(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 is 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 the second quarter 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, $270 million of spare parts were presented in other current assets as of March 4, 2021, and we reclassified spare parts from inventories to other current assets of $279 million and $234 million in the accompanying balance sheets as of December 3, 2020 and September 3, 2020, respectively.
Assets Held for Sale
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. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our facility located in Lehi, Utah, 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. As of March 4, 2021, the significant balances of assets and liabilities classified as held-for-sale in connection with our Lehi facility included $1.44 billion of property, plant, and equipment included in assets held for sale and $51 million of a finance lease obligation included in current portion of long-term debt. We also recognized a charge of $49 million to cost of goods sold in the second quarter of 2021 to write down 3D XPoint inventory due to our decision to cease further development of this technology. We expect to reach an agreement for the sale of our Lehi facility within calendar year 2021.
MICRON TECHNOLOGY, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)
| 2nd Qtr. | 1st Qtr. | 2nd Qtr. | ||||||||||
|
March 4,
2021 |
December 3,
2020 |
February 27,
2020 | ||||||||||
| GAAP gross margin | $ | 1,649 | $ | 1,736 | $ | 1,355 | ||||||
| Inventory accounting policy change to FIFO | 133 | — | — | |||||||||
| Change in inventory cost absorption | 160 | — | — | |||||||||
| 3D XPoint inventory write-down | 49 | — | — | |||||||||
| Stock-based compensation | 57 | 41 | 37 | |||||||||
| Other | 6 | 7 | 6 | |||||||||
| Non-GAAP gross margin | $ | 2,054 | $ | 1,784 | $ | 1,398 | ||||||
| GAAP operating expenses | $ | 986 | $ | 870 | $ | 915 | ||||||
| Stock-based compensation | (55 | ) | (51 | ) | (48 | ) | ||||||
| Patent license charges | (128 | ) | — | — | ||||||||
| Restructure and asset impairments | (5 | ) | (8 | ) | (10 | ) | ||||||
| Other | (1 | ) | — | (1 | ) | |||||||
| Non-GAAP operating expenses | $ | 797 | $ | 811 | $ | 856 | ||||||
| GAAP operating income | $ | 663 | $ | 866 | $ | 440 | ||||||
| Inventory accounting policy change to FIFO | 133 | — | — | |||||||||
| Change in inventory cost absorption | 160 | — | — | |||||||||
| 3D XPoint inventory write-down | 49 | — | — | |||||||||
| Stock-based compensation | 112 | 92 | 85 | |||||||||
| Patent license charges | 128 | — | — | |||||||||
| Restructure and asset impairments | 5 | 8 | 10 | |||||||||
| Other | 7 | 7 | 7 | |||||||||
| Non-GAAP operating income | $ | 1,257 | $ | 973 | $ | 542 | ||||||
| GAAP net income attributable to Micron | $ | 603 | $ | 803 | $ | 405 | ||||||
| Inventory accounting policy change to FIFO | 133 | — | — | |||||||||
| Change in inventory cost absorption | 160 | — | — | |||||||||
| 3D XPoint inventory write-down | 49 | — | — | |||||||||
| Stock-based compensation | 112 | 92 | 85 | |||||||||
| Patent license charges | 128 | — | — | |||||||||
| Restructure and asset impairments | 5 | 8 | 10 | |||||||||
| Amortization of debt discount and other costs | 8 | 7 | 6 | |||||||||
| Other | 7 | 7 | 7 | |||||||||
| Estimated tax effects of above and non-cash changes in net deferred income taxes | (77 | ) | (20 | ) | 4 | |||||||
| Non-GAAP net income attributable to Micron | $ | 1,128 | $ | 897 | $ | 517 | ||||||
| GAAP weighted-average common shares outstanding - Diluted | 1,144 | 1,135 | 1,133 | |||||||||
| Adjustment for stock-based compensation and capped calls | 10 | 11 | 11 | |||||||||
| Non-GAAP weighted-average common shares outstanding - Diluted | 1,154 | 1,146 | 1,144 | |||||||||
| GAAP diluted earnings per share | $ | 0.53 | $ | 0.71 | $ | 0.36 | ||||||
| Effects of the above adjustments | 0.45 | 0.07 | 0.09 | |||||||||
| Non-GAAP diluted earnings per share | $ | 0.98 | $ | 0.78 | $ | 0.45 | ||||||
RECONCILIATION OF GAAP TO NON-GAAP MEASURES, Continued
