covenants.
|
Several of our credit facilities, one
of which was modified during the second quarter of 2009, have covenants which
require us to maintain minimum levels of tangible net worth and cash and
investments. As of June 4, 2009, we were in compliance with our debt
covenants. If we are unable to continue to be in compliance with our
debt covenants, or obtain waivers, an event of default could be triggered,
which, if not cured, could cause the maturity of other borrowings to be
accelerated and become due and currently payable.
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 NAND Flash, Imaging 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
assurance that our product development efforts will be successful, that we will
be able to cost-effectively manufacture these new products, that we will be able
to successfully market these products or that margins generated from sales of
these products will recover costs of development efforts.
We
may experience risks in connection with implementing Aptina’s new business
structure.
On July 10, 2009, we sold a 65%
interest in Aptina, our wholly-owned subsidiary and a component of the Imaging
segment, to Riverwood Capital (“Riverwood”) and TPG Capital
(“TPG”). Under the agreement, we retained a 35% minority stake in
Aptina. We will account for its remaining interest in Aptina under
the equity method and recognize our share of Aptina’s earnings or
losses. Our Imaging segment will continue to manufacture products for
Aptina under a wafer supply agreement and will provide services to Aptina at its
worldwide facilities. We may incur significant costs to convert
Imaging operations to a new business structure, operations could be disrupted
and Aptina may lose key personnel. If our efforts to restructure the
Imaging business are unsuccessful, our business, results of operations or
financial condition could be materially adversely affected.
The
future success of our Imaging foundry business is dependent on Aptina’s market
success and customer demand.
In recent quarters, Aptina’s net sales
and gross margins decreased due to declining demand and increased
competition. There can be no assurance that Aptina will be able to
grow or maintain its market share or gross margins. Any reduction in
Aptina’s market share could adversely affect the operating results of our
Imaging foundry business. Aptina’s success depends on a number of
factors, including:
·
|
development
of products that maintain a technological advantage over the products of
our competitors;
|
·
|
accurate
prediction of market requirements and evolving standards, including pixel
resolution, output interface standards, power requirements, optical lens
size, input standards and other
requirements;
|
·
|
timely
completion and introduction of new imaging products that satisfy customer
requirements; and
|
·
|
timely
achievement of design wins with prospective customers, as manufacturers
may be reluctant to change their source of components due to the
significant costs, time, effort and risk associated with qualifying a new
supplier.
|
We
expect to 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:
·
|
difficulties
in integrating the operations, technologies and products of acquired or
newly formed entities;
|
·
|
increasing
capital expenditures to upgrade and maintain
facilities;
|
·
|
increasing
debt to finance any acquisition or formation of a new
business;
|
·
|
difficulties
in protecting our intellectual property as we enter into a greater number
of licensing arrangements;
|
·
|
diverting
management’s attention from normal daily
operations;
|
·
|
managing
larger or more complex operations and facilities and employees in separate
geographic areas; and
|
·
|
hiring
and retaining key employees.
|
Acquisitions of, or alliances with,
high-technology companies are inherently risky, and any future transactions may
not be successful and may materially adversely affect our business, results of
operations or financial condition.
Changes
in foreign currency exchange rates could materially adversely affect our
business, results of operations or financial condition.
Our financial statements are prepared
in accordance with U.S. GAAP and are reported in U.S. dollars. Across
our multi-national operations, there are transactions and balances denominated
in other currencies, primarily the Singapore dollar, euro and yen. We
recorded net losses from changes in currency exchange rates of $25 million for
the first nine months of 2009 and of $25 million for 2008. We
estimate that, based on its assets and liabilities denominated in currencies
other than the U.S. dollar as of June 4, 2009, a 1% change in the exchange rate
versus the U.S. dollar would result in foreign currency gains or losses of
approximately U.S. $3 million for the Singapore dollar and $1 million for the
euro and yen. In the event that the U.S. dollar weakens significantly
compared to the Singapore dollar, euro and yen, our results of operations or
financial condition will 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 83% of our consolidated net sales for the third quarter of
2009. In addition, we have manufacturing operations in China, Italy,
Japan, Puerto Rico and Singapore. Our international sales and
operations are subject to a variety of risks, including:
·
|
currency
exchange rate fluctuations;
|
·
|
export
and import duties, changes to import and export regulations, and
restrictions on the transfer of
funds;
|
·
|
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;
and
|
·
|
compliance
with trade and other laws in a variety of
jurisdictions.
|
These factors may materially adversely
affect our business, results of operations or financial condition.
Our
net operating loss and tax credit carryforwards may be limited.
We have significant net operating loss
and tax credit carryforwards. We have provided significant valuation
allowances against the tax benefit of such losses as well as certain tax credit
carryforwards. Utilization of these net operating losses and credit
carryforwards is dependent upon us achieving sustained
profitability. 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.
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, MeiYa and MP Mask joint ventures may be 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, manufacturing
yields may be adversely affected or we may be unable to meet our 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.
Disruptions
in our supply of raw materials 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. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases, 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.
We
may be required to record impairment charges for long-lived assets.
We review the carrying value of
long-lived assets (including property, plant and equipment and intangible
assets) for impairment when events and circumstances indicate that the carrying
value of an asset or group of assets may not be recoverable from the estimated
future cash flows expected to result from its use and/or
disposition. The semiconductor memory industry is experiencing a
severe downturn which has adversely affected our revenues, margins and cash
flows. If business conditions continue to deteriorate, we may be
required to negatively revise our estimated future cash flows related to the
future use of assets, which could result in impairment charges to long-lived
assets. As of June 4, 2009, we had approximately $7,536 million of
property, plant and equipment and $355 million of intangible asset that could be
subject to impairment. Any impairment charges recorded could have a
material adverse effect on our results of operations.
Item
2. Issuer Purchases
of Equity Securities, Unregistered Sales of Equity
Securities and Use of Proceeds
During the third quarter of 2009, the
Company acquired, as payment of withholding taxes in connection with the vesting
of restricted stock and restricted stock unit awards, 39,903 shares of its
common stock at an average price per share of $4.61. The Company
retired the 39,903 shares in the third quarter of 2009.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
6,
2009 – April
9, 2009
|
|
|
10,386 |
|
|
$ |
4.07 |
|
|
|
N/A |
|
|
|
N/A |
|
April
10, 2009
– May 7, 2009
|
|
|
1,250 |
|
|
|
4.63 |
|
|
|
N/A |
|
|
|
N/A |
|
May
8, 2009
– June 4, 2009
|
|
|
28,267 |
|
|
|
4.80 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
39,903 |
|
|
|
4.61 |
|
|
|
|
|
|
|
|
|
Item
6. Exhibits
|
Exhibit
|
|
|
|
Number
|
|
Description
of Exhibit
|
|
|
|
|
|
1.1
|
|
Note
Underwriting Agreement, dated as of April 8, 2009, by and among Micron
Technology, Inc. and Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co., as representatives of the underwriters
(1)
|
|
1.2
|
|
Common
Stock Underwriting Agreement, dated as of April 8, 2009, by and among
Micron Technology, Inc. and Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co., as representatives of the underwriters
(1)
|
|
3.1
|
|
Restated
Certificate of Incorporation of the Registrant (2)
|
|
3.2
|
|
Bylaws
of the Registrant, as amended (3)
|
|
4.1
|
|
Convertible
Senior Note Indenture between the Company and Wells Fargo Bank, National
Association, dated as of April 15, 2009 (4)
|
|
4.2
|
|
Form
of 4.25% Convertible Senior Note due October 15, 2013 (included in Exhibit
4.1 hereto) (4)
|
|
10.1
|
|
Capped
Call Confirmation (Reference No. SDB 1630322480), dated as of April 8,
2009, by and between Micron Technology, Inc. and Goldman, Sachs & Co.
(1)
|
|
10.2
|
|
Capped
Call Confirmation (Reference No. CGPWK6), dated as of April 8, 2009, by
and between Micron Technology, Inc. and Morgan Stanley & Co
International plc (1)
|
|
10.3
|
|
Capped
Call Confirmation (Reference No. 325758), dated as of April 8, 2009, by
and between Micron Technology, Inc. and Deutsche Bank AG, London Branch
(1)
|
|
31.1
|
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
31.2
|
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C.
1350
|
_____________________
(1)
|
Incorporated
by reference to Current Report on Form 8-K dated April 8,
2009
|
(2)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
May 31, 2001
|
(3)
|
Incorporated
by reference to Current Report on Form 8-K dated October 1,
2008
|
(4)
|
Incorporated
by reference to Current Report on Form 8-K dated April 15,
2009
|
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
Micron Technology,
Inc.
|
|
(Registrant)
|
|
|
|
|
Date: July
14, 2009
|
/s/ Ronald C.
Foster
|
|
Ronald
C. Foster
Vice
President of Finance and Chief Financial Officer (Principal Financial and
Accounting
Officer)
|