MICRON TECHNOLOGY, INC. NOTES
(Unaudited)
Inventory
Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to FIFO. This change in accounting principle is preferable because in an environment with continuously changing production costs FIFO more closely matches the actual cost of goods sold with the revenues from sales of those specific units, better represents the actual cost of inventories remaining on hand at any period- end, and improves comparability with our semiconductor industry peers. The change to FIFO was not material to any prior periods, nor was the cumulative effect of $133 million material to the second quarter of 2021. As such, prior periods were not retrospectively adjusted, and the cumulative effect was reported as an increase to cost of goods sold for the second quarter of 2021 of $133 million, with an offsetting reduction to beginning inventories. This charge resulted in a corresponding reduction to operating income, a $128 million reduction to net income, and an $0.11 reduction to diluted earnings per share for both the second quarter and first nine months of 2021.
Beginning in the second quarter of 2021, we changed the classification of spare parts for equipment to better align with the manner in which they are used in operations. As a result, we now present spare parts as other current assets and no longer as a component of raw materials inventories. This reclassification was applied on a retrospective basis. As a result, $256 million of spare parts were presented in other current assets as of June 3, 2021, and we reclassified spare parts from inventories to other current assets of $270 million and $234 million in the accompanying balance sheets as of March 4, 2021 and September 3, 2020, respectively.
Lehi, Utah, Fab and 3D XPoint Change
In the second quarter of 2021, we updated our portfolio strategy to further strengthen our focus on memory and storage innovations for the data center market. In connection therewith, we determined that there was insufficient market validation to justify the ongoing investments required to commercialize 3D XPointTM at scale. Accordingly, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our facility located in Lehi that was dedicated to 3D XPoint production. As a result, we classified the property, plant, and equipment as held-for-sale and ceased depreciating the assets. On June 30, 2021, we announced that we have entered into a definitive agreement to sell our Lehi facility to Texas Instruments for cash consideration of $900 million. The sale is anticipated to close later this calendar year.
In the third quarter of 2021, we recognized a charge of $435 million included in restructure and asset impairments (and a tax benefit of $104 million included in income tax (provision) benefit) to write down the assets held for sale to the expected consideration, net of estimated selling costs, to be realized from the sale of these assets and liabilities. The impairment charge was based on Level 3 inputs including expected consideration and the composition of assets included in the sale, which were derived from the agreement with TI. In the second quarter of 2021, we also recognized a charge of $49 million to cost of goods sold to write down 3D XPoint inventory due to our decision to cease further development of this technology.
As of June 3, 2021, the significant balances of assets held-for-sale in connection with our Lehi facility were as follows:
| June 3, | |||
| As of | 2021 | ||
| Property, plant, and equipment | $ | 1,343 | |
| Other current assets | 52 | ||
| Impairment | (435 | ) | |
| Lehi assets held for sale | $ | 960 |
As of June 3, 2021, we also had a $51 million finance lease obligation included in the current portion of long-term debt and $12 million of other liabilities that we expect to transfer with the sale. The expected cash consideration, net of estimated selling expenses, approximates the carrying value of the net assets and liabilities expected to transfer in the sale, after giving effect to the impairment charge discussed above.
MICRON TECHNOLOGY, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
|
3rd Qtr.
June 3, 2021 |
2nd Qtr.
March 4, 2021 |
3rd Qtr.
May 28, 2020 | |||||||
| GAAP gross margin | $ | 3,126 | $ | 1,649 | $ | 1,763 | |||
| Stock-based compensation | 45 | 57 | 34 | ||||||
| Inventory accounting policy change to FIFO | — | 133 | — | ||||||
| Change in inventory cost absorption | — | 160 | — | ||||||
| 3D XPoint inventory write-down | — | 49 | — | ||||||
| Other | 14 | 6 | 7 | ||||||
| Non-GAAP gross margin | $ | 3,185 | $ | 2,054 | $ | 1,804 | |||
| GAAP operating expenses | $ | 1,327 | $ | 986 | $ | 875 | |||
| Stock-based compensation | (53 | ) | (55 | ) | (48 | ) | |||
| Patent license charges | — | (128 | ) | — | |||||
| Restructure and asset impairments | (453 | ) | (5 | ) | (4 | ) | |||
| Other | — | (1 | ) | — | |||||
| Non-GAAP operating expenses | $ | 821 | $ | 797 | $ | 823 | |||
| GAAP operating income | $ | 1,799 | $ | 663 | $ | 888 | |||
| Stock-based compensation | 98 | 112 | 82 | ||||||
| Inventory accounting policy change to FIFO | — | 133 | — | ||||||
| Change in inventory cost absorption | — | 160 | — | ||||||
| 3D XPoint inventory write-down | — | 49 | — | ||||||
| Patent license charges | — | 128 | — | ||||||
| Restructure and asset impairments | 453 | 5 | 4 | ||||||
| Other | 14 | 7 | 7 | ||||||
| Non-GAAP operating income | $ | 2,364 | $ | 1,257 | $ | 981 | |||
| GAAP net income attributable to Micron | $ | 1,735 | $ | 603 | $ | 803 | |||
| Stock-based compensation | 98 | 112 | 82 | ||||||
| Inventory accounting policy change to FIFO | — | 133 | — | ||||||
| Change in inventory cost absorption | — | 160 | — | ||||||
| 3D XPoint inventory write-down | — | 49 | — | ||||||
| Patent license charges | — | 128 | — | ||||||
| Restructure and asset impairments | 453 | 5 | 4 | ||||||
| Amortization of debt discount and other costs | 7 | 8 | 4 | ||||||
| Other | 15 | 7 | 9 | ||||||
| Estimated tax effects of above and other tax adjustments | (135 | ) | (77 | ) | 39 | ||||
| Non-GAAP net income attributable to Micron | $ | 2,173 | $ | 1,128 | $ | 941 | |||
| GAAP weighted-average common shares outstanding - Diluted | 1,145 | 1,144 | 1,129 | ||||||
| Adjustment for stock-based compensation and capped calls | 9 | 10 | 13 | ||||||
| Non-GAAP weighted-average common shares outstanding - Diluted | 1,154 | 1,154 | 1,142 | ||||||
| GAAP diluted earnings per share | $ | 1.52 | $ | 0.53 | $ | 0.71 | |||
| Effects of the above adjustments | 0.36 | 0.45 | 0.11 | ||||||
| Non-GAAP diluted earnings per share | $ | 1.88 | $ | 0.98 | $ | 0.82 | |||
