UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 29, 2013
OR
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
(State or other jurisdiction of incorporation or organization)
8000 S. Federal Way, Boise, Idaho
(Address of principal executive offices)
Registrant's telephone number, including area code
75-1618004
(IRS Employer Identification No.)
83716-9632
(Zip Code)
(208) 368-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.10 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company)
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such stock on February 28, 2013,
as reported by the NASDAQ Global Select Market, was approximately $6.5 billion. Shares of common stock held by each executive officer and director and
by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's common stock as of October 18, 2013, was 1,051,855,450.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Fiscal 2013 Annual Meeting
of Shareholders to be held on January 22, 2014, are incorporated by reference into Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS
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 effect of the acquisition of Elpida on our market position; in "Products" regarding increased production of DDR4
products, growth in demand for NAND Flash products and solid-state drives; in "Manufacturing" regarding the transition to
smaller line-width process technologies; in "Marketing and Customers" regarding the effect of the Elpida acquisition on
market concentrations; and in "Employees" regarding restructure costs associated with our Israel facility. Our actual results
could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those identified in "Item 1A. Risk Factors." All period
references are to our fiscal periods unless otherwise indicated.
Corporate Information
Micron Technology, Inc., a Delaware corporation, was incorporated in 1978. As used herein, "we," "our," "us" and similar
terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. Our executive offices are
located at 8000 South Federal Way, Boise, Idaho 83716-9632 and our telephone number is (208) 368-4000. Information about
us is available on the internet at www.micron.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as any amendments to these reports, are available through our website as soon
as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the
"SEC"). Materials filed by us with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling (800)
SEC-0330. Also available on our website are our: Corporate Governance Guidelines, Governance Committee Charter,
Compensation Committee Charter, Audit Committee Charter and Code of Business Conduct and Ethics. Any amendments or
waivers of our Code of Business Conduct and Ethics will also be posted on our website at www.micron.com within four
business days of the amendment or waiver. Copies of these documents are available to shareholders upon request. Information
contained or referenced on our website is not incorporated by reference and does not form a part of this Annual Report on Form
10-K.
Overview
We are one of the world's leading providers of advanced semiconductor solutions. Through our worldwide operations, we
manufacture and market a full range of DRAM, NAND Flash and NOR Flash memory, as well as other innovative memory
technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking,
automotive, industrial, embedded and mobile products. We market our products through our internal sales force, independent
sales representatives and distributors primarily to original equipment manufacturers ("OEMs") and retailers located around the
world. Our success is largely dependent on the market acceptance of our diversified portfolio of semiconductor products,
efficient utilization of our manufacturing infrastructure, successful ongoing development of advanced process technologies and
generating a return on research and development ("R&D") investments.
We obtain products from three primary sources: (1) production from our wholly-owned manufacturing facilities, (2)
production from our joint venture manufacturing facilities, and (3) to a lesser degree, from third party manufacturers. In recent
years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various partnering
arrangements, including joint ventures.
1
We make significant investments to develop the proprietary product and process technologies that are implemented in our
worldwide manufacturing facilities and through our joint ventures. These investments enable our production of semiconductor
products with increasing functionality and performance at lower costs. We generally reduce the manufacturing cost of each
generation of product through advancements in product and process technology such as our leading-edge line-width process
technology and innovative array architecture. We continue to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption, improved read/
write reliability and increased memory density. To leverage our significant investments in R&D, we have formed, and may
continue to form, strategic joint ventures that allow us to share the costs of developing memory product and process
technologies with joint venture partners. In addition, from time to time, we also sell and/or license technology to other parties.
We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other
arrangements.
On July 31, 2013, we completed the acquisition of Elpida Memory, Inc. ("Elpida"), a Japanese corporation, pursuant to the
terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that
we entered into on July 2, 2012, with the trustees of Elpida and one of its subsidiaries, Akita Elpida Memory, Inc., a Japanese
corporation ("Akita" and, together with Elpida, the "Elpida Companies") pursuant to and in connection with the Elpida
Companies' corporate reorganization proceedings under the Corporate Reorganization Act of Japan. We paid $615 million for
the acquisition of 100% of Elpida's equity. On July 31, 2013, we also acquired a 24% ownership interest in Rexchip
Electronics Corporation ("Rexchip"), a Taiwanese corporation and manufacturing joint venture formed by Powerchip
Technology Corporation ("Powerchip") and Elpida, from Powerchip and certain of its affiliates (the "Powerchip Group")
pursuant to a share purchase agreement. We paid $334 million in cash for the shares. Elpida and its subsidiaries (the "Elpida
Group") own approximately 65% of Rexchip's outstanding common stock. Therefore, as a result of the consummation of our
acquisition of Elpida and the Rexchip shares from the Powerchip Group, we own approximately 89% of Rexchip's common
stock. The provisional fair values of assets and liabilities acquired include, among other items, cash and restricted cash
aggregating $1,618 million; inventories of $962 million; property, plant and equipment of $935 million; net deferred tax assets
of $917 million and debt of $2,134 million.
Elpida's assets include, among others: a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan; its
approximate 65% ownership interest in Rexchip, whose assets include a 300mm DRAM wafer fabrication facility located in
Taichung City, Taiwan; and a 100% ownership interest in Akita, whose assets include an assembly and test facility located in
Akita, Japan.
Elpida's semiconductor memory products include Mobile DRAM, targeted toward mobile phones and tablets. We believe
that combining the complementary product portfolios of Micron and Elpida will strengthen our position in the memory market
and enable us to provide customers with a wider portfolio of high-quality memory solutions. We also believe that our
acquisition of Elpida will strengthen our market position in the memory industry through increased research and development
and manufacturing scale, improved access to core memory market segments, and additional wafer capacity to balance among
our DRAM, NAND Flash and NOR Flash memory solutions. Elpida's operations are included primarily in the DSG and WSG
segments.
The Elpida Companies are currently subject to corporate reorganization proceedings under the Corporate Reorganization
Act of Japan. Because the plans of reorganization of the Elpida Companies provide for ongoing payments to creditors
following the closing of the Elpida acquisition, these proceedings are continuing, and the Elpida Companies remain subject to
the oversight of the Tokyo District Court (the "Japan Court") and of the trustees appointed by the Japan Court (including a
trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to
as the legal trustee), pending completion of the reorganization proceedings. As a result of this oversight and related consent
rights of the Japan Court and the legal trustee, our ability to effectively integrate the Elpida Companies as part of our global
operations or to cause the Elpida Companies to take certain actions that we deem advisable for their businesses could be
adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions. For more information, see
"Part I, Item 1A. Risk Factors" and "Part I, Item 3. Legal Proceedings – Reorganization Proceedings of the Elpida Companies."
2
Business Segments
We have the following four reportable segments:
DRAM Solutions Group ("DSG"): Includes DRAM products sold to the PC, consumer electronics, networking and server
markets.
NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music
players and the high-density computing market, as well as NAND Flash products sold to Intel Corporation ("Intel")
through our IM Flash joint venture.
Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip
packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and
industrial applications, as well as NOR and NAND Flash sold to consumer electronics, networking, PC and server
markets.
Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other.
For more information regarding our segments, see "Part I, Item 8. Financial Statements and Supplementary Data – Notes
to Consolidated Financial Statements – Segment Information."
Products
Dynamic Random Access Memory ("DRAM")
DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage
and retrieval. DRAM sales products were 48%, 39% and 41% of our total net sales in 2013, 2012 and 2011, respectively.
DRAM products are sold by our DSG, WSG and ESG segments and are used in computers, servers, tablets, mobile phones,
communication equipment, computer peripherals, industrial, automotive and other electronic devices. We offer DRAM
products with a variety of performance, pricing and other characteristics including high-volume DDR4, DDR3 and DDR2
products as well as specialty DRAM memory products including Mobile Low Power DRAM ("LPDRAM"), DDR, SDRAM,
Reduced Latency DRAM ("RLDRAM") and Pseudo-static DRAM ("PSRAM").
DDR4, DDR3 and DDR2: DDR4, DDR3 and DDR2 are standardized, high-density, high-volume, DRAM products.
DDR4, DDR3 and DDR2 products offer high speed and high bandwidth at a relatively low cost. DDR3 sales were 31%, 20%
and 21% of our total net sales in 2013, 2012 and 2011, respectively. DDR2 sales were 7%, 9% and 10% of our total net sales in
2013, 2012 and 2011, respectively. We began sampling DDR4 products in 2013 and expect to begin commercial production of
DDR4 products in significant volumes during 2014.
In 2013, we offered DDR3 products in 1Gb, 2Gb and 4Gb densities and DDR2 products in 512 megabit ("Mb"), 1
gigabit ("Gb") and 2Gb densities. These densities enable us to meet customer demands for a broad array of products and we
offered these products in multiple configurations, speeds and package types.
Specialty DRAM products: We also offer DRAM memory products including DDR and DDR2 Mobile LPDRAM,
DDR, SDRAM, RLDRAM and PSRAM in densities ranging from 64Mb to 4Gb. LPDRAM products are used primarily in
mobile phones, tablets, embedded applications, ultra-thin laptop computers and other mobile consumer devices that require low
power consumption. Our other specialty DRAM products are used primarily in networking devices, servers, consumer
electronics, communications equipment, computer peripherals, automotive and industrial applications as well as computer
memory upgrades. In September 2013, we began sampling Hybrid Memory Cube ("HMC") products, which are are
semiconductor memory devices where vertical stacks of DRAM die that are connected using through-silicon-via interconnects
are placed above a small, high-speed logic layer. HMC enables ultra-high system performance with significantly lower power-
per-bit. Aggregate sales of LPDRAM and our other specialty DRAM products were 10% of our total net sales in 2013, 2012
and 2011.
3
NAND Flash Memory
NAND Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when
power is turned off. NAND Flash sales were 40%, 44% and 36% of our total net sales in 2013, 2012 and 2011, respectively.
NAND Flash products are sold by our NSG, WSG and ESG segments. NAND Flash is ideal for mass-storage devices due to its
fast erase and write times, high density and low cost per bit relative to other solid-state memories. Embedded NAND Flash-
based storage devices are utilized in mobile phones, solid-state drives ("SSDs"), tablets, computers, industrial and automotive
applications, MP3/4 players and other personal and consumer applications. Removable storage devices, such as USB and Flash
memory cards, are used with applications such as PCs, digital still cameras, MP3/4 players and mobile phones. The market for
NAND Flash products has grown rapidly and we expect it to continue to grow due to demand for these and other removable
and embedded storage devices.
Our NAND Flash products feature a small cell structure that enables higher densities for demanding applications. We offer
Single-Level Cell ("SLC") NAND Flash products as well as Multi-Level Cell ("MLC") and Triple-Level Cell ("TLC") NAND
Flash products, which have two and three times, respectively, the bit density of SLC NAND Flash products. In 2013, we
offered SLC NAND products in 1 Gb to 64Gb densities. In addition, we offered 8Gb to 128Gb 2-bit-per-cell MLC NAND
Flash products and 32Gb to 128Gb 3-bit-per-cell TLC NAND Flash products. We offer high-speed NAND Flash products that
are compatible with advanced interfaces.
We offer client and enterprise SSDs which feature higher performance, reduced power consumption and enhanced
reliability as compared to typical hard disk drives. Our client SSDs are targeted at notebook and other consumer applications.
Using our NAND Flash process technology and a leading-edge SATA 6 Gb/s interface, our SSDs deliver read and write speeds
that help improve boot and application load times and deliver higher performance than hard disk drives. Our client SSDs are
offered in 2.5-inch and 1.8-inch form factors, with densities up to 960 gigabytes ("GB"). Our enterprise SSDs are targeted at
server applications and incorporate our Extended Performance and Enhanced Reliability Technology (XPERT) architecture,
which closely incorporates the storage and controller through highly optimized firmware algorithms and hardware
enhancements. The end result is a set of market-focused enterprise features that deliver ultra-low latencies, improved data
transfer time, power-loss protection and cost-effectiveness, along with higher capacities and power efficiency. We offer
enterprise SSDs with capacities up to 1.4 terabytes. We expect that demand for both client and enterprise SSDs will continue to
increase significantly over the next several years.
We also offer managed NAND and NAND-based multichip packages ("MCPs") products, which incorporate our NAND
Flash. Our managed NAND products combine NAND Flash with a logic controller that performs media management and error
code correction ("ECC"), which provides reduced ECC complexity, better system performance, improved reliability, easy
integration, and lower overall system costs. Our managed NAND products include e-MMC memory, embedded USB, and
ClearNAND. Our NAND-based MCPs combine NAND Flash with DRAM and/or other memory devices in a single package,
which improves overall functionality and performance while simplifying system design.
Through our Lexar® brand, we sell high-performance digital media products and other flash-based storage products
through retail and OEM channels. Our digital media products include a variety of flash memory cards and JumpDrive™
products with a range of speeds, capacities and value-added features. We offer flash memory cards in a variety of speeds and
capacities and in all major media formats, including: CompactFlash, Memory Stick and Secure Digital ("SD"). CompactFlash
and Memory Stick products sold by us incorporate our patented controller technology. Other products, including SD memory
cards and some JumpDrive products, incorporate third party controllers. We also manufacture products that are sold under
other brand names and resell flash memory products that are purchased from other NAND Flash suppliers.
4
NOR Flash Memory
NOR Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when
power is turned off, offer fast read times due to random access capability and have execute-in-place ("XiP") capability that
enables processors to read NOR Flash without first accessing RAM. These capabilities make NOR ideal for storing program
code in wireless and embedded applications. Our NOR Flash sales were 9%, 12% and 18% of our total net sales for 2013,
2012 and 2011, respectively. NOR Flash products are sold by our WSG and ESG segments.
We offer both parallel and serial interface NOR Flash products in a broad range of densities, packages and features. Our
parallel NOR Flash products are constructed to meet the needs of the consumer electronics, industrial, wired and wireless
communications, computing and automotive applications. These products offer high densities, XiP performance, architectural
flexibility and proven reliability in rigorous industrial settings. Our serial NOR Flash products are designed to meet the needs
of consumer electronics, industrial, automotive, wired and wireless communications and computing applications. These
products offer industry-standard packaging, pinouts, command sets and chipset compatibility.
Partnering Arrangements
The following is a summary of our partnering arrangements as of August 29, 2013:
Member or Partner
Micron
Ownership Interest
Formed/
Acquired Product Market
Consolidated Entities
IMFT
MP Mask
(1)
(2)
Intel Corporation
Photronics, Inc.
Equity Method Investments
Inotera
Tera Probe
(3)
(4)
Nanya Technology Corporation
Various
51%
50%
35%
40%
2006
2006
NAND Flash
Photomasks
2009
DRAM
2013 Wafer Probe
(1) IMFT: We partner with Intel for the design, development and manufacture of NAND Flash and certain emerging
memory products. In connection therewith, we formed a joint venture with Intel, IM Flash Technologies, LLC
("IMFT"), to manufacture NAND Flash memory products for the exclusive use of the members. The members share
the output of IMFT generally in proportion to their investment. We sell NAND Flash products to Intel through IMFT
at long-term negotiated prices approximating cost. We generally share product design and other research and
development costs for NAND Flash and certain emerging memory technologies equally with Intel. (See "Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable
Interest Entities – IM Flash" note.)
(2) MP Mask: We produce photomasks for leading-edge and advanced next generation semiconductors through MP Mask
Technology Center, LLC ("MP Mask"), a joint venture with Photronics, Inc. ("Photronics"). We and Photronics also
have supply arrangements wherein we purchase a substantial majority of the reticles produced by MP Mask. (See
"Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated
Variable Interest Entities – MP Mask" note.)
5
(3) Inotera: We partner with Nanya Technology Corporation ("Nanya") for the manufacture of DRAM products, and
through December 2012, the joint development of DRAM process technology. In connection therewith, we have
partnered with Nanya in a DRAM memory company in Taiwan, Inotera Memories, Inc. ("Inotera"). Through
December 2012, we had a supply agreement with Inotera and Nanya which gave us the right and obligation to
purchase 50% of Inotera's semiconductor memory capacity subject to specific terms and conditions. Under the
formula for this supply agreement, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our
and Nanya's revenue for the resale of products from wafers supplied by Inotera, were considered in determining costs
for wafers purchased by us from Inotera. Effective beginning January 2013, we are obligated to purchase for an initial
period through January 2016, substantially all of Inotera's output at a purchase price based on a discount from market
prices for our comparable components.
In connection with the partnering agreement, we have also deployed and licensed certain intellectual property related
to the manufacture of DRAM products to Nanya and licensed certain intellectual property from Nanya. Through
December 2012, we partnered with Nanya to jointly develop process technology and designs to manufacture DRAM
products under a cost-sharing arrangement effective beginning in April 2010, under which we shared DRAM
development costs with Nanya. Effective beginning January 2013, Nanya ceased participating in the joint
development program. We receive royalties from Nanya for sales of DRAM products manufactured by or for Nanya
with technology developed prior to April 2010. (See "Item 8. Financial Statements and Supplementary Data – Notes
to Consolidated Financial Statements – Equity Method Investments – Inotera" note.)
(4) Tera Probe: We have an approximate 40% ownership in Tera Probe, Inc., an entity that provides semiconductor probe
and test services. Tera Probe provides wafer probe services for our Elpida and Rexchip subsidiaries.
Manufacturing
Our manufacturing facilities are located in the United States, China, Israel, Japan, Malaysia, Puerto Rico, Singapore and
Taiwan. Our Inotera joint venture also has a wafer fabrication facility in Taiwan. In September 2013, we entered into an
agreement to sell our 200mm wafer fabrication equipment in Kiryat Gat, Israel to Intel and to terminate the related facility lease
with Intel. If this transaction is completed, Intel will manufacture wafers for us at the Kiryat Gat facility through 2014 through
a series of arrangements. In 2011, we sold our wafer fabrication facility in Japan to Tower Semiconductor Ltd. ("Tower") and
entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014. Our
manufacturing facilities generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is extremely
capital intensive, requiring large investments in sophisticated facilities and equipment. A significant portion of our
semiconductor equipment is replaced every three to five years with increasingly advanced equipment. NAND Flash, DRAM
and NOR Flash products share common manufacturing processes, enabling us to leverage our product and process technologies
and manufacturing infrastructure across these product lines.
Our process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer
fabrication, assembly and test. Efficient production of semiconductor products requires utilization of advanced semiconductor
manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary determinants of
manufacturing cost are process line-width, number of mask layers, number of fabrication steps and number of good die
produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of
manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type
and cleanliness of the manufacturing environment. We continuously enhance our production processes, reducing die sizes and
transitioning to higher density products. In 2013, the majority of our DRAM production was manufactured on 30nm line-width
process technology. In connection with our acquisition of Elpida, we expect in 2014 that a significant portion of our DRAM
production will be manufactured on 25nm line-width process technology. In the fourth quarter of 2013, a majority of our
NAND Flash memory products were manufactured on our 20nm line-width process technology. We expect to begin
transitioning our NAND Flash production to our 16nm line-width process technology in 2014. Our NOR Flash memory
products in 2013 were manufactured on our 65nm and 45nm line-width process technologies. We manufacture all of our high-
volume NAND Flash and DRAM products on 300mm wafers. In 2013, we manufactured NOR Flash, some specialty DRAM
and non-memory products on 200mm wafers.
6
Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting
contaminants. Despite stringent manufacturing controls, equipment errors, minute impurities in materials, defects in
photomasks, circuit design marginalities or defects and dust particles can lead to wafers being scrapped and individual circuits
being nonfunctional. Success of our manufacturing operations depends largely on minimizing defects to maximize yield of
high-quality circuits. In this regard, we employ rigorous quality controls throughout the manufacturing, screening and testing
processes. We are able to recover certain devices by testing and grading them to their highest level of functionality.
We test our products at various stages in the manufacturing process, perform high temperature burn-in on finished products
and conduct numerous quality control inspections throughout the entire production flow. In addition, we use our proprietary
AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of semiconductor memory die
during the burn-in process, capturing quality and reliability data and reducing testing time and cost.
We sell semiconductor products in both packaged and unpackaged (i.e. "bare die") forms. Our packaged products include
memory modules, MCP's, managed NAND, SSDs, memory cards and USB devices. We assemble many products in-house
and, in some cases, we outsource assembly services where we can reduce costs and minimize our capital investment. We
contract with independent foundries and assembly and testing organizations to manufacture NAND Flash media products such
as memory cards and USB devices.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate
resources to our most profitable products but also increases the complexity of our manufacturing operations. Although our
product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions
to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts and the reallocation of
manufacturing capacity across various product lines.
Availability of Raw Materials
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our
raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our
standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases including helium, photoresist, lead frames and molding
compound. Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay
our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw
materials is disrupted or our lead times extended, our business, results of operations or financial condition could be materially
adversely affected.
Marketing and Customers
Our products are sold into computing, consumer, networking, telecommunications, automotive, industrial, and mobile
markets. Market concentrations from 2013 net sales were approximately as follows: computing (including desktop PCs,
servers, notebooks and workstations), 30%; mobile, 15%; consumer electronics, 15%; SSDs, 15% and networking and storage,
10%. Sales to Intel, primarily NAND Flash products through IM Flash, were 10% of our net sales in 2013, 12% of our net
sales in 2012, and 10% of our net sales in 2011. Sales to Hewlett-Packard Company, primarily of DRAM, were 10% of our net
sales in 2013, 8% of our net sales in 2012 and 9% of our net sales in 2011. We expect that our acquisition of Elpida will
increase our concentration of sales to mobile, graphics and computing markets in 2014.
Our semiconductor memory products are offered under the Micron, Lexar®, Crucial™, SpecTek® and Elpida brand names
and private labels. We market our semiconductor memory products primarily through our own direct sales force and maintain
sales or representative offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory products
primarily through retail channels and our Crucial-branded products through a web-based customer direct sales channel as well
as channel and distribution partners. Our products are also offered through independent sales representatives and distributors.
Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a commission basis.
We make shipments against these orders directly to the customer. Distributors carry our products in inventory and typically sell
a variety of other semiconductor products, including competitors' products. We maintain inventory at locations in close
proximity to certain key customers to facilitate rapid delivery of products. Many of our customers require a thorough review or
qualification of semiconductor products, which may take several months.
7
Backlog
Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts. Accordingly,
new order volumes for our semiconductor products fluctuate significantly. We typically accept orders with acknowledgment
that the terms may be adjusted to reflect market conditions at the date of shipment. For these reasons, we do not believe that
our order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.
Product Warranty
Because the design and manufacturing process for semiconductor products is highly complex, it is possible that we may
produce products that do not comply with customer specifications, contain defects or are otherwise incompatible with end
uses. In accordance with industry practice, we generally provide a limited warranty that our products are in compliance with
our specifications existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures
of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit
with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty
coverage than that provided under our general terms and conditions.
Competition
We face intense competition in the semiconductor memory market from a number of companies, including Samsung
Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Spansion Inc. and Toshiba Corporation. Some of our competitors
are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets
in which we compete, invest in technology and capitalize on growth opportunities. Our competitors seek to increase silicon
capacity, improve yields, reduce die size and minimize mask levels in their product designs resulting in significantly increased
worldwide supply and downward pressure on prices. Many of our high-volume memory products are manufactured to industry
standard specifications and as such have similar performance characteristics to those of our competitors. For these high-
volume memory products, the principal competitive factors are generally price and performance characteristics including:
operating speed, power consumption, reliability, compatibility, size and form factors. For our other memory products, the
aforementioned performance characteristics generally take precedence to pricing.
Research and Development
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process
technologies, as well as new fundamentally different memory structures, materials and packages, which are designed to
facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on the
enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our
core semiconductor expertise and the development of new manufacturing materials. Product design and development efforts
include our high density DDR3 and DDR4 DRAM and Mobile Low Power DDR DRAM products as well as high density and
mobile NAND Flash memory (including MLC and TLC technologies), NOR Flash memory, specialty memory, SSDs, hybrid
memory cubes and other memory technologies and systems.
Our R&D expenses were $931 million, $918 million and $791 million in 2013, 2012 and 2011, respectively. We generally
share R&D process and design costs for NAND Flash with Intel. We also share R&D costs for certain emerging memory
technologies with Intel. We generally shared R&D process and design costs for DRAM with Nanya through December 2012,
when our cost-sharing agreement was terminated. As a result of reimbursements under our Intel and Nanya cost-sharing
arrangements, our overall R&D expenses were reduced by $146 million, $225 million and $236 million in 2013, 2012 and
2011, respectively.
8
To compete in the semiconductor memory industry, we must continue to develop technologically advanced products and
processes. We believe that expansion of our semiconductor product offerings is necessary to meet expected market demand for
specific memory solutions. Our process, design and package development efforts occur at multiple locations across the world,
with our largest R&D centers located in Boise, Idaho and Hiroshima, Japan. Our largest design center is also located at our
corporate headquarters in Boise, Idaho. We have several additional product design centers in other strategic locations around
the world. In 2012, we commenced operation of our new R&D facility in Boise, which was designed to accommodate 450mm
wafer manufacturing. In addition, we develop photolithography mask technology at our MP Mask joint venture facility in
Boise.
R&D expenses vary primarily with the number of development wafers processed, the cost of advanced equipment
dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture
our products, we typically begin to process wafers before completion of performance and reliability testing. We deem
development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability.
R&D expenses can vary significantly depending on the timing of product qualification.
Geographic Information
Sales to customers outside the United States totaled $7.6 billion for 2013 and included $3.8 billion in sales in China, $980
million in sales in Taiwan, $820 million in sales in Europe, $193 million in sales in Malaysia and $1.3 billion in sales in the rest
of the Asia Pacific region (excluding China, Malaysia and Taiwan). Sales to customers outside the United States totaled $7.0
billion for 2012 and $7.4 billion for 2011. As of August 29, 2013, we had net property, plant and equipment of $3.2 billion in
Singapore, $3.0 billion in the United States, $615 million in Japan, $350 million in China, $307 million in Taiwan, $28 million
in Israel, $18 million in Italy and $42 million in other countries. (See "Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Geographic Information" note and "Item 1A. Risk Factors.")
Patents and Licenses
In recent years, we have been recognized as a leader in per capita and quality of patents issued. As of August 29, 2013, we
owned approximately 16,200 U.S. patents and 3,700 foreign patents. In addition, we have numerous U.S. and foreign patent
applications pending. Our patents have various terms expiring through 2032.
We have a number of patent and intellectual property license agreements and have from time to time licensed or sold our
intellectual property to third parties. Some of these license agreements require us to make one-time or periodic payments while
others have resulted in us receiving payments. We may need to obtain additional patent licenses or renew existing license
agreements in the future and we may enter into additional sales or licenses of intellectual property and potential partnering
arrangements. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
Employees
As of August 29, 2013, we had approximately 30,900 employees, of which approximately 19,600 were outside the United
States, including approximately 7,500 in Singapore, 3,700 in Japan, 2,700 in China, 2,100 in Taiwan, 1,100 in Italy, 1,000 in
Israel and 1,000 in Malaysia. Our employees include approximately 1,700 in our IMFT joint venture, primarily located in the
United States and 5,700 from our acquisition of Elpida and Rexchip, primarily located in Japan and Taiwan. In September
2013, we entered into an agreement to sell our 200mm wafer fabrication equipment in Kiryat Gat, Israel to Intel and to
terminate the related facility lease with Intel. If this transaction is completed, most of our employees in Israel will terminate
their employment with us and be transferred to Intel. As of August 29, 2013, we do not anticipate incurring any significant
additional costs for this restructure activity. Our employment levels can vary depending on market conditions and the level of
our production, research and product and process development. Many of our employees are highly skilled and our continued
success depends in part upon our ability to attract and retain such employees. The loss of key personnel could have a material
adverse effect on our business, results of operations or financial condition.
9
Environmental Compliance
Government regulations impose various environmental controls on raw materials and discharges, emissions and solid
wastes from our manufacturing processes. In 2013, our wafer fabrication facilities continued to conform to the requirements of
ISO 14001 certification. To continue certification, we met annual requirements in environmental policy, compliance, planning,
management, structure and responsibility, training, communication, document control, operational control, emergency
preparedness and response, record keeping and management review. While we have not experienced any material adverse
effects to our operations from environmental regulations, changes in the regulations could necessitate additional capital
expenditures, modification of our operations or other compliance actions.
Directors and Executive Officers of the Registrant
Our officers are appointed annually by the Board of Directors and our directors are elected annually by our shareholders.
Any directors appointed by the Board of Directors to fill vacancies on the Board serve until the next election by the
shareholders. All officers and directors serve until their successors are duly chosen or elected and qualified, except in the case
of earlier death, resignation or removal.
As of August 29, 2013, the following executive officers and directors were subject to the reporting requirements of Section
16(a) of the Securities Exchange Act of 1934, as amended.
Name
Mark W. Adams
Scott J. DeBoer
D. Mark Durcan
Thomas T. Eby
Ronald C. Foster
Glen W. Hawk
Roderic W. Lewis
Patrick T. Otte
Michael J. Rayfield
Michael W. Sadler
Brian J. Shields
Brian M. Shirley
Steven L. Thorsen, Jr.
Robert L. Bailey
Richard M. Beyer
Patrick J. Byrne
D. Warren A. East
Mercedes Johnson
Lawrence N. Mondry
Robert E. Switz
Age Position
49
President
47 Vice President of Research & Development
52 Director and Chief Executive Officer
52 Vice President of Embedded Solutions
62 Vice President of Finance and Chief Financial Officer
51 Vice President of NAND Solutions
58 Vice President of Legal Affairs, General Counsel and Corporate Secretary
50 Vice President of Human Resources
52 Vice President of Wireless Solutions
55 Vice President of Corporate Development
51 Vice President of Worldwide Operations
44 Vice President of DRAM Solutions
48 Vice President of Worldwide Sales and Corporate Marketing
56 Director
64 Director
52 Director
51 Director
59 Director
53 Director
66
Chairman
Mark W. Adams joined us in June 2006 and served as our Vice President of Digital Media and Vice President of Worldwide
Sales before being appointed our President in February 2012. From January 2006, until he joined us, Mr. Adams was the Chief
Operating Officer of Lexar Media, Inc. Mr. Adams served as the Vice President of Sales and Marketing for Creative Labs, Inc.
from December 2002 to January 2006. From March 2000 to September 2002, Mr. Adams was the Chief Executive Officer of
Coresma, Inc. Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business School.
Scott J. DeBoer joined us in February 1995 as a process development engineer and has served in various leadership
positions since that time. Dr. DeBoer became an officer in May 2007 and in January 2013 he was appointed our Vice President
of Research & Development. Dr. DeBoer holds a PhD in Electrical Engineering and a MS in Physics from Iowa State
University. He completed his undergraduate degree at Hastings College.
D. Mark Durcan joined us in June 1984 and has served in various positions since that time. Mr. Durcan was appointed our
Chief Operating Officer in February 2006, President in June 2007 and Director and Chief Executive Officer in February 2012.
Mr. Durcan has been an officer since 1996. Mr. Durcan holds a BS and MChE in Chemical Engineering from Rice University.
Mr. Durcan has served on our Board of Directors since February 2012.
10
Thomas T. Eby joined us in September 2010 and serves as our Vice President of Embedded Solutions. Mr. Eby was with
Spansion Inc. from October 2005 to September 2010 where he held leading roles in strategy and communications, sales and
marketing, and integration. He was also the General Manager and Executive Vice President of Spansion's embedded group.
Mr. Eby previously held a variety of positions in sales and marketing and strategy with AMD. Mr. Eby holds a BS degree in
Electrical Engineering and Computer Science from Princeton University.
Ronald C. Foster joined us in April 2008 and is the Chief Financial Officer and Vice President of Finance. He was
appointed to his current position in 2008 after serving as a member of the Company’s Board of Directors from June 2004 to
April 2005. Before joining Micron, Mr. Foster was the Chief Financial Officer of FormFactor, Inc. He previously served as
the Chief Financial Officer for JDS Uniphase, Inc., and Novell, Inc. Mr. Foster holds a BA in Economics from Whitman
College and an MBA from the University of Chicago.
Glen W. Hawk joined us in May 2010 and serves as our Vice President of NAND Solutions. Mr. Hawk served as the Vice
President and General Manager of the Embedded Business Group for Numonyx from 2008 to May 2010. Prior to Numonyx,
Mr. Hawk served as General Manager of the Flash Product Group for Intel Corporation. Mr. Hawk holds a BS in Chemical
Engineering from the University of California, Berkeley.
Roderic W. Lewis joined us in August 1991 and has served in various capacities since that time. Mr. Lewis has served as
our Vice President of Legal Affairs, General Counsel and Corporate Secretary since July 1996. Mr. Lewis holds a BA in
Economics and Asian Studies from Brigham Young University and a JD from Columbia University School of Law.
Patrick T. Otte joined us in 1987 and has served in various positions, including production and operations manager in
several of our fabrication facilities and site director for our facility in Manassas, Virginia. Mr. Otte has served as our Vice
President of Human Resources since March 2007. Mr. Otte holds a BA in Religious Education from St. Paul Bible College.
Michael J. Rayfield joined us in September 2012 and serves as our Vice President of Wireless Solutions. Mr. Rayfield
served as the Vice President and General Manager of NVIDIA, Inc.'s Mobile Business Unit from September 2005 to August
2012. Mr. Rayfield also held executive positions at Stretch, Inc., Reshape, Inc., Cisco Systems, Growth Networks and Texas
Instruments. Mr. Rayfield holds a BS in Electrical Engineering from the University of Vermont.
Michael W. Sadler joined us in September 1992 as a regional sales manager and has served in various leadership positions
since that time, including Vice President of Worldwide Sales for us and Executive Vice President of Inotera Memories, Inc. In
June 2010, Mr. Sadler was appointed our Vice President of Corporate Development. Mr. Sadler holds a BS in Decision Science
and an MBA from the University of Santa Clara.
Brian J. Shields joined us in November 1986 and has served in various operational leadership positions since that
time. Mr. Shields first became an officer in March 2003 and has served as our Vice President of Worldwide Operations since
June 2010.
Brian M. Shirley joined us in August 1992 and has served in various leadership positions since that time. Mr. Shirley
became Vice President of Memory in February 2006 and has served as Vice President of DRAM Solutions from June
2010. Mr. Shirley holds a BS in Electrical Engineering from Stanford University.
Steven L. Thorsen, Jr. joined us in September 1988 and has served in various leadership positions since that time including
Vice President and Chief Procurement Officer. Mr. Thorsen became Vice President of Worldwide Sales and Corporate
Marketing in April 2012. Mr. Thorsen holds a BA in Business Administration from Washington State University.
Robert L. Bailey was the Chairman of the Board of Directors of PMC-Sierra ("PMC") from 2005 until May 2011 and also
served as PMC's Chairman from February 2000 until February 2003. Mr. Bailey has served as a director of PMC since October
1996. He also served as the President and Chief Executive Officer of PMC Sierra, Ltd. from July 1997 until May 2008. PMC
is a leading provider of broadband communication and semiconductor storage solutions for the next-generation Internet. Mr.
Bailey currently serves on the Board of Directors of Entropic Communications. Mr. Bailey holds a BS in Electrical
Engineering from the University of Bridgeport and an MBA from the University of Dallas. He has served on our Board of
Directors since 2007.
11
Richard M. Beyer was Chairman and CEO of Freescale Semiconductor from 2008 through June 2012 and continues to
serve as a Director with Freescale. Prior to Freescale, Mr. Beyer was President, Chief Executive Officer and Director of Intersil
Corporation from 2002 to 2008. He has also previously served in executive management roles at FVC.com, VLSI Technology
and National Semiconductor Corporation. He currently serves on the Board of Directors of Dialog Semiconductor. Mr. Beyer
served three years as an officer in the United States Marine Corps. He holds a BA and a MA in Russian from Georgetown
University and a MBA in Marketing and International Business from Columbia University Graduate School of Business. Mr.
Beyer joined our Board of Directors in January 2013.
Patrick J. Byrne has been the Vice President of Strategy and Business Development and Chief Technical Officer of
Danaher Corporation since November 1, 2012. Danaher Corporation designs, manufactures, and markets innovative products
and services to professional, medical, industrial, and commercial customers. Prior to that, Mr. Byrne was the Director,
President and Chief Executive Officer of Intermec, Inc. from 2007 to May 2012. Mr. Byrne was with Agilent Technologies,
Inc. from 1999 to 2007 and served in various management positions. Mr. Byrne is also a member of the Board of Directors of
Flow International Corporation. Mr. Byrne holds a BS in Electrical Engineering from the University of California, Berkeley,
and an MS degree in Electrical Engineering from Stanford University. Mr. Byrne joined our Board of Directors in April 2011.
Warren East was the CEO of ARM Holdings PLC from October 2001 to July 2013. He originally joined ARM in 1994,
and served in various roles prior to being appointed CEO. He currently serves on the board of De La Rule PLC, Inc. Mr. East
is a chartered engineer, Distinguished Fellow of the British Computer Society, Fellow of the Institution of Engineering and
Technology, Fellow of the Royal Academy of Engineering and a Companion of the Chartered Management Institute. Mr. East
holds BA BSc(Eng) and MBA MEng in Engineering Science from Oxford University and an MBA and honorary doctorate
from Cranfield University. Mr. East joined our Board of Directors in July 2013.
Mercedes Johnson was the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a supplier of
analog interface components for communications, industrial and consumer applications, from December 2005 to August
2008. She also served as the Senior Vice President, Finance, of Lam Research Corporation ("Lam") from June 2004 to January
2005 and as Lam's Chief Financial Officer from May 1997 to May 2004. Ms. Johnson holds a degree in Accounting from the
University of Buenos Aires and currently serves on the Board of Directors for Intersil Corporation and Juniper Networks,
Inc. Ms. Johnson is the Chairman of the Board's Audit Committee and has served on our Board of Directors since 2005.
Lawrence N. Mondry has been the Chief Executive Officer of Flexi Compras Corporation, a rent-to-own retailer, since
June 2013. Mr. Mondry was the President and Chief Executive Officer of CSK Auto Corporation ("CSK"), a specialty retailer
of automotive aftermarket parts, from August 2007 to July 2008. Prior to his appointment at CSK, Mr. Mondry served as the
Chief Executive Officer of CompUSA Inc. from November 2003 to May 2006. Mr. Mondry joined CompUSA in 1990. Mr.
Mondry is the Chairman of the Board's Governance Committee and Compensation Committee. He has served on our Board of
Directors since 2005.
Robert E. Switz was the Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc., ("ADC"), a
supplier of network infrastructure products and services from August 2003 until December 2010, when Tyco Electronics Ltd.
acquired ADC. Mr. Switz joined ADC in 1994 and throughout his career there held numerous leadership positions. Mr. Switz
holds an MBA from the University of Bridgeport as well as a BS in Business Administration from Quinnipiac University. Mr.
Switz also serves on the Board of Directors for Broadcom Corporation, Cyan Optics, Inc., GT Advanced Technologies and
Leap Wireless International, Inc. He has served on our Board of Directors since 2006 and was appointed Chairman of the
Board in February 2012.
There are no family relationships between any of our directors or executive officers.
12
ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause
actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of us.
We have experienced dramatic declines in average selling prices for our semiconductor memory products which have
adversely affected our business.
If average selling prices for our memory products decrease faster than we can decrease per gigabit costs, our business,
results of operations or financial condition could be materially adversely affected. We have experienced significant decreases
in our average selling prices per gigabit in recent years as noted in the table below and may continue to experience such
decreases in the future. In some prior periods, average selling prices for our memory products have been below our
manufacturing costs and we may experience such circumstances in the future.
DRAM
Trade NAND
Flash*
(percentage change in average selling prices)
2013 from 2012
2012 from 2011
2011 from 2010
2010 from 2009
2009 from 2008
* Trade NAND Flash excludes sales to Intel from IM Flash.
(11)%
(45)%
(39)%
28%
(52)%
(18)%
(55)%
(12)%
26%
(52)%
We may be unable to reduce our per gigabit manufacturing costs at the rate average selling prices decline.
Our gross margins are dependent upon continuing decreases in per gigabit manufacturing costs achieved through
improvements in our manufacturing processes, including reducing the die size of our existing products. In future periods, we
may be unable to reduce our per gigabit manufacturing costs at sufficient levels to improve or maintain gross margins. Factors
that may limit our ability to reduce costs include, but are not limited to, strategic product diversification decisions affecting
product mix, the increasing complexity of manufacturing processes, difficulty in transitioning to smaller line-width process
technologies, technological barriers and changes in process technologies or products that 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.
The semiconductor memory industry is highly competitive.
We face intense competition in the semiconductor memory market from a number of companies, including Samsung
Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Spansion Inc. and Toshiba Corporation. Some of our competitors
are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets
in which we compete, invest in technology and capitalize on growth opportunities. Our competitors seek to increase silicon
capacity, improve yields, reduce die size and minimize mask levels in their product designs. Transitions to smaller line-width
process technologies and product and process improvements have resulted in significant increases in the worldwide supply of
semiconductor memory. Increases in worldwide supply of semiconductor memory also result from semiconductor memory fab
capacity expansions, either by way of new facilities, increased capacity utilization or reallocation of other semiconductor
production to semiconductor memory production. Our competitors may increase capital expenditures resulting in future
increases in worldwide supply. Increases in worldwide supply of semiconductor memory, if not accompanied with
commensurate increases in demand, would lead to further declines in average selling prices for our products and would
materially adversely affect our business, results of operations or financial condition.
13
Our acquisitions of Elpida and Rexchip involve numerous risks.
On July 31, 2013, we completed the acquisition of Elpida, pursuant to the terms and conditions of the Sponsor Agreement
that we entered into on July 2, 2012, with the trustees of the Elpida Companies pursuant to and in connection with the Elpida
Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan. We paid $615
million for the acquisition of 100% of Elpida's equity. On July 31, 2013, we also acquired a 24% ownership interest in Rexchip
from the Powerchip Group pursuant to a share purchase agreement. We paid $334 million in cash for the shares. The Elpida
Group owns approximately 65% of Rexchip's outstanding common stock. Therefore, as a result of the consummation of our
acquisition of Elpida and the Rexchip shares from the Powerchip Group, we own approximately 89% of Rexchip's common
stock. The provisional fair values of assets and liabilities acquired include, among other items, cash and restricted cash
aggregating $1,618 million, inventories of $962 million; property, plant and equipment of $935 million; net deferred tax assets
of $917 million and debt of $2,134 million.
In addition to the acquisition risks described elsewhere, these acquisitions are expected to involve the following significant
risks:
• we may be unable to maintain customers, successfully execute our integration strategies, or achieve planned synergies;
• we may be unable to accurately forecast the anticipated financial results of the combined business;
•
our consolidated financial condition may be adversely impacted by the increased leverage resulting from the
transactions;
increased exposure to the DRAM market, which experienced significant declines in pricing during the first quarter of
2013 as well as 2012 and 2011;
deterioration of Elpida's and Rexchip's operations and customer base following closing;
increased exposure to operating costs denominated in yen and New Taiwan dollar;
integration issues with Elpida's and Rexchip's primary manufacturing operations in Japan and Taiwan;
integration issues of our product and process technology with Elpida and Rexchip;
integration of business systems and processes; and
an overlap in customers.
•
•
•
•
•
•
•
Our acquisitions of Elpida and Rexchip are inherently risky, may not be successful and may materially adversely affect our
business, results of operations or financial condition.
The operations of the Elpida Companies will be subject to continued oversight by the Japan Court during the pendency
of the corporate reorganization proceedings.
Because the plans of reorganization of the Elpida Companies provide for ongoing payments to creditors following the
closing of our acquisition of Elpida, the Japan Proceedings are continuing, and the Elpida Companies remain subject to the
oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee,
and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings.
The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under
the Elpida Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to
the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to
petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are
made, there can be no assurance that the Japan Court will grant any such petition.
During the pendency of the Japan Proceedings, the Elpida Companies are obligated to provide periodic financial reports to
the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions
relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or
guaranteeing material indebtedness, settling disputes or entering into certain material agreements. The consent of the legal
trustee may also be required for matters that would likely have a material impact on the operations or assets of the Elpida
Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be
expected to materially and adversely affect execution of the plans of reorganization of the Elpida Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the Elpida Companies as part of our global
operations or to cause the Elpida Companies to take certain actions that we deem advisable for their businesses could be
adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with
respect to the Elpida Companies.
14
Our acquisitions of Elpida and Rexchip expose us to significant risks from changes in currency exchange rates.
Under the Sponsor Agreement, we committed to support plans of reorganization for Elpida that provide for payments to the
secured and unsecured creditors of Elpida in an aggregate amount of 200 billion yen. The U.S. dollar amount of this payment
obligation could increase if the yen strengthens against the U.S. dollar. Additionally, a significant portion of Elpida's and
Rexchip's operating costs are paid in Yen and New Taiwan dollars so our operating results subsequent to the acquisition could
also be adversely impacted if these currencies strengthen against the U.S. dollar.
Our acquisitions of Elpida and Rexchip may increase our risk of significant deficiencies or material weaknesses in our
internal controls over financial reporting.
Elpida and Rexchip have not performed an assessment of the effectiveness of the design and operation of their internal
control over financial reporting. In addition, Elpida and Rexchip have not historically prepared their financial statements under
U.S. generally accepted accounting standards. Elpida and Rexchip were not required to be included in our assessment of
internal controls for 2013 but will be included in our assessment for 2014, which may increase our risk for material weaknesses
in our internal control over financial reporting.
Debt obligations could adversely affect our financial condition.
We are engaged in a capital intensive business subject to significant changes in supply and demand and product pricing and
recent periods of consolidation, any of which could result in our incurrence or assumption of indebtedness. In recent periods,
our debt levels have increased. As of August 29, 2013, we had $6.0 billion of debt, including $485 million principal amount of
convertible senior notes due in 2014. As of August 29, 2013, we had two credit facilities available that provides for up to $408
million of additional financing, subject to outstanding balances of trade receivables and other conditions. Events and
circumstances may occur which would cause us to not be able to satisfy the applicable drawdown conditions and utilize either
of these facilities. We have in the past and expect in the future to continue to incur additional debt to finance our capital
investments, including debt incurred in connection with asset-backed financing.
The plans of reorganization of the Elpida Companies provide for payments by the Elpida Companies to their secured and
unsecured creditors in an aggregate amount of 200 billion yen (or the equivalent of approximately $2.05 billion), less certain
expenses of the Japan Proceedings and certain other items. If the resolution of certain unfixed claims under the plans of
reorganization, primarily comprised of outstanding litigation claims, would result in payments in respect of those claims in
excess of amounts reserved under the plans of reorganization to satisfy such claims, there is a possibility that the Elpida
Companies would be required to pay more than 200 billion yen to their pre-petition creditors under the plans of reorganization.
In addition, if these unfixed claims are resolved pursuant to settlement arrangements or other post-petition agreements, a
substantial portion of the amounts payable with respect to the claims may have to be funded by the Elpida Companies outside
of the installment payments provided for by the plans of reorganization.
Our debt and our guarantee obligations could adversely impact us. For example, these obligations could:
•
•
•
•
require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of
cash flow available to fund working capital, capital expenditures, acquisitions, research and development expenditures
and other business activities;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, research
and development and other general corporate requirements;
contribute to a future downgrade of our credit rating, which could increase future borrowing costs; and
increase our vulnerability to adverse economic and semiconductor memory industry conditions.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash
flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors
as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from
operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment
obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations,
we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional
capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment
obligations, which could have a material adverse effect on our business and results of operations.
15
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our
operations, make scheduled debt payments 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, capital
equipment, facilities, R&D and product and process technology. We estimate that capital spending for 2014 will be
approximately $2.6 billion to $3.2 billion. In addition, as a result of the Elpida acquisition, we believe that our future capital
spending will be higher than our historical levels as we integrate our manufacturing operations and support the increase of
capacity resulting from the Elpida transaction. As of August 29, 2013, we had cash and equivalents of $2,880 million, short-
term investments of $221 million and long-term marketable investments of $499 million. Cash and investments included
$1,094 million held by Elpida and its consolidated subsidiaries and $62 million held by IM Flash Technologies, LLC ("IMFT"),
none of which is generally available to finance our other operations.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the Elpida Companies and their
subsidiaries are subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the Elpida
Companies prohibit the Elpida Companies from paying dividends, including any cash dividends, to us and require that excess
earnings be used in their businesses or to fund the Elpida Companies' installment payments. These prohibitions would also
effectively prevent the subsidiaries of the Elpida Companies from paying cash dividends to us in respect of the shares of such
subsidiaries owned by the Elpida Companies, as any such dividends would have to be first paid to the Elpida Companies which
are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an
order of the Japan Court, the Elpida Companies cannot make loans or advances, other than certain ordinary course advances, to
us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the Elpida Companies may be
considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court. As a result,
the assets of the Elpida Companies and their subsidiaries, while available to satisfy the Elpida Companies' installment payments
and the other obligations, capital expenditures and other operating needs of the Elpida Companies and their subsidiaries, are not
available for use by us in our other operations. Moreover, certain uses of the assets of the Elpida Companies, including
investments in certain capital expenditures and in Rexchip, may require consent of Elpida's trustees and/or the Japan Court.
In the past we have utilized external sources of financing when needed. As a result of our current debt levels, expected
debt amortization and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us.
There can be no assurance that we will be able to generate sufficient cash flows, use cash held by Elpida to fund its capital
expenditures, access capital markets or find other sources of financing to fund our operations, make debt amortization payments
and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our
inability to do the foregoing could have a material adverse effect on our business and results of operations.
Our Inotera Supply Agreement involves numerous risks.
On January 17, 2013, we entered into a new supply agreement with Inotera (the "Inotera Supply Agreement") under which
we are obligated to purchase substantially all of Inotera's output at a purchase price based on a discount from market prices for
our comparable components. Our Inotera Supply Agreement involves numerous risks including the following:
•
•
•
higher costs for supply obtained under the market-based provisions of the Inotera Supply Agreement;
difficulties and delays in ramping production at Inotera and delays in the future; and
difficulties in transferring technology to Inotera.
Inotera's financial situation may adversely impact the value of our interest and our supply agreement.
As of June 30, 2013, Inotera's current liabilities exceeded its current assets by $1.0 billion, which exposes Inotera to
liquidity risk. Additionally, Inotera incurred net losses of $541 million for its fiscal year ended December 31, 2012. As of June
30, 2013, Inotera was not in compliance with certain loan covenants, and had not been in compliance for the past several years,
which may result in its lenders requiring repayment of such loans during the next year. Inotera has applied for a waiver from
complying with the June 30, 2013 financial covenants. Inotera's management has implemented plans to improve its liquidity
and for its six-month period ended June 30, 2013, Inotera generated net income of $91 million; however, there can be no
assurance that Inotera will be successful in sufficiently improving its liquidity and complying with their loan covenants, which
may result in its lenders requiring repayment of such loans during the next year. If Inotera is unable to continue to improve its
liquidity, we may have to impair our investment in Inotera.
16
On January 17, 2013, we entered into agreements with Nanya Technology Corporation ("Nanya") to amend the joint
venture relationship involving Inotera. Under the Inotera Supply Agreement we purchase substantially all of Inotera's output at
a purchase price based on a discount from actual market prices for comparable components. The Inotera Supply Agreement
was retroactively effective beginning on January 1, 2013. For the fourth quarter of 2013, we purchased $518 million of DRAM
products from Inotera and our supply from Inotera accounted for 50% of our aggregate DRAM gigabit production. If our
supply of DRAM from Inotera is impacted, our business, results of operations or financial condition could be materially
adversely affected.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations or
financial condition.
Across our multi-national operations, there are transactions and balances denominated in currencies other than the U.S.
dollar (our reporting currency), primarily the Singapore dollar, euro, shekel and yen. We recorded net losses from changes in
currency exchange rates of $229 million for 2013, $6 million for 2012 and $6 million for 2011. Based on our foreign currency
exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in
exchange rates versus the U.S. dollar would result in losses of approximately $19 million as of August 29, 2013. In the event
that the U.S. dollar weakens significantly compared to the Singapore dollar, euro, shekel or yen, our results of operations or
financial condition may be adversely affected.
In connection with the Elpida Sponsor Agreement and Rexchip Share Purchase Agreement, we entered into currency
hedges to mitigate the risk that increases in exchange rates have on our planned yen payments. In 2013, we recognized losses
of $228 million on these hedges and made payments of $222 million to settle these hedges. As of August 29, 2013, to hedge
certain yen-denominated payments resulting from our acquisition of Elpida, we had an outstanding forward contract to purchase
20 billion yen on November 28, 2014 at a yen per U.S. dollar exchange rate of 98.53 and a forward contract to purchase 10
billion yen on November 27, 2015 at a yen per U.S. dollar exchange rate of 97.25.
The financial crisis and overall downturn in the worldwide economy may harm our business.
The financial crisis and the overall downturn in the worldwide economy have had an adverse effect on our business. A
continuation or further deterioration of depressed economic conditions could have an even greater adverse effect on our
business, including any economic downturn resulting from the shutdown of the U.S. federal government or any default by the
U.S. federal government on any of its debt or other obligations. Adverse economic conditions affect demand for devices that
incorporate our products, such as personal computers, networking products and mobile devices. Reduced demand for these
products could result in significant decreases in our average selling prices and product sales. A deterioration of current
conditions in worldwide 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 loss on our accounts receivables
due to credit defaults. As a result, our business, results of operations or financial condition could be materially adversely
affected.
We may incur additional material restructure or other charges in future periods.
In response to severe downturns in the semiconductor memory industry and global economic conditions, we implemented
restructure activities and may implement restructure initiatives in future periods. We may restructure or dispose of assets as we
continue to optimize our manufacturing operations, including the wind-down of 200-millimeter wafer capacity as we migrate
more products to 300-millimeter wafer production. As a result, we could incur restructure charges (including but not limited to
severance and other termination benefits, losses on disposition or impairment of equipment or other long-lived assets and
inventory write downs), lose production output, lose key personnel and experience disruptions in our operations and difficulties
in the timely delivery of products. In connection with these actions, we recorded $126 million in 2013 and may incur
restructure charges or other losses associated with other initiatives in future periods.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve
numerous risks including the following:
•
•
•
integrating the operations, technologies and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
17
•
•
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital
expenditures, research and development expenditures and other business activities;
diverting management's attention from normal daily operations;
•
• managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
•
•
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which
may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures,
and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological
advancements or worse-than-expected performance of the acquired business.
•
•
•
•
In recent years, supply of memory products has significantly exceeded customer demand resulting in significant declines in
average selling prices for DRAM, NAND Flash and NOR Flash products. Resulting operating losses have led to the
deterioration in the financial condition of a number of industry participants, including the liquidation of Qimonda AG and the
2012 bankruptcy filing by Elpida Memory, Inc. These types of proceedings often lead to confidential court-directed processes
involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of
consolidation as a result of these market conditions and other factors, and we may engage in discussions regarding potential
acquisitions and similar opportunities arising out of these industry conditions. To the extent we are successful in completing
any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding,
assumption of liabilities, integration challenges and increases in debt that may accompany such transactions. Acquisitions of,
or alliances with, high-technology companies are inherently risky and may not be successful and may materially adversely
affect our business, results of operations or financial condition.
Our future success depends on our ability to develop and produce competitive new memory technologies.
Our key semiconductor memory technologies of DRAM, NAND Flash and NOR Flash face technological barriers to
continue to meet long-term customer needs. These barriers include potential limitations on the ability to shrink products in
order to reduce costs, meet higher density requirements and improve power consumption and reliability. To meet these
requirements, we expect that new memory technologies will be developed by the semiconductor memory industry. Our
competitors are working to develop new memory technologies that may offer performance and/or cost advantages to our
existing memory technologies and render existing technologies obsolete. Accordingly, our future success may depend on our
ability to develop and produce viable and competitive new memory technologies. There can be no assurance of the following:
•
•
•
•
that we will be successful in developing competitive new semiconductor memory technologies;
that we will be able to cost-effectively manufacture new products;
that we will be able to successfully market these technologies; and
that margins generated from sales of these products will allow us to recover costs of development efforts.
If our efforts to develop new semiconductor memory technologies are unsuccessful, our business, results of operations or
financial condition may be adversely affected.
18
The acquisition of our ownership interest in Inotera from Qimonda has been legally challenged by the administrator of
the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit
against us and Micron Semiconductor B.V., our Netherlands subsidiary, in the District Court of Munich, Civil Chamber. The
complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between us and Qimonda
signed in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order
requiring us to retransfer the Inotera shares purchased from Qimonda to the Qimonda estate. The complaint also seeks to
terminate under Sections 103 or 133 of the German Insolvency Code a patent cross license between us and Qimonda entered
into at the same time as the share purchase agreement. A three-judge panel will render a decision after a series of hearings with
pleadings, arguments and witnesses. Hearings were held on September 25, 2012, February 5, 2013, June 11, 2013 and July 2,
2013. An additional hearing is scheduled for November 12, 2013. We are unable to predict the outcome of this lawsuit and
therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera
shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse
effect on our business, results of operation or financial condition. As of August 29, 2013, the Inotera shares purchased from
Qimonda had a carrying value of $190 million.
Our joint ventures and strategic relationships involve numerous risks.
We have entered into strategic relationships to manufacture products and develop new manufacturing process technologies
and products. These relationships include our IMFT NAND Flash joint venture with Intel Corporation ("Intel"), our Inotera
DRAM joint venture with Nanya and our MP Mask joint venture with Photronics. These joint ventures and strategic
relationships are subject to various risks that could adversely affect the value of our investments and our results of operations.
These risks include the following:
•
our interests could diverge from our partners or we may not be able to agree with partners on ongoing manufacturing
and operational activities, or on the amount, timing or nature of further investments in our joint venture;
• we may experience difficulties in transferring technology to joint ventures;
• we may experience difficulties and delays in ramping production at joint ventures;
•
• we may recognize losses from equity investment Inotera in our future results of operations;
•
our control over the operations of our joint ventures is limited;
•
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint
ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, our partners may decide not to join us in funding capital
investment by our joint ventures, which may result in higher levels of cash expenditures by us;
cash flows may be inadequate to fund increased capital requirements;
•
• we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
•
•
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal or regulatory requirements may necessitate changes in the agreements with our partners.
If our joint ventures and strategic relationships are unsuccessful, our business, results of operations or financial condition
may be adversely affected.
19
An adverse outcome relating to allegations of anticompetitive conduct could materially adversely affect our business,
results of operations or financial condition.
On May 5, 2004, Rambus, Inc. ("Rambus") filed a complaint in the Superior Court of the State of California (San
Francisco County) against us and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in
concerted and unlawful efforts affecting Rambus DRAM by eliminating competition and stifling innovation in the market for
computer memory technology and computer memory chips. Rambus' complaint alleged various causes of action under
California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize,
intentional interference with prospective economic advantage, and unfair competition. Rambus sought a judgment for damages
of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent
injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial
began on June 20, 2011, and the case went to the jury on September 21, 2011. On November 16, 2011, the jury found for us on
all claims. On April 2, 2012, Rambus filed a notice of appeal to the California 1st District Court of Appeal.
We are unable to predict the outcome of this matter. An adverse court determination of any lawsuit 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.
An adverse determination that our products or manufacturing processes infringe the intellectual property rights of
others could materially adversely affect our business, results of operations or financial condition.
On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California.
Rambus alleges that certain of our DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as fourteen Rambus
patents and seeks monetary damages, treble damages, and injunctive relief. The accused products account for a significant
portion of our net sales. On June 2, 2006, we filed an answer and counterclaim against Rambus alleging, among other things,
antitrust and fraud claims. On January 9, 2009, in another lawsuit involving us and Rambus and involving allegations by
Rambus of patent infringement against us in the U.S. District Court for the District of Delaware, Judge Robinson entered an
opinion in favor of us holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were
unenforceable against us. Rambus subsequently appealed the Delaware Court's decision to the U.S. Court of Appeals for the
Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the
dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy based on the Federal
Circuit's decision. On January 2, 2013, Judge Robinson entered a new opinion in our favor holding that Rambus had engaged
in spoliation, that Rambus' spoliation was done in bad faith, that the spoliation prejudiced us, and that the appropriate sanction
was to declare the twelve Rambus patents in the suit unenforceable against us. On March 27, 2013, Rambus filed a notice of
appeal to the U.S. Court of Appeals for the Federal Circuit. The Northern District of California Court stayed the trial of the
patent phase of the Northern District of California case upon appeal of the spoliation issue to the Federal Circuit. In addition,
others have asserted, and may assert in the future, that our products or manufacturing processes infringe their intellectual
property rights. (See "Item 1. Legal Proceedings" for additional details on these lawsuits.)
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.
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. From time to time we experience problems with nonconforming,
defective or incompatible products after we have shipped such products. In recent periods we have further diversified and
expanded our product offerings which could potentially increase the chance that one or more of our products could fail to meet
specifications in a particular application. As a result of these problems we could be adversely affected in several ways,
including the following:
20
• we may be required to compensate customers for costs incurred or damages caused by defective or incompatible
product or replace products;
• we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or
alleged damages; and
• we may encounter adverse publicity, which could cause a decrease in sales of our products.
New product development may be unsuccessful.
We are developing new products that complement our traditional memory products or leverage their underlying design or
process technology. We have made significant investments in product and process technologies and anticipate expending
significant resources for new semiconductor product development over the next several years. The process to develop DRAM,
NAND Flash, NOR Flash and certain specialty memory products requires us to demonstrate advanced functionality and
performance, many times well in advance of a planned ramp of production, in order to secure design wins with our customers.
There can be no assurance that our product development efforts will be successful, that we will be able to cost-effectively
manufacture new products, that we will be able to successfully market these products or that margins generated from sales of
these products will allow us to recover costs of development efforts.
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. We maintain operations and
continuously implement new product and process technology at our manufacturing operations which are widely dispersed in
multiple locations in several countries including the U.S., Singapore, Taiwan, Japan, Israel and China. Additionally, our control
over operations at our IMFT, Inotera and MP Mask and Tera Probe joint ventures is limited by our agreements with our
partners. From time to time, we have experienced 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.
Consolidation of industry participants and governmental assistance to some of our competitors may contribute to
uncertainty in the semiconductor memory industry and negatively impact our ability to compete.
In recent years, supply of memory products has significantly exceeded customer demand resulting in significant declines in
average selling prices of DRAM, NAND Flash and NOR Flash products and substantial operating losses by us and our
competitors. The operating losses as well as limited access to sources of financing have led to the deterioration in the financial
condition of a number of industry participants and significant recent consolidation and, in certain cases, liquidation. Some of
our competitors may try to enhance their capacity and lower their cost structure through consolidation. In addition, some
governments have provided, and may be considering providing, significant financial assistance to some of our competitors.
Consolidation of industry competitors could put us at a competitive disadvantage.
The limited availability of raw materials, supplies or capital equipment could materially adversely affect our business,
results of operations or financial condition.
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our
raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our
standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases including helium, photoresist, lead frames and molding
compound. Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay our
receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw
materials is disrupted or our lead times extended, our business, results of operations or financial condition could be materially
adversely affected.
21
Our operations are dependent on our ability to procure advanced semiconductor equipment that enables the transition to
lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes
dependent on a single supplier. In recent periods we have experienced difficulties in obtaining some equipment on a timely
basis due to the supplier's limited capacity. Our inability to timely obtain this equipment could adversely affect our ability to
transition to next generation manufacturing processes and reduce costs. Delays in obtaining equipment could also impede our
ability to ramp production at new facilities and increase our overall costs of the ramp. If we are unable to timely obtain
advanced semiconductor equipment, our business, results of operations or financial condition could be materially adversely
affected.
Our results of operations could be affected by natural disasters and other events in the locations in which we or our
customers or suppliers operate.
We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and
geological events including earthquakes or tsunamis that could disrupt operations. In addition, our suppliers and customers also
have operations in such locations. A natural disaster, fire, chemical explosion or other event that results in a prolonged
disruption to our operations, or the operations of our customers or suppliers, may adversely affect our business, results of
operations or financial condition.
Our net operating loss and tax credit carryforwards may be limited.
We have a valuation allowance against substantially all U.S. net deferred tax assets as well as $1.5 billion related to our
foreign subsidiaries. As of August 29, 2013, our federal and state net operating loss carryforwards were $4.2 billion and
$2.2 billion, respectively. If not utilized, our federal and state net operating loss carryforwards will expire at various dates
through 2033. As of August 29, 2013, our federal and state tax credit carryforwards were $238 million and $203 million,
respectively. If not utilized, our federal and state tax credit carryforwards will expire at various dates through 2033. As
of August 29, 2013, our foreign net operating loss carryforwards were $7.0 billion, of which $5.9 billion pertains to Elpida. We
have placed a valuation allowance against $4.7 billion of these foreign net operating loss carryforwards, of which $3.8 billion
pertains to Elpida. If not utilized, our foreign net operating loss carryforwards will expire at various dates through 2023.
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 2013. In addition, a
substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of
our manufacturing operations are concentrated in Singapore. Our international sales and operations are subject to a variety of
risks, including:
•
•
•
•
•
•
•
•
•
•
•
export and import duties, changes to import and export regulations, and restrictions on the transfer of funds;
compliance with U.S. and international laws involving international operations, including the Foreign Corrupt
Practices Act, export control laws and similar rules and regulations;
political and economic instability;
problems with the transportation or delivery of our products;
issues arising from cultural or language differences and labor unrest;
longer payment cycles and greater difficulty in collecting accounts receivable;
compliance with trade, technical standards and other laws in a variety of jurisdictions;
contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels;
disruptions to our manufacturing operations as a result of actions imposed by foreign governments;
changes in economic policies of foreign governments; and
difficulties in staffing and managing international operations.
These factors may materially adversely affect our business, results of operations or financial condition.
22
Breaches of our network security could expose us to losses.
We manage and store on our network systems, various proprietary information and sensitive or confidential data relating to
our operations. We also process, store, and transmit large amounts of data for our customers, including sensitive personal
information. Computer programmers and hackers may be able to gain unauthorized access to our network system and steal
proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties
may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and
create security vulnerabilities. Attacks on our network systems could result in significant losses and damage our reputation
with customers.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash
deposits, investments, foreign currency option and forward contracts, and capped-call contracts on our stock. As a result, we
are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A
counterparty may not comply with their contractual commitments which could then lead to their defaulting on their obligations
with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to
mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent
us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover
any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable
laws governing the bankruptcy proceeding. In the event of such default, we could incur significant losses, which could
adversely impact our business, results of operations or financial condition.
Compliance with new regulations regarding the use of conflict minerals could limit the supply and increase the cost of
certain metals used in manufacturing our products.
Increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), and its implementing SEC
regulations. The Dodd-Frank Act imposes new supply chain diligence and disclosure requirements for certain manufacturers of
products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and
finance or benefit local armed groups. These "conflict minerals" are commonly found in materials used in the manufacture of
semiconductors. The implementation of these new regulations may limit the sourcing and availability of some of these
materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient
quantities and may affect related material pricing. Some of our customers may elect to disqualify us as a supplier if we are
unable to verify that our products are DRC conflict free.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our corporate headquarters are located in Boise, Idaho. The following is a summary of our principal facilities as of August
29, 2013:
Principal Operations
R&D, including wafer fabrication; reticle manufacturing; test and module assembly
Wafer fabrication
Wafer fabrication
Three wafer fabrication facilities and a test, assembly and module assembly facility
Location
Boise, Idaho
Lehi, Utah
Manassas, Virginia
Singapore
Aguadilla, Puerto Rico Module assembly and test
Module assembly and test
Xi’an, China
Wafer fabrication
Kiryat Gat, Israel
Assembly and test
Muar, Malaysia
Taichung City, Taiwan Wafer fabrication
Wafer fabrication
Hiroshima, Japan
Module assembly and test
Akita, Japan
Substantially all of of the capacity of the facilities listed above are fully utilized. Our Inotera joint venture also has a
300mm wafer fabrication facility in Kueishan, Taiwan. Under our supply agreement with Inotera, we purchase substantially all
of the output of Inotera. We also own and lease a number of other facilities in locations throughout the world that are used for
design, research and development, and sales and marketing activities.
In September 2013, we entered into an agreement to sell our 200mm wafer fabrication equipment in Kiryat Gat, Israel to
Intel and to terminate the related facility lease with Intel. If this transaction is completed, Intel will manufacture wafers for us
at the Kiryat Gat facility through 2014 through a series of arrangements.
Our facility in Lehi is owned and operated by our IMFT joint venture with Intel. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest Entities – IM Flash" note.)
We believe that our existing facilities are suitable and adequate for our present purposes. We do not identify or allocate
assets by operating segment. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Geographic Information" note.)
ITEM 3. LEGAL PROCEEDINGS
Reorganization Proceedings of the Elpida Companies
On July 31, 2013, we completed the acquisition of Elpida Memory, Inc. ("Elpida"), a Japanese corporation, pursuant to the
terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that
we entered into on July 2, 2012, with the trustees of Elpida and one of its subsidiaries, Akita Elpida Memory, Inc., a Japanese
corporation ("Akita" and, together with Elpida, the "Elpida Companies") pursuant to and in connection with the Elpida
Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan.
The Elpida Companies filed petitions for commencement of corporate reorganization proceedings with the Tokyo District
Court (the "Japan Court") under the Corporate Reorganization Act of Japan on February 27, 2012, and the Japan Court issued
an order to commence the reorganization proceedings (the "Japan Proceedings") on March 23, 2012. On July 2, 2012, we
entered into the Sponsor Agreement with the legal trustees of the Elpida Companies and the Japan Court approved the Sponsor
Agreement. Under the Sponsor Agreement, we agreed to provide certain support for the reorganization of the Elpida
Companies, and the trustees agreed to prepare and seek approval from the Japan Court and the Elpida Companies' creditors of
plans of reorganization consistent with such support.
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The trustees initially submitted the proposed plans of reorganization for the Elpida Companies to the Japan Court on
August 21, 2012, and submitted final proposed plans on October 29, 2012. On October 31, 2012, the Japan Court approved
submission of the trustees' proposed plans of reorganization to creditors for approval. On February 26, 2013, the Elpida
Companies' creditors approved the reorganization plans and on February 28, 2013, the Japan Court issued an order approving
the plans of reorganization. Appeals filed by certain creditors of Elpida in Japan challenging the plan approval order issued by
the Japan Court were denied.
In a related action, Elpida filed a Verified Petition for Recognition and Chapter 15 Relief in the United States Bankruptcy
Court for the District of Delaware (the "U.S. Court") on March 19, 2012 and, on April 24, 2012, the U.S. Court entered an
order that, among other things, recognized Elpida's corporate reorganization proceeding as a foreign main proceeding pursuant
to 11 U.S.C. § 1517(b). On June 25, 2013, the U.S. Court issued a recognition order, which recognized the order of the Japan
Court approving Elpida's plan of reorganization.
The plans of reorganization provide for payments by the Elpida Companies to their secured and unsecured creditors in an
aggregate amount of 200 billion yen (or the equivalent of approximately $2.05 billion as of August 29, 2013), less certain
expenses of the reorganization proceedings and certain other items. The plans of reorganization also provided for the
investment by us pursuant to the Sponsor Agreement of 60 billion yen ($615 million paid at closing) in cash into Elpida in
exchange for 100% ownership of Elpida's equity and the use of such investment to fund the initial installment payment by the
Elpida Companies to their creditors of 60 billion yen, subject to reduction for certain items specified in the Sponsor Agreement
and plans of reorganization. The initial installment payment was made to the creditors of the Elpida Companies in October
2013. The plans of reorganization also provide for 140 billion yen (or the equivalent of approximately $1.43 billion as of
August 29, 2013) of additional payments by the Elpida Companies to their creditors, to be paid in six annual installments
beginning December 2014, with payments of 20 billion yen (or the equivalent of approximately $205 million as of August 29,
2013) in each of the first four annual installment payments, and payments of 30 billion yen (or the equivalent of approximately
$307 million as of August 29, 2013) in each of the final two annual installment payments.
Under the Sponsor Agreement, we agreed that we would, subject to certain conditions, implement and maintain a cost plus
model with the Elpida Companies in support of the execution of their plans of reorganization. In connection with these
commitments, we entered into a series of cost-plus agreements with Elpida and Akita, including supply agreements, research
and development services agreements and general services agreements (the "Cost Plus Agreements"). The Cost Plus
Agreements are intended to generate more stable operating cash flows to meet the requirements of the Elpida Companies'
businesses, including the funding of the installment payments to the Elpida Companies' creditors. We anticipate that, once fully
in effect, payments we make under the Cost Plus Agreements will generally cover all of Elpida and Akita's costs.
Under Elpida's plan of reorganization, secured creditors will recover 100% of the amount of their fixed claims and
unsecured creditors will recover at least 17.4% of the amount of their fixed claims. The actual recovery of unsecured creditors
will be higher, however, based, in part, on events and circumstances occurring following the plan approval. The remaining
portion of the unsecured claims will be discharged, without payment, over the period that payments are made pursuant to the
plans of reorganization. The secured creditors will be paid in full on or before the sixth installment payment date, while the
unsecured creditors will be paid in seven installments. Akita's plan of reorganization provides that secured creditors will
recover 100% of the amount of their claims, whereas unsecured creditors will recover 19% of the amount of their claims. The
secured creditors of Akita will be paid in full on the first installment payment date, while the unsecured creditors will be paid in
seven installments.
Certain contingency matters related to the Elpida Companies, which are primarily comprised of outstanding litigation
claims, were not treated as fixed claims under the plans of reorganization at the time the plans were filed with the Japan Court.
A portion of each installment amount payable to the creditors of the Elpida Companies will be reserved for use in the event that
any of these matters become fixed claims, in which case these fixed claims will be paid under the plans of reorganization in the
same manner as the fixed claims of other creditors. To the extent the aggregate amounts reserved from the installment
payments exceed the aggregate amounts payable with respect to these unfixed claims once they become fixed, the excess
amounts reserved will be distributed to unsecured creditors with respect to their fixed claims, resulting in an increased recovery
for the unsecured creditors out of the installment payments. To the extent the aggregate amounts reserved are less than the
aggregate amounts payable with respect to these unfixed claims once they become fixed, the Elpida Companies would be
responsible to fund any shortfall to ensure that the creditors receive the minimum recovery to which they are entitled under the
plans of reorganization with respect to these claims. As a result, there is a possibility that the total amount payable by the
Elpida Companies to their creditors under the plans of reorganization will exceed 200 billion yen. In addition, certain of these
unfixed claims may be resolved pursuant to settlement arrangements or other post-petition agreements and a substantial portion
of the amounts payable under such agreements may have to be funded by the Elpida Companies outside of the plans of
reorganization.
25
Because the plans of reorganization of the Elpida Companies provide for ongoing payments to creditors following the
closing of the Elpida acquisition, the Japan Proceedings are continuing, and the Elpida Companies remain subject to the
oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee,
and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization
proceedings. The business trustee will make decisions in relation to the operation of the businesses of the Elpida Companies,
other than decisions in relation to acts that need to be carried out in connection with the Japan Proceedings, which will be the
responsibility of the legal trustee. The Japan Proceedings and oversight of the Japan Court will continue until the final creditor
payment is made under the Elpida Companies' plans of reorganization, which is scheduled to occur in December 2019, but may
occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. The
Elpida Companies may petition the Japan Court for an early termination of the Japan Proceedings once two-thirds of all
payments under the plans of reorganization are made. Although such early terminations are customarily granted, there can be
no assurance that the Japan Court will grant any such petition in these particular cases.
During the pendency of the Japan Proceedings, the Elpida Companies are obligated to provide periodic financial reports to
the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions
relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or
guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the
legal trustee may also be required for matters that would likely have a material impact on the operations or assets of the Elpida
Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be
expected to materially and adversely affect execution of the plans of reorganization of the Elpida Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the Elpida Companies as part of our global
operations or to cause the Elpida Companies to take certain actions that we deem advisable for their businesses could be
adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take
with respect to the Elpida Companies.
Patent Matters
On August 28, 2000, we filed a complaint against Rambus, Inc. ("Rambus") in the U.S. District Court for the District of
Delaware seeking declaratory and injunctive relief. Among other things, our complaint (as amended) alleges violation of
federal antitrust laws, breach of contract, fraud, deceptive trade practices, and negligent misrepresentation. The complaint also
seeks a declaratory judgment (1) that we did not infringe on certain of Rambus' patents or that such patents are invalid and/or
are unenforceable, (2) that we have an implied license to those patents, and (3) that Rambus is estopped from enforcing those
patents against us. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying that we are entitled
to relief, alleging infringement of the eight Rambus patents (later amended to add four additional patents) named in our
declaratory judgment claim, and seeking monetary damages and injunctive relief. In the Delaware action, we subsequently
added claims and defenses based on Rambus' 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 our favor holding that Rambus had engaged in spoliation and that the twelve
Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision to the U.S. Court of
Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but
vacated the dismissal sanction and remanded the case to the Delaware District Court for further analysis of the appropriate
remedy. On January 2, 2013, Judge Robinson entered a new opinion in our favor holding that Rambus had engaged in
spoliation, that Rambus' spoliation was done in bad faith, that the spoliation prejudiced us, and that the appropriate sanction
was to declare the twelve Rambus patents in the suit unenforceable against us. Separately, on March 27, 2013, Rambus filed a
notice of appeal to the U.S. Court of Appeals for the Federal Circuit. On January 13, 2006, Rambus filed a lawsuit against us in
the U.S. District Court for the Northern District of California. Rambus alleges that certain of our DDR2, DDR3, RLDRAM,
and RLDRAM II products infringe as many as fourteen Rambus patents and seeks monetary damages, treble damages and
injunctive relief. The accused products account for a significant portion of our net sales. On June 2, 2006, we filed an answer
and counterclaim against Rambus alleging, among other things, antitrust and fraud claims. The Northern District of California
Court stayed the trial of the patent phase of the Northern District of California case upon appeal of the Delaware spoliation
issue to the Federal Circuit.
26
A number of other suits involving Rambus are currently pending in Europe alleging that certain of our SDRAM and DDR
SDRAM products infringe various of Rambus' country counterparts to its European patent 525 068, including: on September 1,
2000, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on
September 22, 2000, Rambus filed a complaint against us and Reptronic (a distributor of our products) in the Court of First
Instance of Paris, France; on September 29, 2000, we filed suit against Rambus in the Civil Court of Milan, Italy, alleging
invalidity and non-infringement. In addition, on December 29, 2000, we filed suit against Rambus in the Civil Court of
Avezzano, Italy, alleging invalidity and non-infringement 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 our DDR SDRAM products infringe Rambus' country counterparts to its European patent 1
022 642. In the European suits against us, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing
of the various European suits, the European Patent Office (the "EPO") declared Rambus' 525 068, 1 022 642, and 1 004 956
European patents invalid and revoked the patents. The declaration of invalidity with respect to the '068 and '642 patents was
upheld on appeal. The original claims of the '956 patent also were declared invalid on appeal, but the EPO ultimately granted a
Rambus request to amend the claims by adding a number of limitations.
On September 1, 2011, HSM Portfolio LLC and Technology Properties Limited LLC filed a patent infringement action in
the U.S. District Court for the District of Delaware against us and seventeen other defendants, including Elpida Memory, Inc.
and Elpida Memory (USA) Inc. (collectively “Elpida”). The complaint alleges that certain of our DRAM and image sensor
products infringe two U.S. patents and that certain Elpida DRAM products infringe two U.S. patents and seeks damages,
attorneys' fees, and costs. On March 23, 2012, Elpida filed a Notice of Filing and Hearing on Petition Under Chapter 15 of the
U.S. Bankruptcy Code and Issuance of Provisional Relief that included an order of the U.S. Bankruptcy Court for the District
of Delaware staying judicial proceedings against Elpida. Accordingly, the plaintiffs’ case against Elpida is stayed. On August
21, 2013, the Court granted a motion by the plaintiffs to amend the complaint to assert two additional patents against us and
one additional patent against Elpida.
On September 9, 2011, Advanced Data Access LLC filed a patent infringement action in the U.S. District Court for the
Eastern District of Texas (Tyler) against us and seven other defendants. On November 16, 2011, Advanced Data Access filed
an amended complaint. The amended complaint alleged that certain of our DRAM products infringed two U.S. patents and
sought injunctive relief, damages, attorneys' fees, and costs. On March 20, 2013, we executed a settlement agreement resolving
this litigation. The settlement amount did not have a material effect on our business, results of operations or financial
condition.
On September 14, 2011, Smart Memory Solutions LLC filed a patent infringement action in the U.S. District Court for the
District of Delaware against us and Winbond Electronics Corporation of America. The complaint alleged that certain of our
NOR Flash products infringed a single U.S. patent and sought injunctive relief, damages, attorneys' fees, and costs. On March
20, 2013, we executed a settlement agreement resolving this litigation. The settlement amount did not have a material effect on
our business, results of operations or financial condition.
On December 5, 2011, the Board of Trustees for the University of Illinois filed a patent infringement action against us in
the U.S. District Court for the Central District of Illinois. The complaint alleges that unspecified semiconductor products of
ours infringe three U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs. We have filed three petitions
for inter-partes review by the Patent and Trademark Office, challenging the validity of each of the patents in suit. The District
Court has stayed the litigation pending the outcome of the inter-partes review by the Patent Office.
On March 26, 2012, Semiconductor Technologies, LLC filed a patent infringement action in the U.S. District Court for the
Eastern District of Texas (Marshall) against us. The complaint alleged that certain of our DRAM products infringed five U.S.
patents and sought injunctive relief, damages, attorneys' fees, and costs. On March 20, 2013, we executed a settlement
agreement resolving this litigation. The settlement amount did not have a material effect on our business, results of operations
or financial condition.
On April 27, 2012, Semcon Tech, LLC filed a patent infringement action against us in the U.S. District Court for the
District of Delaware. The complaint alleges that our use of various chemical mechanical planarization systems purchased from
Applied Materials and others infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. On
September 24, 2013, the Court entered an order staying our case pending the resolution of co-pending cases brought by Semcon
Tech, LLC against Applied Materials and Ebara Technologies, Inc.
27
On December 7, 2007, Tessera, Inc. filed a patent infringement against Elpida Memory, Inc., Elpida Memory (USA) Inc.
(collectively "Elpida"), and numerous other defendants, in the United States District Court for the Eastern District of Texas.
The complaint alleges that certain Elpida products infringe four U.S. patents and seeks injunctive relief, damages, attorneys'
fees, and costs. Prior to answering the complaint, Elpida and other defendants filed motions to stay the case pending final
resolution of a case before the International Trade Commission ("ITC") against Elpida and other respondents, alleging
infringement of the same patents asserted in the Eastern District of Texas case (In The Matter of Certain Semiconductor Chips
with Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the "ITC Action")). On
February 25, 2008, the Eastern District of Texas Court granted the defendants' motion to stay the action. On December 29,
2009, the ITC issued a Notice of Final Determination in the ITC Action finding no violation by Elpida. Tessera subsequently
appealed the matter to the U.S. Court of Appeals for the Federal Circuit. On May 23, 2011, the Federal Circuit affirmed the
ITC's Final Determination. The Eastern District of Texas case currently remains stayed.
We are unable to predict the outcome of these suits. A court determination that our products or manufacturing processes
infringe the product or process intellectual property rights of others could result in significant liability and/or require us to make
material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse
effect on our business, results of operations or financial condition.
Antitrust Matters
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against
us and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in concerted and unlawful efforts
affecting Rambus DRAM by eliminating competition and stifling innovation in the market for computer memory technology
and computer memory chips. Rambus' complaint alleged various causes of action under California state law including, among
other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective
economic advantage, and unfair competition. Rambus sought a judgment for damages of approximately $3.9 billion, joint and
several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the
conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the
jury on September 21, 2011. On November 16, 2011, the jury found for us on all claims. On April 2, 2012, Rambus filed a
notice of appeal to the California 1st District Court of Appeal.
A number of purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers. Four cases
have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class
of individuals and entities that indirectly purchased DRAM and/or products containing DRAM from various DRAM suppliers
during the time period from April 1, 1999 through at least June 30, 2002. The complaints allege a conspiracy to increase
DRAM prices in violation of federal and state antitrust laws and state unfair competition law, and/or unjust enrichment relating
to the sale and pricing of DRAM products. The complaints seek joint and several damages, trebled, 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. In July 2006, the Attorneys General for
approximately forty U.S. states and territories filed suit in the U.S. District Court for the Northern District of California. The
complaints allege, among other things, violations of the Sherman Act, Cartwright Act, and certain other states' consumer
protection and antitrust laws and seek joint and several damages, trebled, as well as injunctive and other relief. On October 3,
2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local
California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law.
On June 23, 2010, we executed a settlement agreement resolving these purported class-action indirect purchaser cases and the
pending cases of the Attorneys General relating to alleged DRAM price-fixing in the United States. Subject to certain
conditions, including final court approval of the class settlements, we agreed to pay approximately $67 million in aggregate in
three equal installments over a two-year period. We had paid the full amount into an escrow account by the end of the first
quarter of 2013 in accordance with the settlement agreement.
28
Three putative class action lawsuits alleging price-fixing of DRAM products also have been filed against us in Quebec,
Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, asserting violations of the Canadian
Competition Act and other common law claims (collectively the "Canadian Cases"). The claims were initiated between
December 2004 (British Columbia) and June 2006 (Quebec). The plaintiffs seek monetary damages, restitution, costs, and
attorneys' fees. 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. On November 12, 2009, the British
Columbia Court of Appeal reversed, and on November 16, 2011, the Quebec Court of Appeal also reversed the denial of class
certification and remanded the cases for further proceedings. On October 16, 2012, we entered into a settlement agreement
resolving these three putative class action cases subject to certain conditions including final court approval of the settlement.
The settlement amount did not have a material effect on our business, results of operations or financial condition.
On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice ("SDE") announced that it had
initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. The SDE's Notice of
Investigation names various DRAM manufacturers and certain executives, including us, and focuses on the period from July
1998 to June 2002.
We are unable to predict the outcome of these matters, except as noted in the U.S. indirect purchaser cases and the
Canadian Cases above. The final resolution of these alleged violations of antitrust laws could result in significant liability and
could have a material adverse effect on our business, results of operations or financial condition.
Securities Matters
On July 12, 2013, seven former shareholders of Elpida Memory, Inc. filed a complaint against Messrs. Sakamoto, Adachi,
Gomi, Shirai, Tsay-Jiu, Wataki, Kinoshita, and Takahasi in their capacity as members of the board of directors of Elpida as of
February 2013. The complaint alleges that the defendants engaged in various acts and misrepresentations to hide the financial
condition of Elpida and deceive shareholders prior to Elpida filing a petition for corporate reorganization on February 27, 2013.
The plaintiffs seek joint and several damages equal to the market value of shares owned by each of the plaintiffs on February
23, 2013, along with attorneys' fees and interest. At a hearing on September 25, 2013, the plaintiffs withdrew the complaint
against Mr. Tsay-Jiu.
We are unable to predict the outcome of this matter and therefore cannot estimate the range of possible loss. The final
resolution of this matter could result in significant liability and could have a material adverse effect on our business, results of
operations or financial condition.
Commercial Matters
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit
against us and Micron Semiconductor B.V., our Netherlands subsidiary, in the District Court of Munich, Civil Chamber. The
complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between us and Qimonda
signed in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order
requiring us to retransfer the Inotera shares purchased from Qimonda to the Qimonda estate. The complaint also seeks to
terminate under Sections 103 or 133 of the German Insolvency Code a patent cross license between us and Qimonda entered
into at the same time as the share purchase agreement. A three-judge panel will render a decision after a series of hearings with
pleadings, arguments and witnesses. Hearings were held on September 25, 2012, February 5, 2013, June 11, 2013 and July 2,
2013. An additional hearing is scheduled for November 12, 2013. We are unable to predict the outcome of this lawsuit and
therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera
shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse
effect on our business, results of operation or financial condition. As of August 29, 2013, the Inotera shares purchased from
Qimonda had a carrying value of $190 million.
(See "Item 1A. Risk Factors.")
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "MU" and traded under
the same symbol on the New York Stock Exchange through December 29, 2009. The following table represents the high and
low closing sales prices for our common stock for each quarter of 2013 and 2012, as reported by Bloomberg L.P.:
2013
High
Low
2012
High
Low
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
$
$
14.97
11.68
6.89
5.39
$
$
11.89
8.25
8.83
5.63
$
$
8.38
5.93
8.88
5.45
6.70
5.17
7.20
4.33
Holders of Record
As of October 18, 2013, there were 2,623 shareholders of record of our common stock.
Dividends
We have not declared or paid cash dividends since 1996 and do not intend to pay cash dividends for the foreseeable future.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the Elpida Companies and their
subsidiaries are subject to certain restrictions on dividends, loans and advances. The total net assets, less noncontrolling
interests, of the Elpida Companies and their subsidiaries as of August 29, 2013 was $2,460 million. As of August 29, 2013, the
Elpida Companies held cash and equivalents of $1,094 million and $556 million of current restricted cash, none of which were
available for cash dividends, loans or advances as a result of the above-described restrictions.
As of August 29, 2013, IMFT held cash and equivalents of $62 million and other assets, none of which were available for
cash dividends, loans or advances without the consent of Intel.
Equity Compensation Plan Information
The information required by this item is incorporated by reference from the information set forth in Item 12 of this Annual
Report on Form 10-K.
30
Issuer Purchases of Equity Securities
During the fourth quarter of 2013, we acquired, as payment of withholding taxes in connection with the vesting of
restricted stock and restricted stock unit awards, 3,857 shares of our common stock at an average price per share of $13.37. We
retired these shares in the fourth quarter of 2013.
Period
May 31, 2013
July 5, 2013
August 2, 2013
- July 4, 2013
- August 1, 2013
- August 29, 2013
(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
$
201
3,455
201
3,857
12.49
13.39
13.83
13.37
N/A
N/A
N/A
N/A
N/A
N/A
31
Performance Graph
The following graph illustrates a five-year comparison of cumulative total returns for our common stock, the S&P 500
Composite Index and the Philadelphia Semiconductor Index (SOX) from August 31, 2008, through August 31, 2013. We
operate on a 52 or 53 week fiscal year which ends on the Thursday closest to August 31. Accordingly, the last day of our fiscal
year varies. For consistent presentation and comparison to the industry indices shown herein, we have calculated our stock
performance graph assuming an August 31 year end.
Note: Management cautions that the stock price performance information shown in the graph above is provided as of August
31 for the years presented and may not be indicative of current stock price levels or future stock price performance.
The performance graph above assumes $100 was invested on August 31, 2008 in common stock of Micron Technology,
Inc., the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX). Any dividends paid during the period
presented were assumed to be reinvested. The performance was plotted using the following data:
Micron Technology, Inc.
S&P 500 Composite Index
Philadelphia Semiconductor Index (SOX)
$
$
100
100
100
$
174
82
88
$
152
86
90
$
139
102
105
$
146
120
119
320
142
140
2008
2009
2010
2011
2012
2013
32
ITEM 6. SELECTED FINANCIAL DATA
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Net income (loss) attributable to Micron
Diluted earnings (loss) per share
Cash and short-term investments
Total current assets
Property, plant and equipment, net
Total assets
Total current liabilities
Long-term debt
Total Micron shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
2013
9,073
1,847
236
1,194
1,190
1.13
3,101
8,911
7,626
19,118
4,125
4,452
9,142
864
10,006
$
$
$
$
$
$
$
$
2012
2011
(in millions except per share amounts)
2010
$
8,234
968
(612)
(1,031)
(1,032)
(1.04) $
2,559
5,758
7,103
14,328
2,243
3,038
7,700
717
8,417
$
$
8,788
1,758
761
190
167
0.17
2,160
5,832
7,555
14,752
2,480
1,861
8,470
1,382
9,852
$
$
$
$
8,482
2,714
1,612
1,900
1,850
1.85
2,913
6,333
6,601
14,693
2,702
1,648
8,020
1,796
9,816
$
$
$
$
2009
4,803
(440)
(1,646)
(1,993)
(1,882)
(2.35)
1,485
3,344
7,089
11,459
1,892
2,379
4,953
1,986
6,939
On July 31, 2013, we completed our acquisition of 100% of the equity of Elpida Memory, Inc. ("Elpida") and 24%
ownership interest in Rexchip Electronics Corporation ("Rexchip"), a Taiwan corporation and manufacturing joint venture in
which Elpida and its subsidiaries have a 65% ownership interest. Elpida and Rexchip manufacture and sell DRAM products
for both mobile and computing (including desktop PCs, servers, notebooks and workstations) applications. The assets of
Elpida and its subsidiaries include, among others: a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan; its
approximate 65% ownership interest in Rexchip, whose assets include a 300mm DRAM wafer fabrication facility located in
Taichung City, Taiwan; and a 100% ownership interest in Akita, whose assets include an assembly and test facility located in
Akita, Japan. As a result of the consummation of our acquisition of Elpida and the Rexchip shares, we own approximately 89%
of Rexchip's common stock. The total consideration paid for Elpida and Rexchip was $949 million and we recorded net assets
of $2,601 million and noncontrolling interests of $168 million in connection with the transaction. Because the fair value of the
net assets acquired less noncontrolling interests exceeded the consideration we paid, we recognized a gain on the acquisition of
$1,484 million in 2013. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Acquisition of Elpida Memory, Inc." note.)
We entered into a joint venture relationship with Intel to form IMFT in 2006 and IMFS in 2007 (collectively "IM Flash")
to manufacture NAND Flash memory products for the exclusive use of the members. We have owned 51% of IMFT from
inception through August 29, 2013. Our ownership percentage of IMFS had increased from 51% at inception to 82% as of
April 6, 2012 due to our making a series of contributions that were not fully matched by Intel. On April 6, 2012, we entered
into a series of agreements with Intel to restructure IM Flash. We acquired Intel's remaining 18% interest in IMFS for $466
million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication facility, for which Intel received a
distribution from IMFT of $139 million. For both transactions, the amounts Intel received approximated the book values of
Intel's interests in the assets acquired. We consolidate IM Flash and report Intel's ownership interests as noncontrolling
interests in subsidiaries. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Consolidated Variable Interest Entities – IM Flash" note.)
On May 7, 2010, we acquired Numonyx Holdings B.V. ("Numonyx"), which manufactured and sold primarily NOR Flash
and NAND Flash memory products. The total fair value of the consideration paid for Numonyx was $1,112 million and
consisted of 137.7 million shares of our common stock issued to the Numonyx shareholders and 4.8 million restricted stock
units issued to employees of Numonyx. In connection with the acquisition, we recorded net assets of $1,549 million. Because
the fair value of the net assets acquired exceeded the purchase price, we recognized a gain on the acquisition of $437 million in
2010. In addition, we recognized a $51 million income tax benefit in connection with the acquisition.
33
In the first quarter of 2009, we acquired a noncontrolling interest in Inotera, a publicly-traded DRAM manufacturer in
Taiwan. In connection therewith, we entered into a supply agreement with Inotera to purchase 50% of Inotera’s wafer
production capacity and began purchasing substantial quantities of product in the fourth quarter of 2009. On January 17, 2013,
we entered into agreements with Nanya and Inotera to amend the joint venture relationship involving Inotera. The amendments
included a new supply agreement (the "Inotera Supply Agreement"), retroactively effective beginning on January 1, 2013,
between us and Inotera under which we are obligated to purchase for an initial period through January, 2016, substantially all of
Inotera's output at a purchase price based on a discount from market prices for our comparable components. The Inotera
Supply Agreement contemplates annual negotiations with respect to potential successive one-year extensions. As of August 29,
2013, our ownership interest was 35%. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Equity Method Investments – Inotera" note.)
(See "Item 1A. Risk Factors" and "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements.")
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used herein, "we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context
indicates otherwise. The following discussion contains trend information and other forward-looking statements that involve a
number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made
in "Overview" regarding Elpida's wafer production and expectations related to Elpida's future cash flows; "Operating Results
by Business Segment" regarding increases in sales of mobile DRAM for 2014 as a result of our acquisition of Elpida; in
"Operating Results by Product" regarding the timing and effect of the transition of our Singapore DRAM facility to NAND
Flash production, our increases in DRAM sales for 2014 as a result of our acquisition of Elpida and the effect of Elpida
inventory adjustments in acquisition accounting on cost of sales in the first quarter of 2014; in "Selling, General and
Administrative" regarding SG&A costs for the first quarter of 2014; in "Research and Development" regarding R&D costs for
the first quarter of 2014; in "Liquidity and Capital Resources" regarding the sufficiency of our cash and investments, cash
flows from operations and available financing to meet our requirements at least through 2014, regarding our pursuit of
additional financing and capital spending in 2014, the timing of payments for certain contractual obligations, the timing of
payments in connection with the Elpida transactions and conversions of our convertible notes; and in "Recently Issued
Accounting Standards" regarding the impact of recently issued accounting pronouncements. Our actual results could differ
materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified in "Item 1A. Risk Factors." This discussion should
be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended August 29,
2013. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period
ending on the Thursday closest to August 31 and fiscal 2013, 2012 and 2011 each contained 52 weeks. All production data
includes the production of our consolidated joint ventures and our other partnering arrangements. All tabular dollar amounts
are in millions.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in
addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of
operations, financial condition and cash flows. MD&A is organized as follows:
• Overview: Highlights of key transactions and events.
• Results of Operations: An analysis of our financial results consisting of the following:
Consolidated results;
Operating results by business segment;
Operating results by product; and
Operating expenses and other.
• Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our
financial condition and potential sources of liquidity.
• Off-Balance Sheet Arrangements: Contingent liabilities, commitments and off-balance sheet arrangements.
• Critical Accounting Estimates: Accounting estimates that we believe are most important to understanding the
assumptions and judgments incorporated in our reported financial results and forecasts. Also includes changes in
accounting standards.
35
Overview
For an overview of our business, see "Item 1 – Business – Overview." Our results of operations for 2013 were affected by
the following key transactions and events.
Acquisition of Elpida Memory, Inc.
On July 31, 2013, we completed our acquisition of Elpida Memory, Inc. ("Elpida"), a Japanese corporation, pursuant to the
terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that
we entered into on July 2, 2012 with the trustees of Elpida and one of its subsidiaries, Akita Elpida Memory, Inc., a Japanese
corporation ("Akita" and, together with Elpida, the "Elpida Companies") pursuant to and in connection with the Elpida
Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan. We paid $615
million for the acquisition of 100% of Elpida's equity. On July 31, 2013, we also acquired a 24% ownership interest in Rexchip
Electronics Corporation ("Rexchip''), a Taiwanese corporation and manufacturing joint venture formed by Powerchip
Technology Corporation ("Powerchip") and Elpida, from Powerchip and certain of its affiliates (the "Powerchip Group")
pursuant to a share purchase agreement. We paid $334 million in cash for the shares. Elpida and it's subsidiaries (the "Elpida
Group") own approximately 65% of Rexchip's outstanding common stock. Therefore, as a result of the consummation of our
acquisition of Elpida and the Rexchip shares from the Powerchip Group, we own approximately 89% of Rexchip's common
stock. The provisional fair values of assets and liabilities acquired include, among other items, cash and restricted cash
aggregating $1,618 million; inventories of $962 million; property, plant and equipment of $935 million; net deferred tax assets
of $917 million and debt of $2,134 million.
Elpida's assets include, among others: a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan; its
ownership interest in Rexchip, whose assets include a 300mm DRAM wafer fabrication facility located in Taichung City,
Taiwan; and an assembly and test facility located in Akita, Japan. The Elpida and Rexchip fabrication facilities together
represent approximately one-third of our wafer capacity.
Elpida's semiconductor memory products include Mobile DRAM, targeted toward mobile phones and tablets. We believe
that combining the complementary product portfolios of Micron and Elpida strengthens our position in the memory market and
enables us to provide customers with a wider portfolio of high-quality memory solutions. We also believe that the Elpida
transaction strengthens our market position in the memory industry through increased research and development and
manufacturing scale, improved access to core memory market segments, and additional wafer capacity to balance among our
DRAM, NAND Flash and NOR Flash memory solutions. Elpida's operations are included primarily in the DSG and WSG
segments. Our results of operations for 2013 included approximately one month of operating results from the Elpida
operations, which accounted for sales of $355 million and net income of $29 million.
The Elpida Companies are currently subject to corporate reorganization proceedings under the Corporate Reorganization
Act of Japan. Both of the Elpida Companies have adopted plans of reorganization which set forth the treatment of the Elpida
Companies' pre-petition creditors and their claims, which plans were approved by the Elpida Companies' creditors and the
Tokyo District Court in February 2013. The plans of reorganization provide for payments by the Elpida Companies to their
secured and unsecured creditors in an aggregate amount of 200 billion yen (or the equivalent of approximately $2.05 billion as
of August 29, 2013), less certain expenses of the reorganization proceedings and certain other items. The plans of
reorganization provide for the Elpida Companies' pre-petition creditors to be paid in seven installments. The initial installment
payment of 60 billion yen ($615 million as of August 29, 2013), which amount is subject to reduction for certain items
specified in the Sponsor Agreement and plans of reorganization, was paid in October 2013. Substantially all of the $615
million that we paid in connection with the Elpida acquisition was deposited into accounts that are legally restricted for
payment to the secured and unsecured creditors of Elpida in October 2013 and was presented as restricted cash in the amount of
$556 million on our August 29, 2013 balance sheet. The remaining 140 billion yen (or the equivalent of approximately $1.43
billion as of August 29, 2013) of installment payments payable to the Elpida Companies' creditors are scheduled to be made by
the Elpida Companies in six annual installments payable beginning on December 31, 2014. Pursuant to the terms of the
Sponsor Agreement, we entered into a series of agreements with the Elpida Companies, including supply agreements, research
and development services agreements and general services agreements, which are intended to generate more stable operating
cash flows to meet the requirements of the Elpida Companies' businesses, including the funding of the installment payments to
the Elpida Companies' creditors. We anticipate that, once fully in effect, payments made under these agreements will generally
cover all of Elpida and Akita's costs.
36
To mitigate the risk from the effect of changes in foreign currency exchange rates on the proposed Elpida Acquisition, we
entered into a series of currency exchange contracts to hedge our exposure to yen and New Taiwan Dollar payments (the
"Elpida Hedges"). These currency exchange contracts were not designated for hedge accounting and were remeasured at fair
value each period with gains and losses recognized in other operating (income) expense. As a result of mark-to-market
adjustments for the Elpida Hedges, we recorded losses to other non-operating expense of $228 million in 2013. As of August
29, 2013, our cumulative loss on the Elpida Hedges was $220 million.
See "Item 8. Financial Statements - Notes to Consolidated Financial Statements - Acquisition of Elpida Memory, Inc." for
further details of the acquisition.
Inotera Memories, Inc.
On January 17, 2013, we entered into agreements with Nanya Technology Corporation ("Nanya") to amend the joint
venture relationship involving Inotera. The amendments included a new supply agreement (the "Inotera Supply Agreement"),
retroactively beginning on January 1, 2013, between us and Inotera under which we are obligated to purchase for an initial
three-year term substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. The Inotera Supply Agreement contemplates annual negotiations with respect to potential successive
one-year extensions and if in any year the parties do not agree to an extension, the agreement will terminate following the end
of the then-existing term plus a subsequent three-year wind-down period. Our share of Inotera's capacity would decline over
the three year wind-down period. Effective through December 31, 2012, we had rights and obligations to purchase 50% of
Inotera's wafer production capacity based on a margin-sharing formula among Nanya, Inotera and us. Our cost for product
purchased from Inotera under the supply agreements was $1,260 million for 2013, $646 million for 2012 and $641 million for
2011.
Under a cost-sharing arrangement effective through December 31, 2012, we generally shared DRAM process and design
development costs with Nanya. As a result of the January 17, 2013 agreements, which were retroactively effective beginning
on January 1, 2013, Nanya no longer participates in the joint development program. Pursuant to this cost-sharing arrangement,
our R&D costs were reduced by $19 million for 2013, $138 million for 2012 and $141 million for 2011.
Results of Operations
Consolidated Results
For the year ended
Net sales
Cost of goods sold
Gross margin
SG&A
R&D
Restructure and asset impairments
Other operating (income) expense, net
Operating income (loss)
Gain on acquisition of Elpida
Interest income (expense), net
Other non-operating income (expense), net
Income tax (provision) benefit
Equity in net loss of equity method investees
Net income attributable to noncontrolling interests
Net income (loss) attributable to Micron
2013
2012
2011
$ 9,073
7,226
1,847
100 % $ 8,234
7,266
80 %
968
20 %
100 % $ 8,788
7,030
88 %
1,758
12 %
100 %
80 %
20 %
562
931
126
6 %
10 %
1 %
(8) — %
3 %
236
1,484
(217)
(218)
16 %
(2)%
(2)%
(8) — %
(83)
(1)%
(4) — %
620
918
10
32
(612)
8 %
11 %
— %
— %
(7)%
—
(171)
29
17
(294)
— %
(2)%
— %
— %
(4)%
(1) — %
$ 1,190
13 % $ (1,032)
(13)% $
37
592
791
(75)
(311)
761
7 %
9 %
(1)%
(4)%
9 %
— %
—
(101)
(1)%
(109)
(1)%
(203)
(2)%
(158)
(2)%
(23) — %
2 %
167
In the second quarter of 2013, we reclassified (gains) losses from changes in currency exchange rates from other operating
(income) expense, net to other non-operating income (expense), net in the consolidated statements of income. As a result,
segment operating income (loss) for the comparative periods presented no longer includes the (gains) losses from changes in
currency exchange rates to conform to current period presentation. (See "Item 8. Financial Statements and Supplementary
Data – Notes to Consolidated Financial Statements – Business and Basis of Presentation" and "Segment Information".)
Net Sales
For the year ended
DSG
NSG
WSG
ESG
All Other
2013
2012
2011
$ 3,519
2,841
1,221
1,194
298
$ 9,073
39% $ 2,691
2,853
31%
1,184
13%
1,054
13%
452
4%
100% $ 8,234
33% $ 3,203
2,196
35%
1,959
14%
1,002
13%
428
5%
100% $ 8,788
36%
25%
22%
11%
6%
100%
Total net sales for 2013 increased 10% as compared to 2012 reflecting increases in DSG, ESG and WSG sales primarily
due to higher levels of DRAM and NAND Flash gigabit sales volumes partially offset by declines in average selling prices.
The increases in gigabit sales volumes for 2013 were primarily attributable to manufacturing efficiencies driven by
improvements in product and process technology, increased DRAM supply from Inotera due to the restructuring of our supply
agreement and $355 million of DRAM sales from Elpida since its acquisition on July 31, 2013.
Total net sales decreased 6% for 2012 as compared to 2011, reflecting declines in average selling prices across all
reportable segments partially offset by increases in sales volumes. WSG sales decreased for 2012 as compared to 2011
primarily due to declines in average selling prices and in NOR Flash sales volumes, as a result of weakness in market demand
and our customer group in particular, as well as a continued transition by customers from NOR Flash to NAND Flash. DSG
sales decreased primarily due to lower average selling prices partially offset by increases in sales volumes. NSG and ESG sales
increased due to increases in sales volumes partially offset by declines in average selling prices.
Sales for All Other segments, were primarily composed of sales of CMOS image sensors. On May 3, 2013, we sold
Micron Technology Italia, S.r.l., ("MIT") a wholly-owned subsidiary, including its 200mm wafer fabrication facility assets in
Avezzano, Italy, to LFoundry Marsica S.r.l. ("LFoundry"). In connection with the sale, we assigned to LFoundry our supply
agreement with Aptina Imaging Corporation ("Aptina") for CMOS image sensors manufactured at the Avezzano facility. Since
the sale, we have had no sales of CMOS image sensors. For 2013, 2012 and 2011, we recognized net sales of $182 million,
$372 million and $349 million, respectively, from products sold to Aptina, and cost of goods sold of $219 million, $395 million
and $358 million, respectively. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Restructure and Asset Impairments.")
Gross Margin
Our overall gross margin percentage improved to 20% for 2013 from 12% for 2012 due to improvements in the gross
margin percentage for DSG, and to a lesser extent WSG, ESG and NSG primarily due to manufacturing cost reductions
partially offset by declines in average selling prices. Manufacturing cost reductions for 2013 primarily resulted from
improvements in product and process technologies.
Our overall gross margin percentage declined to 12% for 2012 from 20% for 2011 primarily due to decreases in the gross
margin percentage for DSG and WSG as a result of significant declines in average selling prices. Cost reductions from
improvements in product and process technologies in 2012 mitigated the effect of significant declines in average selling prices
for all reportable operating segments.
38
Operating Results by Business Segments
DRAM Solutions Group ("DSG")
For the year ended
Net sales
Operating income (loss)
2013
2012
2011
$
$
3,519
143
$
2,691
(494)
3,203
290
DSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for
our consolidated sales of DRAM products. (See "Operating Results by Product – DRAM" for further detail.) DSG sales for
2013 increased 31% as compared to 2012 primarily due to increases in gigabits sold partially offset by declines in average
selling prices. DSG's operating margin improved in 2013 from 2012 primarily due to manufacturing cost reductions as a result
of improved product and process technologies partially offset by declines in average selling prices. DSG results of operations
for 2013 included sales of $163 million and operating income of $25 million from the acquired Elpida operations. DSG sales
and operating margins for 2012 were adversely impacted by a $58 million charge for a settlement with a customer.
DSG sales for 2012 decreased 16% as compared to 2011 primarily due to declines in average selling prices partially offset
by increases in gigabits sold. DSG's operating margin declined from 2011 to 2012 due to decreases in average selling prices
mitigated by cost reductions as a result of improved product and process technologies. DSG sales and operating margins for
2012 were adversely impacted by the $58 million charge for a settlement with a customer. In addition, DSG operating income
for 2011 benefited from a $75 million gain from an allocated portion of the Samsung patent cross-license agreement.
NAND Solutions Group ("NSG")
For the year ended
Net sales
Operating income
2013
2012
2011
$
$
2,841
201
$
2,853
205
2,196
276
NSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for
our consolidated sales of NAND Flash products. (See "Operating Results by Product – NAND Flash" for further detail.) NSG
sales for 2013 were relatively unchanged from 2012 as increases in gigabits sold were partially offset by declines in average
selling prices. Increases in gigabits sold for 2013 were primarily due to improvements in product and process technologies.
NSG sells a portion of its products to Intel through our IM Flash joint venture at long-term negotiated prices approximating
cost. All other NSG products are sold to OEMs, resellers, retailers and other customers (including Intel), which we collectively
refer to as "trade customers."
On April 6, 2012, we acquired Intel's remaining ownership interest in IMFS, a joint venture between us and Intel, which
operated a wafer fabrication facility in Singapore. On April 6, 2012, we also acquired the assets of IMFT located at our
Virginia fabrication facility and terminated the IMFS supply agreement. Accordingly, we now obtain all of the NAND Flash
output from our Singapore and Virginia wafer fabrication facilities. Prior to these acquisitions, we sold a portion of the NAND
Flash output from these facilities to Intel, through our consolidated IMFS and IMFT joint ventures, at long-term negotiated
prices approximating cost. On April 6, 2012, we also entered into a new supply agreement with Intel under which we sell Intel
NAND Flash products from us on a cost-plus basis. Aggregate NSG sales to Intel (including sales by IMFT at prices
approximating cost and sales by us under the new cost-plus supply agreement) were $849 million for 2013, $986 million for
2012 and $884 million for 2011. As a result of these April 6, 2012 transactions, in 2013 NSG sales of NAND Flash products to
trade customers increased and sales to Intel at long-term negotiated prices approximating cost decreased.
NSG sales of NAND Flash products to trade customers increased 22% for 2013 as compared to 2012 primarily due to
increases in gigabits sold partially offset by declines in average selling prices. NSG operating income for 2013 was essentially
unchanged from 2012 as manufacturing cost reductions offset declines in average selling prices and increases in R&D costs.
Manufacturing cost reductions resulted primarily from improvements in product and process technologies.
39
NSG sales of NAND Flash products to trade customers increased 50% for 2012 as compared to 2011 primarily due to an
increase in gigabits sold partially offset by declines in average selling prices. NSG operating income declined from 2011 to
2012 primarily due to decreases in average selling prices mitigated by cost reductions. Cost reductions resulted primarily from
improvements in product and process technologies. NSG operating income for 2011 benefited from a $57 million gain from an
allocated portion of the Samsung patent cross-license agreement.
Wireless Solutions Group ("WSG")
For the year ended
Net sales
Operating income (loss)
2013
2012
2011
$
$
1,221
(263)
$
1,184
(368)
1,959
19
In 2013, WSG sales were comprised primarily of DRAM, NAND Flash and NOR Flash in decreasing order of revenue.
WSG sales increased 3% for 2013 as compared to 2012 primarily due to higher sales of mobile DRAM products as a result of
the acquisition of Elpida. We expect that WSG sales of mobile DRAM products will increase significantly in 2014 primarily
due to our acquisition of Elpida. WSG results of operations for 2013 included sales of $192 million and operating income of
$21 million from the acquired Elpida operations. Increases in WSG sales for 2013 from mobile DRAM were partially offset by
declines in sales of wireless NOR Flash products as a result of weakness in market demand and our customer group in
particular, as well as a continued transition by customers to NAND Flash. WSG sales in 2013 were also adversely impacted by
lower sales of NAND Flash products sold in multi-chip packages. The improvement in WSG operating margin for 2013 was
primarily due to reductions in manufacturing, SG&A and R&D costs.
In 2012, WSG sales were comprised of NOR Flash, NAND Flash and DRAM in decreasing order of revenue. The 40%
decrease in WSG sales for 2012 as compared to 2011 was primarily due to declines in sales of wireless NOR Flash products as
a result of weakness in market demand and our customer group in particular, as well as a continued transition by customers to
NAND Flash. WSG sales in 2012 were also adversely impacted by lower sales of NAND Flash products sold in multi-chip
packages. The decline in WSG operating margin for 2012 was primarily due to the reductions in average selling prices and in
NOR Flash sales volumes. In addition, WSG operating margin for 2011 benefited from a $95 million gain from an allocated
portion of the Samsung patent cross-license agreement.
Embedded Solutions Group ("ESG")
For the year ended
Net sales
Operating income
2013
2012
2011
$
$
1,194
271
$
1,054
158
1,002
236
In 2013, ESG sales were comprised of NOR Flash, DRAM and NAND Flash in decreasing order of revenue. ESG sales
increased 13% for 2013 as compared to 2012 primarily due to increased sales volume of NAND Flash, DRAM and NOR Flash
products as ESG continued to expand its customer base, partially offset by declines in average selling prices. ESG operating
income for 2013 improved from 2012 primarily due to higher gross margins as manufacturing cost reductions outpaced
declines in average selling prices.
In 2012, ESG sales were comprised of NOR Flash, DRAM and NAND Flash in decreasing order of revenue. The 5%
increase in ESG sales for 2012 as compared to 2011 was primarily due to increased sales volume of DRAM, NAND Flash and
NOR Flash products as ESG continued to expand its customer base, partially offset by declines in average selling prices. ESG
operating income for 2012 declined as compared to 2011 due to decreases in average selling prices and higher costs associated
with underutilized capacity in our NOR Flash facilities. In addition, ESG operating margin for 2011 benefited from a $33
million gain from an allocated portion of the Samsung patent cross-license agreement.
40
Operating Results by Product
Net Sales by Product
For the year ended
DRAM
NAND Flash
NOR Flash
Other
2013
2012
2011
4,361
3,589
792
331
$ 9,073
48%
40%
9%
3%
3,178
3,627
977
452
100% $ 8,234
39%
44%
12%
5%
3,620
3,193
1,547
428
100% $ 8,788
41%
36%
18%
5%
100%
In order to balance our future product mix in anticipation of the closing of the Elpida transaction, in the fourth quarter of
2013 we began to transition production at our DRAM fabrication facility in Singapore from DRAM to NAND Flash. We
expect this transition to NAND Flash production will occur over approximately four quarters, depending on market conditions
and result in a marginal reduction in wafer production during the period of this transition.
DRAM
For the year ended
Net sales
Average selling prices per gigabit
Gigabits sold
Cost per gigabit
2013
2012
(percentage change from prior period)
37 %
(11)%
55 %
(25)%
(12)%
(45)%
59 %
(32)%
The increase in gigabit sales of DRAM products for 2013 as compared to 2012 was primarily due to increased output
obtained from our Inotera joint venture under the new supply agreement, improved product and process technologies and the
acquisition of Elpida on July 31, 2013. Effective on January 1, 2013, we entered into the new Inotera Supply Agreement under
which we purchase substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. Prior to the new Inotera Supply Agreement we had the right to purchase 50% of Inotera's wafer
production capacity based on a margin-sharing formula among Nanya, Inotera and us. (See "Overview – Inotera Memories,
Inc.") Our cost of product purchased from Inotera under these supply agreements was $1,260 million for 2013, $646 million
for 2012, and $641 million for 2011. Our cost of product purchased from Inotera has increased since the beginning of calendar
2013 and was higher than our cost of similar products manufactured in our wholly-owned facilities in the fourth quarter of
2013.
DRAM products acquired from Inotera accounted for 54% of our DRAM gigabit production for 2013 as compared to 46%
for 2012 and 33% for 2011. As of June 30, 2013, Inotera's current liabilities exceeded its current assets by $1.0 billion, which
exposes Inotera to liquidity risk. Additionally, Inotera incurred net losses of $541 million for its fiscal year ended December
31, 2012. As of June 30, 2013, Inotera was not in compliance with certain of its loan covenants, and had not been in
compliance for the past several years, which may result in its lenders requiring repayment of such loans during the next year.
Inotera has applied for a waiver from complying with the June 30, 2013 financial covenants. Inotera's management has
implemented plans to improve its liquidity and for Inotera's six-month period ended June 30, 2013, Inotera generated net
income of $91 million; however, there can be no assurance that Inotera will be successful in sufficiently improving its liquidity
and complying with their loan covenants, which may result in its lenders requiring repayment of such loans during the next
year.
Our gross margin percentage on sales of DRAM products for 2013 improved from 2012 primarily due to manufacturing
cost reductions as a result of improvements in product and process technology partially offset by declines in average selling
prices. DRAM sales and gross margins for 2012 were adversely impacted by the effects of the $58 million charge to revenue
for a settlement with a customer.
41
We expect that our gigabit production and sales volumes of DRAM products will increase significantly in 2014 due to our
acquisition of Elpida. Elpida has 300mm wafer fabrication facilities in Japan and Taiwan that are dedicated to the production
of DRAM products. We expect that DRAM products produced by the acquired Elpida facilities will constitute over half of our
aggregate DRAM gigabit production in the first quarter of 2014 and result in significant increases in DSG and WSG DRAM
sales. In accounting for the Elpida acquisition, Elpida's inventories were recorded at fair value, based on their estimated future
selling prices, estimated costs to complete and other factors, which was approximately $200 million higher than the cost of
inventory recorded by Elpida prior to the acquisition. Of this amount, approximately $40 million was included in cost of goods
sold for 2013 and a significant portion of the reminder is expected to be included in costs of goods sold in the first quarter of
2014.
NAND Flash
We sell a portion of our output of NAND Flash products to Intel through IM Flash at long-term negotiated prices
approximating cost. (See "Operating Results by Business Segments – NAND Solutions Group" for further detail.) We sell the
remainder of our NAND Flash products to trade customers.
For the year ended
Sales to trade customers:
Net sales
Average selling prices per gigabit
Gigabits sold
Cost per gigabit
2013
2012
(percentage change from prior period)
15 %
(18)%
40 %
(22)%
19 %
(55)%
164 %
(54)%
Increases in NAND Flash gigabits sold to trade customers for 2013 as compared to 2012 were primarily due to improved
product and process technologies, increased output available for sale to trade customers due to the restructure of our IM Flash
agreement with Intel in April 2012 and the ramp-up of our fabrication facility in Singapore throughout 2012. Our gross margin
percentage on sales of NAND Flash products for 2013 improved from 2012 as manufacturing cost reductions outpaced declines
in average selling prices. Manufacturing cost reductions for 2013 as compared to 2012 reflect improvements in product and
process technologies.
Increases in NAND Flash gigabits sold to trade customers for 2012 as compared to 2011 was primarily due to the ramp of
the IMFS fabrication facility and improved product and process technologies. The new cost-plus supply agreement with Intel
also contributed to the increase in gigabits sold to trade customers for 2012.
NOR Flash
Sales of NOR Flash products for 2013 declined as compared to 2012 primarily due to decreases in sales of wireless
products as a result of weakness in demand from certain customers and the continued transition of wireless applications to
NAND Flash products, which led to significant declines in average selling prices. Our gross margin percentage on sales of
NOR Flash products for 2013 improved as compared to 2012 primarily due to cost reductions.
Sales of NOR Flash products for 2012 declined from 2011 primarily due to decreases in sales of wireless NOR Flash
products, as a result of weakness in demand from certain customers and the continued transition of wireless applications to
NAND Flash products that led to significant declines in average selling prices and sales volume. Our gross margin percentage
on sales of NOR Flash products declined from 2011 to 2012 primarily due to decreases in average selling prices, inventory
write-downs and costs of underutilized capacity.
Operating Expenses and Other
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for 2013 decreased 9% as compared to 2012 primarily due to a
reduction in legal costs and lower variable pay costs partially offset by $50 million of consulting, legal and other costs incurred
in connection with the acquisition of Elpida.
42
SG&A expenses for 2012 increased 5% as compared to 2011 primarily due to a $13 million contribution to a university
program and stock-based compensation and other amounts related to the death benefits of our former Chief Executive Officer
in 2012. We expect that SG&A expenses will approximate $185 million to $195 million for the first quarter of 2014, which
includes costs from Elpida.
Research and Development
R&D expenses for 2013 increased 1% from 2012 primarily due to lower reimbursements from Nanya under partnering
arrangements offset by lower payroll costs primarily resulting from the suspension of variable pay plans and a lower volume of
development wafers processed.
R&D expenses for 2012 increased 16% from 2011 primarily due to a higher volume of development wafers processed,
higher personnel costs associated with increased salary and wage rates and additional headcount for our expanded R&D
operations, and higher software and materials costs.
As a result of amounts reimbursable from Nanya under a DRAM R&D cost-sharing arrangement, R&D expenses were
reduced by $19 million, $138 million and $141 million for 2013, 2012 and 2011, respectively. The April 6, 2012 agreements
with Intel expanded our NAND Flash R&D cost-sharing agreement to include certain emerging memory technologies, but did
not change the cost-sharing percentage. As a result of amounts reimbursable from Intel, R&D expenses were reduced by $127
million, $87 million and $95 million for 2013, 2012 and 2011, respectively. Effective January 1, 2013, Nanya ceased
participating in the joint development program. We expect that R&D expenses, net of amounts reimbursable from our R&D
partners, will be approximately $340 million to $350 million for the first quarter of 2014, which includes costs from Elpida.
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process
technologies which are designed to facilitate our transition to next generation memory products. Additional process technology
R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new
opportunities that leverage our core semiconductor expertise and the development of new manufacturing materials. Product
design and development efforts include our high density DDR3 and DDR4 DRAM and Mobile Low Power DDR DRAM
products as well as high density and mobile NAND Flash memory (including multi-level and triple-level cell technologies),
NOR Flash memory, specialty memory, solid-state drives, Hybrid Memory Cubes and other memory technologies and systems.
Restructure and Asset Impairments
For the year ended
Loss on impairment of MIT assets
Loss on impairment of LED assets
Loss on restructure of ST consortium agreement
Gain on termination of lease to Transform
Gain from disposition of Japan Fabrication Facility
Other
2013
2012
2011
$
$
62
33
26
(25)
—
30
126
$
$
— $
—
—
—
—
10
10
$
—
—
—
—
(54)
(21)
(75)
We have taken actions to dispose of 200mm wafer manufacturing facilities and optimize operations including our
workforce. For 2013, ESG, WSG, NSG and DSG recognized restructure and impairment costs of $12 million, $11 million, $11
million and $6 million, respectively. The remaining restructure and impairment costs for 2013 were allocated to segments that
do not meet the quantitative thresholds of a reportable segment and are reported under All Other. As of August 29, 2013, the
only significant remaining amount accrued but unpaid for these restructure activities was $12 million related to workforce
optimization. As of August 29, 2013, we do not anticipate incurring any significant additional costs for these restructure
activities. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Restructure and Asset Impairments.")
Interest Income (Expense)
Interest expense for 2013, 2012 and 2011, included aggregate amounts of amortization of debt discount and other interest
amortization expense of $120 million, $95 million and $60 million, respectively. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Debt" note.)
43
Equity in Net Loss of Equity Method Investees
We recognize our share of earnings or losses from these entities under the equity method, generally on a two-month
lag. Equity in net loss of equity method investees, net of tax, included the following:
For the year ended
Inotera
Other
2013
2012
2011
$
$
(79) $
(4)
(83) $
(189) $
(105)
(294) $
(112)
(46)
(158)
Our equity in net income (loss) of Inotera improved for 2013 as compared to 2012 primarily due to Inotera's improved
operating results as a result of higher average selling prices and lower manufacturing costs. On May 28, 2013, Inotera issued
634 million common shares to Nanya and certain of its affiliates in a private placement at a price equal to 9.47 New Taiwan
dollars per common share (approximately $0.32 U.S. dollars as of May 28, 2013), which was in excess of our carrying value
per share. As a result of the issuance, our ownership interest decreased from 40% to 35% and we recognized a gain of
approximately $48 million in 2013. The change in ownership interest does not change our obligation to purchase substantially
all of Inotera's output. Losses in 2012 for our other equity method investments were primarily attributable to Transform Solar
Pty Ltd. which ceased operations in 2012 and has essentially been liquidated. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments.")
Other
Further discussion of other operating and non-operating income and expenses can be found in the following notes
contained in "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements":
• Equity Plans
• Other Operating (Income) Expense, Net
• Other Non-Operating Income (Expense), Net
•
Income Taxes
Fair Values – Elpida Acquisition
The provisional fair values of assets and liabilities acquired in the acquisition of Elpida is based on estimates using
information available at the closing of the acquisition. We estimated the provisional fair value of the assets and liabilities of
Elpida as of July 31, 2013 using an in-use model, which reflects its value through its use in combination with other assets as a
group. These provisional amounts could change as additional information become available. These changes could result in
material variances between the combined entity's future financial results including variances in fair values recorded, as well as
expenses associated with these items.
Determination of provisional fair values for the assets and liabilities acquired in the Elpida acquisition required significant
assumptions, estimates and judgments. Many of the measurements involved significant inputs that are not observable in the
market and thus represent a Level 3 measurement as defined in ASC 820. Changes in assumptions, estimates and judgments
could significantly impact the asset and liabilities recorded as well as the gain recognized in the acquisition. The items
involving the most significant assumptions, estimates and judgments included determining the fair value of the following:
Property, plant and equipment, including determination of values in a continued-use model;
•
• Deferred tax assets, including projections of future taxable income and tax rates;
•
Inventory, including estimated future selling prices, timing of product sales and completion costs for work in process;
and
• Debt, including discount rate and timing of payments.
44
Liquidity and Capital Resources
As of
Cash and equivalents and short-term investments:
Bank deposits
Money market funds
Corporate bonds
Government securities
Commercial paper
Certificates of deposit
Asset-backed securities
Long-term marketable investments
Restricted cash:
Current
Noncurrent (included in "Other noncurrent assets")
2013
2012
$
$
$
$
$
1,619
1,188
112
72
61
47
2
3,101
499
556
63
619
$
$
$
$
$
239
2,159
31
56
39
31
4
2,559
374
—
3
3
Cash and equivalents in the table above included $1,094 million held by Elpida and its subsidiaries as of August 29, 2013.
Substantially all of the restricted cash in the table above is held by Elpida for its installment payments to its secured and
unsecured creditors. Use of cash and equivalents and restricted cash held by Elpida is subject to limitations described below.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the Elpida Companies and their
subsidiaries are subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the Elpida
Companies prohibit the Elpida Companies from paying dividends, including any cash dividends, to us and require that excess
earnings be used in their businesses or to fund the Elpida Companies' installment payments. These prohibitions would also
effectively prevent the subsidiaries of the Elpida Companies from paying cash dividends to us as any such dividends would
have to be first paid to the Elpida Companies which are prohibited from repaying those amounts to us as dividends under the
plans of reorganization. In addition, pursuant to an order of the Japan Court, the Elpida Companies cannot make loans or
advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or
advances by subsidiaries of the Elpida Companies may be considered outside of the ordinary course of business and subject to
approval of the legal trustees and Japan Court. As a result, the assets of the Elpida Companies and their subsidiaries, while
available to satisfy the Elpida Companies' installment payments and the other obligations, capital expenditures and other
operating needs of the Elpida Companies and their subsidiaries, are not available for use by us in our other operations.
Moreover, certain uses of the assets of the Elpida Companies, including investments in certain capital expenditures and in
Rexchip, may require consent of Elpida's trustees and/or the Japan Court. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Acquisition of Elpida Memory, Inc.")
Cash and equivalents in the table above included $62 million held by IMFT as of August 29, 2013 and $157 million as of
August 30, 2012. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by the other
member and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
As of August 29, 2013, $1,598 million of our cash and equivalents was held by foreign subsidiaries, of which $743 million
was denominated in currencies other than the U.S. dollar. As of August 29, 2013, we had $1,362 million of cash and
equivalents, including the $1,094 million at Elpida, that was held by foreign subsidiaries whose earnings were considered to be
indefinitely reinvested and repatriation of these funds to the U.S. would subject these funds to U.S. federal income taxes.
To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the
concentration of credit exposure by restricting investments with any single obligor.
45
Cash generated by operations is our primary source of liquidity. Our liquidity is highly dependent on selling prices for our
products and the timing and level of our capital expenditures, both of which can vary significantly from period to period.
Depending on conditions in the semiconductor memory market, our cash flows from operations and current holdings of cash
and investments may not be adequate to meet our needs for capital expenditures and operations. In 2013 we obtained $1,121
million of proceeds from issuance of debt and $126 million of proceeds from equipment sale-leaseback financing. As of
August 29, 2013, we had credit facilities available that provides for up to $408 million of additional financing, subject to
outstanding balances of trade receivables and other conditions (See "Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Debt – Revolving Credit Facilities"). We have in the past and expect in the
future to continue to incur additional debt to finance our capital investments, including debt incurred in connection with asset-
backed financing. We expect our cash and investments, cash flows from operations and available financing will be sufficient to
meet our requirements at least through 2014.
Holders of our outstanding convertible notes can convert the notes during any calendar quarter if the closing price of our
common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding
calendar quarter is more than 130% of the conversion price. As of August 29, 2013, convertible notes with an aggregate
principal amount of $1,465 million, contained contractual terms that require us to pay cash up to the principal amount of the
notes upon conversion. These notes become convertible at the option of the holders if the closing price of our common stock
for the required periods is above prices ranging from $12.35 to $14.21. None of these convertible notes met the conversion
criteria through the calendar quarter ended June 30, 2013. Of the notes that require us to pay cash up to the principal amount
upon conversion, only the 2031A and 2031B Notes, with an aggregate principle amount of $690 million and carrying value of
$530 million as of August 29, 2013, met the conversion criteria during September 2013. Through October 28, 2013, none of
the 2031A or 2031B Notes had been converted by holders. We do not believe the amounts converted, if any, would be
significant since the note holders would forgo the time value of the embedded conversion option. We may elect in future
periods to redeem convertible notes eligible for redemption.
Operating Activities
Net cash provided by operating activities was $1,811 million for 2013, which reflected approximately $2,177 million
generated from the production and sales of our products net of a $366 million effect from increases in the amount invested in
net working capital. The increase in net working capital was primarily due to an increase in accounts receivable of $409
million as a result of increases in sales activities.
Investing Activities
Net cash used for investing activities was $1,712 million for 2013, which consisted primarily of cash expenditures of
$1,244 million for property, plant and equipment, $246 million for the acquisition of available-for-sale securities (net of
proceeds from sales and maturities of $678 million), and $226 million for the settlement of hedging activities (net of proceeds
from the settlement of hedging activities of $27 million). We believe that to develop new product and process technologies,
support future growth, achieve operating efficiencies and maintain product quality, we must continue to invest in manufacturing
technologies, facilities and capital equipment and R&D. We estimate that capital spending for 2014 will be approximately $2.6
billion to $3.2 billion. The actual amounts for 2014 will vary depending on market conditions. As of August 29, 2013, we had
commitments of approximately $775 million for the acquisition of property, plant and equipment, substantially all of which is
expected to be paid within one year.
In connection with the sale of our 200mm Avezzano facility to LFoundry, on May 22, 2013, we entered into a short-term,
interest-free, unsecured loan agreement with Aptina that allowed Aptina to borrow up to $45 million, drawn at their option,
in three equal tranches through July 2013. Principal amounts drawn are due in three equal payments from September 2013 to
January 2014. As of August 29, 2013, other current assets included $45 million for amounts due under the short-term loan
agreement.
Financing Activities
Net cash provided by financing activities was $322 million for 2013, which included $1,121 million of proceeds from
issuance of debt, $126 million of proceeds from equipment sale-leaseback financing transactions partially offset by
$743 million for repayments of debt, $214 million of payments on equipment purchase contracts and $26 million of net
distributions to noncontrolling interests.
46
On February 12, 2013, we issued $300 million of 1.625% Convertible Senior Notes due 2033 (the "2033E Notes") and
$300 million of 2.125% Convertible Senior Notes due 2033 (the "2033F Notes" and together with the 2033E Notes, the "2033
Notes") at face value. Issuance costs for the 2033 Notes totaled $16 million. Concurrently with the issuance of the 2033
Notes, we paid $48 million to purchase capped calls to partially offset the potentially dilutive effect if the 2033 Notes were
converted into shares of our common stock. Additionally, on February 12, 2013, we repurchased $464 million of aggregate
principal amount of our 1.875% Convertible Senior Notes due June 2014 for $477 million.
On August 27, 2013, we borrowed $312 million under a four-year term loan, collateralized by a security interest in certain
production equipment. Principal is payable in equal quarterly installments, commencing on November 27, 2013. Interest
accrues at a variable rate equal to the three-month LIBOR rate plus a margin of 3.25% per annum, payable quarterly in arrears.
Also on August 27, 2013, we entered into a variable-for-fixed interest rate swap calculated on an aggregate notional amount
equal to the scheduled outstanding balance of the loan. The interest rate swap effectively fixed the rate at 4.2% per annum.
The facility agreement contains customary covenants, limitations or restrictions our ability to create liens or dispose of the
equipment securing the facility agreement. The facility also contains a covenant requiring us to ensure that the ratio of the
outstanding loan to the fair market value of the equipment that secures the loan does not exceed 0.8 to 1.0. If such ratio is
exceeded, we would be required to grant a security interest in additional equipment and/or prepay the loan in an amount
sufficient to reduce such ratio to 0.8 to 1.0 or less. The facility agreement also contains customary events of default which
could result in the acceleration of all amounts and cancellation of all commitments under the facility agreement.
On October 2, 2012, we entered into a facility agreement to obtain financing collateralized by semiconductor production
equipment. Subject to customary conditions, we could draw up to $214 million under the facility agreement. Amounts drawn
are payable in 10 equal semi-annual installments beginning six months after the draw date. On October 18, 2012, we drew
$173 million with interest at 2.4% per annum. On January 31, 2013, we drew the remaining $41 million with interest at 2.4%
per annum. The facility agreement contains customary covenants and events of default.
On September 5, 2012, we entered into a three-year revolving credit facility. Under this credit facility, we can draw up to
the lesser of $255 million or 80% of the net outstanding balance of a pool of certain trade receivables. Amounts drawn would
be collateralized by a security interest in such receivables. The availability of the facility is subject to certain customary
conditions, including the absence of any event or circumstance that has a material adverse effect on our business or financial
condition. The revolving credit facility contains customary covenants and a repayment provision in the event that the
maximum aging of the receivables exceeds a specified threshold. Interest is payable monthly on any outstanding principal
balance at a variable rate equal to the 30-day Singapore Interbank Offering Rate plus 2.8% per annum. As of August 29, 2013,
we had not drawn any amounts under this facility.
On June 27, 2013, we entered into a senior secured three-year revolving credit facility, collateralized by a security interest
in certain trade receivables. Under this facility, we can draw up to 85% of the net outstanding balance of certain trade
receivables, subject to certain adjustments, including an availability block that has the effect of limiting the maximum
committed draw amount to approximately $153 million. The revolving credit facility contains customary covenants and
conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on our
business or financial condition. Generally, interest is payable on any outstanding principal balance at a variable rate equal to
the London Interbank Offered Rate (“LIBOR”) plus a spread from 1.5% to 2.0%, or at our option, at a rate equal to an alternate
base rate (defined as the highest of (1) the prime rate, (2) one-month LIBOR plus 1.0% or (3) the Federal Funds Effective Rate)
plus a spread from 0.5% to 1.0%. In either case, the spread added to the applicable interest rate basis varies depending upon
the amount of the monthly average undrawn availability under the facility. As of August 29, 2013, we had not drawn any
amounts under this facility.
Elpida Memory, Inc.
On July 31, 2013, we completed the acquisition of Elpida and Rexchip and made payments at the closing date of
approximately $615 million and $334 million, respectively. Substantially all of the $615 million we paid in connection with
the acquisition of Elpida was deposited into accounts that are legally restricted for payment to the secured and unsecured
creditors of Elpida in October 2013. Under their plans of reorganizations, the Elpida Companies are to make additional annual
installment payments aggregating 140 billion yen (or the equivalent of approximately $1.43 billion), which are scheduled to
occur from 2014 through 2019. In order to further the planned technology road maps for the Elpida and Rexchip operations,
we will be required to make capital expenditures.
47
Pursuant to the Sponsor Agreement we agreed, subject to certain conditions, to provide certain support to Elpida with
respect to obtaining financing for working capital purposes and capital expenditures. Under the Sponsor Agreement, we
agreed, subject to certain conditions, to use reasonable best efforts to assist the Elpida Companies in financing up to 64 billion
yen (or the equivalent of approximately $655 million) of eligible capital expenditures incurred through June 30, 2014, which
may include us providing payment guarantees of third party financing under certain circumstances or direct financial support
from Micron Technology, Inc. or one of its subsidiaries.
As of August 29, 2013, we have provided payment guarantees related to financing of capital expenditures with an
outstanding borrowing of 4 billion yen (or the equivalent of approximately $41 million), through December, 2014. We have
entered into an omnibus reimbursement agreement with Elpida in connection with our financial support obligations under the
Sponsor Agreement, whereby Elpida and certain of its subsidiaries have agreed, among other things, to reimburse us for any
amounts that we are required to pay under or in connection with the payment guarantees. These obligations under the omnibus
reimbursement agreement are collateralized by approximately 93% of the Rexchip shares held by Elpida and one of its
subsidiaries. In the event we are required to make any payments to Elpida's lenders under the guarantees, our rights will be
subrogated to those of the lenders, including any rights to exercise remedies with respect to collateral securing the underlying
loans.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Acquisition of
Elpida Memory, Inc.")
Contractual Obligations
As of August 29, 2013
Notes payable (1)
Capital lease obligations (1)
Operating leases
Purchase obligations
Other long-term liabilities (2) (3)
Total
Payments Due by Period
Total
Less than
1 year
$
$
5,951
1,366
106
1,426
461
9,310
$
$
1,285
449
22
1,273
155
3,184
1-3 years
852
656
26
129
157
1,820
$
$
3-5 years
1,473
126
21
13
79
1,712
$
$
More than
5 years
$
$
2,341
135
37
11
70
2,594
(1) Amounts includes Elpida Creditor Installment Payments, convertible notes and other notes and reflects principal and
interest cash payments over the life of the obligations, including anticipated interest payments that are not recorded on our
consolidated balance sheet. Any future redemption or conversion of convertible debt could impact our cash payments.
(2) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet,
including $155 million for the short-term portion of these long-term liabilities.
(3) We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $80 million of
long-term income taxes payable has been excluded from the preceding table. However, long-term income taxes payable
recorded on our consolidated balance sheet included these uncertain tax positions.
The obligations disclosed above do not include contractual obligations recorded on our balance sheet as current liabilities
except for the current portion of long-term debt. The expected timing of payment amounts of the obligations discussed above
is estimated based on current information. Timing and actual amounts paid may differ depending on the timing of receipt of
goods or services, market prices, changes to agreed-upon amounts or timing of certain events for some obligations.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that
meet any of the following criteria: (1) they are noncancellable, (2) we would incur a penalty if the agreement was canceled, or
(3) we must make specified minimum payments even if we do not take delivery of the contracted products or services ("take-
or-pay"). If the obligation to purchase goods or services is noncancellable, the entire value of the contract was included in the
above table. If the obligation is cancellable, but we would incur a penalty if canceled, the dollar amount of the penalty was
included as a purchase obligation. Contracted minimum amounts specified in take-or-pay contracts are also included in the
above table as they represent the portion of each contract that is a firm commitment.
48
On January 17, 2013, we entered into a new supply agreement with Nanya and Inotera (the "Inotera Supply Agreement"),
retroactively effective beginning on January 1, 2013. Under the Inotera Supply Agreement, we are obligated to purchase for an
initial three-year term substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. The Inotera Supply Agreement contemplates annual negotiations with respect to potential successive
one-year extensions and if in any year the parties do not agree to an extension, the agreement will terminate following the end
of the then-existing term plus a subsequent three-year wind-down period. Our share of Inotera's capacity would decline over
the three year wind-down period. We purchased $1,260 million of DRAM products from Inotera in 2013 under the Inotera
Supply Agreement and a prior supply agreement with Inotera. The Inotera Supply Agreement does not contain a fixed or
minimum purchase quantity as quantities are based on qualified production output and pricing fluctuates as it is based on
market prices. Therefore, we did not include our obligations under the Inotera Supply Agreement in the contractual obligations
table above.
Off-Balance Sheet Arrangements
Issued and Outstanding Capped Calls: Concurrent with the offering of the 2031 Notes in July 2011, we entered into
capped call transactions (the "2031 Capped Calls") that have an initial strike price of approximately $9.50 per share, subject to
certain adjustments, which was set to the initial conversion price of the 2031 Notes. The 2031 Capped Calls are in four equal
tranches, have cap prices of $11.40, $12.16, $12.67 and $13.17 per share, and cover, subject to anti-dilution adjustments similar
to those contained in the 2031 Notes, an approximate combined total of 72.6 million shares of common stock. The 2031
Capped Calls expire on various dates between July 2014 and February 2016 and are intended to reduce the potential dilution
upon conversion of the 2031 Notes.
Concurrent with the offering of the 2032C and 2032D Notes in April 2012, we entered into the 2032C and 2032D Capped
Call Transactions (collectively, the "2032 Capped Calls"). The 2032C Capped Calls have a range of cap prices from $14.26 to
$15.69 and an initial strike price of, subject to certain adjustments, approximately $9.80, which is set slightly higher than the
$9.63 conversion price of the 2032C Notes. The 2032D Capped Calls have a range of cap prices from $14.62 to $16.04 and an
initial strike price of, subject to certain adjustments, approximately $10.16, which is set slightly higher than the $9.98
conversion price of the 2032D Notes. The 2032 Capped Calls cover, subject to anti-dilution adjustments similar to those
contained in the 2032 Notes, an approximate combined total of 100.6 million shares of common stock. The 2032 Capped Calls
expire on various dates between May 2016 and May 2018 and are intended to reduce the potential dilution upon conversion of
the 2032C and 2032D Notes.
Concurrent with the offering of the 2033 Notes in February 2013, we entered into the 2033 Capped Call Transactions. The
2033 Capped Calls have a cap price of $14.51 and an initial strike price of, subject to certain adjustments, approximately
$10.93, which is equal to the conversion price of the 2033 Notes. The 2033 Capped Calls cover, subject to anti-dilution
adjustments similar to those contained in the 2033 Notes, an approximate combined total of 55.0 million shares of common
stock. The 2033 Capped Calls expire on various dates between January 2018 and February 2020 and are intended to reduce the
potential dilution upon conversion of the 2033 Notes.
Settlement of Capped Calls: Concurrent with the issuance in April 2009 of our 4.25% Convertible Senior Notes due 2013,
we entered into capped call transactions (the "2013 Capped Calls") covering approximately 45.2 million shares of common
stock with an initial strike price of approximately $5.08 per share and a cap price of $6.64 per share. The 2013 Capped Calls
expired in October, 2012 and November, 2012. We elected cash settlement and received $24 million in 2013.
Concurrent with the offering of the 2014 Notes, we purchased capped calls with a strike price of approximately $14.23 per
share and various expiration dates between November 2011 and December 2012 (the "2014 Capped Calls"). In the first six
months of 2012, 2014 Capped Calls covering 30.4 million shares expired according to their terms. In April 2012, we settled the
remaining 2014 Capped Calls, covering 60.9 million shares, and received a de minimis payment.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Shareholders'
Equity – Capped Calls" note.)
49
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 events and various other assumptions that
we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or
conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies
below are critical in the portrayal of our financial condition and results of operations and requires management's most difficult,
subjective or complex judgments.
Business Acquisitions: Accounting for acquisitions requires us to estimate the fair value of consideration paid and the
individual assets and liabilities acquired, which involves a number of judgments, assumptions and estimates that could
materially affect the amount and timing of costs recognized. Accounting for acquisitions can also involve significant judgment
to determine when control of the acquired entity is transferred. We typically obtain independent third party valuation studies to
assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates and
comparable market values. The items involving the most significant assumptions, estimates and judgments included
determining the fair value of the following:
Property, plant and equipment, including determination of values in a continued-use model;
•
• Deferred tax assets, including projections of future taxable income and tax rates;
•
Inventory, including estimated future selling prices, timing of product sales and completion costs for work in process;
and
• Debt, including discount rate and timing of payments.
Consolidations: We have interests in joint venture entities that are Variable Interest Entities ("VIEs"). Determining
whether to consolidate a VIE may require judgment in assessing (1) whether an entity is a VIE and (2) if we are the entity's
primary beneficiary. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (a) the power to
direct the activities that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the
right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of
significant activities and an assessment of our ability to direct those activities based on governance provisions and
arrangements to provide or receive product and process technology, product supply, operations services, equity funding and
financing and other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of
our VIEs requires significant assumptions and judgment.
Contingencies: We are subject to the possibility of losses from various contingencies. Considerable judgment is
necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable
that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue
a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing
as of the balance sheet date.
Income Taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable
in numerous tax jurisdictions around the world. These estimates involve judgment and interpretations of regulations and are
inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after
completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis
in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of
deferred tax assets is dependent on our ability to generate future taxable income.
50
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and
overhead costs, including product and process technology costs. Determining market value of inventories involves numerous
judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in
work in process inventories. To project average selling prices and sales volumes, we review recent sales volumes, existing
customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends
and other information. When these analyses reflect estimated market values below our manufacturing costs, we record a charge
to cost of goods sold in advance of when the inventory is actually sold. Differences in forecasted average selling prices used in
calculating lower of cost or market adjustments can result in significant changes in the estimated net realizable value of product
inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices
would have changed the estimated market value of our memory inventory by approximately $154 million as of August 29,
2013. 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. Our inventories have
been generally categorized as DRAM, NAND Flash and NOR Flash memory. The major characteristics we consider in
determining inventory categories are product type and markets.
Property, Plant and Equipment: We review 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 us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the
assets, future selling prices for our products and future production and sales volumes. In addition, judgment is required 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 R&D as incurred. Determining when product development is complete requires judgment by us. We deem
development of a product complete once the product has been thoroughly reviewed and tested for performance and
reliability. Subsequent to product qualification, product costs are valued in inventory.
Stock-based Compensation: Stock-based compensation is estimated at the grant date based on the fair-value of the award
and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-
based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved. We
utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop these
estimates based on historical data and market information which can change significantly over time. A small change in the
estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation
model to value employee stock awards. We estimate stock price volatility based on an average of its historical volatility and
the implied volatility derived from traded options on our stock.
Recently Issued Accounting Standards
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on
our financial statements.
51
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. Substantially all of our
indebtedness was at fixed interest rates. As a result, the fair value of our debt fluctuates based on changes in market interest
rates. We estimate that, as of August 29, 2013 and August 30, 2012, a hypothetical decrease in market interest rates of 1%
would increase the fair value of our convertible notes and other notes by approximately $147 million and $88 million,
respectively. The increase in interest expense caused by a 1% increase in the interest rates of our variable-rate note would not
be significant.
As of August 29, 2013 and August 30, 2012, we held debt securities of $787 million and $464 million, respectively, that
were subject to interest rate risk. We estimate that a 0.5% increase in market interest rates would decrease the fair value of
these instruments by approximately $4 million as of August 29, 2013 and $3 million as of August 30, 2012.
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
our results of operations or financial condition.
The functional currency for all of our operations is the U.S. dollar. As a result of our foreign operations, we incur costs
and carry certain assets and liabilities that are denominated in foreign currencies. The substantial majority of our revenues are
transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases are incurred in
or exposed to other currencies, primarily the euro, the shekel, the yen and the yuan. We have established currency risk
management programs for our operating expenditures and capital purchases to hedge against fluctuations in fair value and the
volatility of future cash flows caused by changes in exchange rates. We utilize currency forward and option contracts in these
hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate
movements. We do not use derivative financial instruments for trading or speculative purposes.
To hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities, we utilize a rolling
hedge strategy with currency forward contracts that generally mature within 35 days. Based on our foreign currency exposures
from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates
versus the U.S. dollar would result in losses of approximately U.S. $19 million as of August 29, 2013 and U.S. $8 million as of
August 30, 2012. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital
expenditures and forecasted operating cash flows, we utilize currency forward contracts that generally mature within 12 months
and currency options that generally mature from 12 to 18 months.
Under the terms and conditions of the Elpida Companies' respective plans of reorganization, the Elpida Companies are
obligated to pay 200 billion yen (or the equivalent of $2.05 billion based on exchange rates as of August 29, 2013), less certain
expenses of their reorganization proceedings and certain other items, to the secured and unsecured creditors (the "Elpida
Creditor Installment Payments") in respect of the Elpida Companies' pre-petition creditors and their related claims.
Substantially all of the $615 million we paid in connection with the acquisition of Elpida was deposited into accounts that are
legally restricted for payment to the secured and unsecured creditors of Elpida in October 2013. The remaining 140 billion yen
is due in six annual installments payable at the end of each calendar year beginning in 2014, with payments of 20 billion yen in
each of 2014 through 2017, and payments of 30 billion yen in each of 2018 and 2019. To mitigate the risk that increases in
exchange rates have on the payments due in 2014 and 2015, we entered into forward contracts to purchase 20 billion yen on
November 28, 2014 and 10 billion yen on November 27, 2015. In addition, the Elpida Companies' cash and equivalent
balances in yen mitigate the foreign currency exchange risk associated with the yen remaining installment payments due in
2015 and after. (See "Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Debt.") Changes in the exchange rate between the U.S. dollar and the yen could have a significant impact on our financial
statements.
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements as of August 29, 2013 and August 30, 2012 and for the fiscal years ended
August 29, 2013, August 30, 2012 and September 1, 2011:
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statement Schedules:
Schedule I – Condensed Financial Information of the Registrant
Schedule II – Valuation and Qualifying Accounts
Page
54
55
56
57
58
59
107
118
124
53
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
For the year ended
Net sales
Cost of goods sold
Gross margin
Selling, general and administrative
Research and development
Restructure and asset impairments
Other operating (income) expense, net
Operating income (loss)
Gain on acquisition of Elpida
Interest income
Interest expense
Other non-operating income (expense), net
Income tax (provision) benefit
Equity in net income (loss) of equity method investees
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Micron
Earnings (loss) per share:
Basic
Diluted
Number of shares used in per share calculations:
Basic
Diluted
August 29,
2013
August 30,
2012
September 1,
2011
$
$
9,073
7,226
1,847
$
8,234
7,266
968
8,788
7,030
1,758
562
931
126
(8)
236
1,484
14
(231)
(218)
1,285
(8)
(83)
1,194
(4)
1,190
1.16
1.13
$
$
620
918
10
32
(612)
—
8
(179)
29
(754)
17
(294)
(1,031)
(1)
(1,032) $
(1.04) $
(1.04)
$
$
592
791
(75)
(311)
761
—
23
(124)
(109)
551
(203)
(158)
190
(23)
167
0.17
0.17
1,021.7
1,056.3
991.2
991.2
988.0
1,007.5
See accompanying notes to consolidated financial statements.
54
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
For the year ended
Net income (loss)
Other comprehensive income (loss), net of tax:
Gain (loss) on derivatives, net
Foreign currency translation adjustments
Gain (loss) on investments, net
Pension liability adjustments
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Micron
$
August 29,
2013
August 30,
2012
September 1,
2011
$
1,194
$
(1,031) $
190
(9)
(5)
(1)
(1)
(16)
1,178
(5)
1,173
$
(18)
(16)
(24)
—
(58)
(1,089)
5
(1,084) $
48
63
11
5
127
317
(29)
288
See accompanying notes to consolidated financial statements.
55
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
As of
Assets
Cash and equivalents
Short-term investments
Receivables
Inventories
Restricted cash
Other current assets
Total current assets
Long-term marketable investments
Property, plant and equipment, net
Equity method investments
Intangible assets, net
Deferred tax assets
Other noncurrent assets
Total assets
Liabilities and equity
Accounts payable and accrued expenses
Deferred income
Equipment purchase contracts
Current portion of long-term debt
Total current liabilities
Long-term debt
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Micron shareholders' equity:
Common stock, $0.10 par value, 3,000 shares authorized, 1,044.4 shares issued and
outstanding (1,017.7 as of August 30, 2012)
Additional capital
Accumulated deficit
Accumulated other comprehensive income
Total Micron shareholders' equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
56
August 29,
2013
August 30,
2012
$
$
$
$
$
$
$
2,880
221
2,329
2,649
556
276
8,911
499
7,626
396
386
861
439
19,118
2,115
243
182
1,585
4,125
4,452
535
9,112
2,459
100
1,289
1,812
—
98
5,758
374
7,103
389
371
47
286
14,328
1,641
248
130
224
2,243
3,038
630
5,911
104
9,187
(212)
63
9,142
864
10,006
19,118
$
102
8,920
(1,402)
80
7,700
717
8,417
14,328
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Micron Shareholders
Common Stock
Number
of Shares Amount
$ 99
994.5
Additional
Capital
$ 8,446
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total Micron
Shareholders'
Equity
Noncontrolling
Interests in
Subsidiaries
Total
Equity
$
(536) $
11
$
8,020
$
1,796
$ 9,816
Balance at September 2, 2010
Net income
Other comprehensive income (loss), net
Issuance and repurchase of convertible
notes
Stock-based compensation expense
167
121
211
76
27
Stock issued under stock plans
11.1
1
Contributions from noncontrolling
interests
Distributions to noncontrolling interests
Repurchase and retirement of common
stock
Acquisition of noncontrolling interests in
TECH
Purchase of capped calls
(21.3)
(2)
(160)
(1)
67
(57)
167
121
211
76
28
—
—
(163)
67
(57)
23
6
8
190
127
211
76
28
8
(225)
(225)
(226)
(163)
(159)
(57)
Balance at September 1, 2011
984.3
$
98
$ 8,610
$
(370) $
132
$
8,470
$
1,382
$ 9,852
Net loss
Other comprehensive income (loss), net
Contributions from noncontrolling
interests
Issuance of convertible notes
Conversion of 2013 Notes
Stock-based compensation expense
Stock issued under stock plans
Acquisition of noncontrolling interest in
IMFS
Distributions to noncontrolling interests
Purchase and settlement of capped calls
Repurchase and retirement of common
stock
(1,032)
(52)
(1,032)
(52)
1
(6)
(1,031)
(58)
27.3
7.1
3
1
191
135
87
5
(102)
(1.0)
—
(6)
—
—
191
138
87
6
—
—
(102)
(6)
197
(466)
(391)
197
191
138
87
6
(466)
(391)
(102)
(6)
Balance at August 30, 2012
1,017.7
$ 102
$ 8,920
$
(1,402) $
80
$
7,700
$
717
$ 8,417
Net income
Other comprehensive income (loss), net
Acquisition of Elpida
Stock issued under stock plans
27.4
2
Stock-based compensation expense
Issuance and repurchase of convertible
notes
Contributions from noncontrolling
interests
Distributions to noncontrolling interests
Purchase and settlement of capped calls
Repurchase and retirement of common
stock
(0.7)
—
1,190
1,190
148
91
57
(24)
(5)
—
(17)
(17)
—
150
91
57
—
—
(24)
(5)
4
1
168
11
(37)
1,194
(16)
168
150
91
57
11
(37)
(24)
(5)
Balance at August 29, 2013
1,044.4
$ 104
$ 9,187
$
(212) $
63
$
9,142
$
864
$ 10,006
See accompanying notes to consolidated financial statements.
57
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the year ended
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation expense and amortization of intangible assets
Amortization of debt discount and other costs
(Gains) losses from currency hedges, net
Noncash restructure and asset impairments
Stock-based compensation
Equity in net loss of equity method investees
Loss on extinguishment of debt
Gain from acquisition of Elpida
Change in operating assets and liabilities, net of amounts from Elpida
acquisition:
Receivables
Inventories
Accounts payable and accrued expenses
Customer prepayments
Deferred income
Deferred income taxes, net
Other
Net cash provided by operating activities
Cash flows from investing activities
Expenditures for property, plant and equipment
Purchases of available-for-sale securities
Payments to settle hedging activities
Proceeds from sales and maturities of available-for-sale securities
Cash acquired from acquisition of Elpida, net of cash paid
Proceeds from sales of property, plant and equipment
Proceeds from settlement of hedging activities
Additions to equity method investments
Decrease in restricted cash
Return of equity method investment
Other
Net cash used for investing activities
Cash flows from financing activities
Proceeds from issuance of debt
Proceeds from issuance of common stock under equity plans
Proceeds from equipment sale-leaseback transactions
Cash received from noncontrolling interests
Repayments of debt
Payments on equipment purchase contracts
Cash paid for capped call transactions
Distributions to noncontrolling interests
Cash paid to purchase common stock
Acquisition of noncontrolling interests
Other
Net cash provided by (used for) financing activities
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of period
Cash and equivalents at end of period
Supplemental disclosures
Income taxes refunded (paid), net
Interest paid, net of amounts capitalized
Noncash investing and financing activities:
Equipment acquisitions on contracts payable and capital leases
Conversion of notes to stock, net of unamortized issuance cost
Exchange of convertible notes
August 29,
2013
August 30,
2012
September 1,
2011
$
1,194
$
(1,031) $
190
1,804
122
222
114
91
83
31
(1,484)
(409)
83
143
(123)
(7)
(7)
(46)
1,811
(1,244)
(924)
(253)
678
69
28
27
—
—
—
(93)
(1,712)
1,121
150
126
11
(743)
(214)
(48)
(37)
(5)
—
(39)
322
421
2,459
2,880
4
(107)
443
—
—
$
$
2,141
81
19
4
87
294
—
—
238
258
(82)
254
(56)
3
(96)
2,114
(1,699)
(564)
(62)
152
—
67
38
(187)
5
1
(63)
(2,312)
1,065
5
609
197
(203)
(172)
(103)
(391)
(6)
(466)
(38)
497
299
2,160
2,459
13
(72)
897
138
—
$
$
2,105
57
(21)
(86)
76
158
113
—
54
(357)
(88)
4
146
103
30
2,484
(2,550)
(9)
(31)
1
—
127
87
(31)
330
48
(14)
(2,042)
690
28
268
8
(1,215)
(322)
(57)
(225)
(163)
(159)
(48)
(1,195)
(753)
2,913
2,160
(99)
(59)
469
—
175
$
$
See accompanying notes to consolidated financial statements.
58
MICRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
Significant Accounting Policies
Basis of Presentation: We are one of the world's leading providers of advanced semiconductor solutions. Through our
worldwide operations, we manufacture and market a full range of DRAM, NAND Flash and NOR Flash memory, as well as
other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing,
consumer, networking, automotive, industrial, embedded and mobile products. The accompanying consolidated financial
statements include the accounts of Micron Technology, Inc. and its consolidated subsidiaries and have been prepared in
accordance with accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to current period presentation, including
restructure and asset impairment activities prior to 2013 that were previously reported in other operating (income) expense, net.
In 2013, we reclassified gains and losses from changes in currency exchange rates in order to improve comparability with our
industry peers. As a result of the reclassification, $6 million of losses in both 2012 and 2011, were reclassified from the
amounts previously reported in other operating (income) expense, net to other non-operating income (expense), net. Certain
deferred tax assets and liabilities in prior years were corrected with corresponding changes in the valuation allowance, resulting
in no change to net deferred tax assets. The change in these items was not material for any period presented.
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Our fiscal years 2013, 2012 and
2011 each contained 52 weeks. All period references are to our fiscal periods unless otherwise indicated. Our recently
acquired subsidiary, Elpida Memory, Inc., has been consolidated based on its fiscal year ending on August 31, 2013.
Use of Estimates: The preparation of financial statements and related disclosures in conformity with accounting principles
generally accepted in the United States of America requires our management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on
historical experience, forecasted events and various other assumptions that we believe to be reasonable under the
circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and
judgments on an ongoing basis. Actual results could differ from estimates.
Product Warranty: We generally provide a limited warranty that our products are in compliance with our specifications
existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures of product during a
stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to,
amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that
provided under our general terms and conditions. Our warranty obligations are not material.
Revenue Recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement exists,
delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Since we are unable to
estimate returns and changes in market price, and therefore the price is not fixed or determinable, sales made under agreements
allowing pricing protection or rights of return (other than for product warranty) are deferred until customers have resold the
product.
Research and Development: Costs related to the conceptual formulation and design of products and processes are
expensed as research and development as incurred. Determining when product development is complete requires
judgment. Development of a product is deemed complete once the product has been thoroughly reviewed and has passed tests
for performance and reliability. Subsequent to product qualification, product costs are valued in inventory. Product design and
other research and development costs for certain technologies are shared with our joint venture partners. Amounts receivable
from these cost-sharing arrangements are reflected as a reduction of research and development expense. (See "Equity Method
Investments" and "Consolidated Variable Interest Entities – IM Flash" notes.)
Stock-based Compensation: Stock-based compensation is measured at the grant date, based on the fair value of the award,
and recognized as expense under the straight-line attribution method over the requisite service period. We issue new shares
upon the exercise of stock options or conversion of share units. (See "Equity Plans" note.)
Stock Repurchases: When we repurchase and retire our common stock, any excess of the repurchase price paid over par
value is allocated between paid-in capital and retained earnings.
59
Functional Currency: The U.S. dollar is the functional currency for all of our consolidated operations.
Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of
three months or less, readily convertible to known amounts of cash. Investments with original maturities greater than three
months and remaining maturities less than one year are included in short-term investments. Investments with remaining
maturities greater than one year are included in long-term marketable investments. The carrying value of investment securities
sold is determined using the specific identification method.
Derivative and Hedging Instruments: We use derivative financial instruments to manage certain exposures to fluctuating
currency exchange and interest rates. Our derivatives consist primarily of forward and option currency contracts and interest
rate swap contracts. We do not use derivative instruments for trading or speculative purposes. Derivative instruments are
measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the fair value of
derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative instruments
that are not designated as hedges for accounting purpose, gains or losses from changes in fair values are recognized in other
non-operating income (expense). For derivative instruments designated as cash-flow hedges, the effective portion of the gain
or loss is included as a component of other comprehensive income (loss), and the ineffective or excluded portion of the gain or
loss is included in other non-operating income (expense). The amounts in accumulated other comprehensive income (loss) for
these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements of operation and in
the same periods in which the underlying transactions affect earnings. Effectiveness is measured by comparing the cumulative
change in the fair value of the hedge contract with the cumulative change in the forecasted cash flows of the hedged item. For
the effectiveness assessment of our cash-flow hedges, changes in the time value are excluded for forward contracts and
included for options.
We seek to enter into master netting arrangements to mitigate credit risk in derivative transactions. These master netting
arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can
be net settled under these arrangements have been presented in our consolidated balance sheet on a net basis.
(See "Derivative Financial Instruments – Currency Derivatives with Hedge Accounting Designation" note.)
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and
overhead costs, including product and process technology costs. Determining market values of inventories involves numerous
judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in
work in process inventories. When market values are below costs, we record a charge to cost of goods sold to write down
inventories to their estimated market value in advance of when the inventories are actually sold. The major characteristics
considered in determining inventory categories for purposes of determining the lower of cost or market value are product type
and markets. Prior to the third quarter of 2013, inventory was categorized as memory (primarily DRAM and NAND Flash and
NOR Flash) and imaging products for purposes of determining lower of average cost or market. Due to the sale on May 3,
2013 of Micron Technology Italia, S.r.l. ("MIT") and our assignment to LFoundry Marsica S.r.l. ("LFoundry") of our supply
agreement with Aptina Imaging Corporation ("Aptina") for CMOS image sensors, we ceased manufacturing CMOS image
sensors subsequent to that date and no longer have imagining inventory for purposes of determining lower of average cost or
market.
Product and Process Technology: Costs incurred to acquire product and process technology or to patent technology are
capitalized and amortized on a straight-line basis over periods ranging up to 10 years. We capitalize a portion of costs incurred
based on the historical and projected patents issued as a percent of patents we file. Capitalized product and process technology
costs are amortized over the shorter of (i) the estimated useful life of the technology, (ii) the patent term or (iii) the term of the
technology agreement. Fully-amortized assets are removed from product and process technology and accumulated
amortization.
Property, Plant and Equipment: Property, plant and equipment are stated at cost and depreciated using the straight-line
method over estimated useful lives of generally 10 to 30 years for buildings, generally 5 to 7 years for equipment and 3 to 5
years for software. Assets held for sale are carried at the lower of cost or estimated fair value and are included in other
noncurrent assets. When property or equipment is retired or otherwise disposed, the net book value of the asset is removed and
we recognize any gain or loss in our results of operations.
We capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added
to the cost of the underlying assets and amortized over the useful lives of the assets.
60
Variable Interest Entities
We have interests in entities that are Variable Interest Entities ("VIEs"). If we are the primary beneficiary of a VIE, we are
required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the
activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant
activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide
or receive product and process technology, product supply, operations services, equity funding, financing and other applicable
agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant
assumptions and judgments.
Unconsolidated Variable Interest Entities
Inotera: Inotera Memories, Inc. ("Inotera") is a VIE because its equity is not sufficient to permit it to finance its activities
without additional support from its shareholders. In the second quarter of 2013, we entered into agreements with Nanya
Technology Corporation ("Nanya") and Inotera to amend the joint venture relationship involving Inotera, including a new
supply agreement between us and Inotera. We have determined that we do not have the power to direct the activities of Inotera
that most significantly impact its economic performance, primarily due to (1) limitations on our governance rights that require
the consent of other parties for key operating decisions and (2) Inotera's dependence on Nanya for financing and the ability of
Inotera to operate in Taiwan. Therefore, we do not consolidate Inotera and we account for our interest under the equity method.
Transform: Transform Solar Pty Ltd. ("Transform") is a VIE because its equity is not sufficient to permit it to finance its
activities without additional financial support from us or its parent, Origin Energy Limited ("Origin"). We have determined that
we do not have the power to direct the activities of Transform that most significantly impact its economic performance,
primarily due to limitations on our governance rights that require the consent of Origin for key operating decisions. Therefore,
we do not consolidate Transform and we account for our interest under the equity method. As of August 30, 2012, Transform's
operations were substantially discontinued.
For further information regarding our VIEs that we account for under the equity method, see "Equity Method Investments"
note.
EQUVO Entities: EQUVO HK Limited and EQUVA Capital 1 Pte. Ltd. (together, the "EQUVO Entities") are special
purpose entities created to facilitate equipment sale-leaseback financing transactions between us and a consortium of financial
institutions that fund the sale-leaseback transactions ("Financing Entities"). Neither we nor the Financing Entities have an
equity interest in the EQUVO Entities. The EQUVO Entities are VIEs because their equity is not sufficient to permit them to
finance their activities without additional support from the Financing Entities and because the third-party equity holder lacks
characteristics of a controlling financial interest. By design, the arrangements with the EQUVO Entities are merely financing
vehicles and we do not bear any significant risks from variable interests with the EQUVO Entities. Therefore, we have
determined that we do not have the power to direct the activities of the EQUVO Entities that most significantly impact their
economic performance and we do not consolidate the EQUVO Entities.
SC Hiroshima Energy Corporation: SC Hiroshima Energy Corporation ("SCHE") is an entity created to construct and
operate a cogeneration, electrical power plant to support our wafer manufacturing facility in Hiroshima, Japan. SCHE is a VIE
due to the nature of its tolling agreements with us and our purchase and call options for SCHE's assets. We do not have an
equity ownership interest in SCHE. We do not control the operation and maintenance of the plant, which we have determined
are the activities of SCHE that most significantly impacts its economic performance. Therefore, we do not consolidate SCHE.
Consolidated Variable Interest Entities
IMFT: IM Flash Technologies, LLC ("IMFT") is a VIE because all of its costs are passed to us and its other member, Intel
Corporation ("Intel"), through product purchase agreements and IMFT is dependent upon us or Intel for any additional cash
requirements. We determined that we have the power to direct the activities of IMFT that most significantly impact its
economic performance. The primary activities of IMFT are driven by the constant introduction of product and process
technology. Because we perform a significant majority of the technology development, we have the power to direct its key
activities. In addition, IMFT manufactures certain products exclusively for us using our technology. We also determined that
we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to
it. Therefore, we consolidate IMFT.
61
IMFS: Prior to April 6, 2012, IM Flash Singapore, LLP ("IMFS") was a VIE because all of its costs were passed to us and
its other member, Intel, through product purchase agreements and IMFS was dependent upon us or Intel for any additional cash
requirements. Prior to April 6, 2012, we determined that we had the power to direct the activities of IMFS that most
significantly impacted its economic performance. Additionally, since 2010, we had significantly greater economic exposure
than Intel as a result of our significantly higher ownership interest in IMFS. Therefore, we consolidated IMFS. On April 6,
2012, we acquired Intel's remaining interests in IMFS and it ceased to be a VIE.
MP Mask: MP Mask Technology Center, LLC ("MP Mask") is a VIE because substantially all of its costs are passed to us
and its other member, Photronics, Inc. ("Photronics"), through product purchase agreements and MP Mask is dependent upon
us or Photronics for any additional cash requirements. We determined that we have the power to direct the activities of MP
Mask that most significantly impact its economic performance, primarily because (1) of our tie-breaking voting rights over key
operating decisions and (2) nearly all key MP Mask activities are driven by our supply needs. We also determined that we have
the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to
it. Therefore, we consolidate MP Mask.
For further information regarding our consolidated VIEs, see "Consolidated Variable Interest Entities" note.
Recently Issued Accounting Standards
There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on
our financial statements.
Acquisition of Elpida Memory, Inc.
On July 31, 2013, we completed the acquisition of Elpida Memory, Inc., a Japanese corporation, pursuant to the terms and
conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that we entered
into on July 2, 2012, with the trustees of Elpida and one of its subsidiaries, Akita Elpida Memory, Inc., a Japanese corporation
("Akita" and, together with Elpida, the "Elpida Companies") pursuant to and in connection with the Elpida Companies'
corporate reorganization proceedings under the Corporate Reorganization Act of Japan. We paid $615 million for the
acquisition of Elpida, of which substantially all was deposited into accounts that are legally restricted for payment to the
secured and unsecured creditors of the Elpida Companies in October 2013. As of August 29, 2013, the amount held in the
restricted accounts was presented as restricted cash. Of the $615 million paid at closing, $18 million was applied from amounts
we had deposited into an escrow account in July 2012 as a condition to the execution of the Sponsor Agreement.
On July 31, 2013, we also completed the acquisition of an additional 24% ownership interest in Rexchip Electronics
Corporation ("Rexchip"), a Taiwanese corporation and manufacturing joint venture formed by Elpida and Powerchip
Technology Corporation ("Powerchip") from Powerchip and certain of its affiliates (the "Powerchip Group") pursuant to a
share purchase agreement. We paid $334 million in cash for the shares. Elpida owns, directly and indirectly through a
subsidiary, approximately 65% of Rexchip's outstanding common stock. Therefore, as a result of the consummation of our
acquisition of Elpida and the Rexchip shares from the Powerchip Group, we own approximately 89% ownership interest in
Rexchip.
Elpida's assets include, among others: a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan; its
approximate 65% ownership interest in Rexchip, whose assets include a 300mm DRAM wafer fabrication facility located in
Taichung City, Taiwan; and a 100% ownership interest in Akita, whose assets include an assembly and test facility located in
Akita, Japan. Elpida's semiconductor memory products include mobile DRAM targeted toward mobile phones and tablets. We
believe that combining the complementary product portfolios of Micron and Elpida strengthens our position in the memory
market and enables us to provide customers with a wider portfolio of high-quality memory solutions. We also believe that our
acquisition of Elpida strengthens our market position in the memory industry through increased research and development and
manufacturing scale, improved access to core memory market segments, and additional wafer capacity to balance among our
DRAM, NAND Flash and NOR Flash memory solutions.
The Elpida Acquisition and Rexchip share purchase are treated as a single business combination because (1) the two
transactions were entered into and closed contemporaneously and (2) the Rexchip share purchase was negotiated in
contemplation of the Elpida acquisition and its completion was contingent on the closing of the Elpida acquisition.
62
We estimated the provisional fair value of the assets and liabilities of Elpida and it's subsidiaries (the "Elpida Group") as of
the July 31, 2013 acquisition date using an in-use model, which reflects its value through its use in combination with other
assets as a group. These provisional amounts could change as additional information becomes available.
The consideration and provisional valuation of assets acquired and liabilities assumed are as follows:
Assets acquired and liabilities assumed:
Cash and equivalents
Receivables
Inventories
Restricted cash
Other current assets
Property, plant and equipment
Equity method investment
Intangible assets
Deferred tax assets
Other noncurrent assets
Accounts payable and accrued expenses
Equipment purchase contracts
Current portion of long-term debt
Long-term debt
Other noncurrent liabilities
Total net assets acquired
Noncontrolling interests in Elpida:
Consideration
Gain on acquisition
$
999
697
962
557
142
935
40
10
811
66
(387)
(22)
(673)
(1,461)
(75)
2,601
168
949
$
1,484
Because the fair value of the net assets acquired less noncontrolling interests exceeded the purchase price, we recognized a
gain on the acquisition of $1,484 million. The yen-denominated purchase price was fixed on July 2, 2012 when we entered into
the Sponsor Agreement. We believe the fair value exceeded the purchase price because of increases in working capital from
improvements in market conditions in the DRAM industry between July 2, 2012 and July 31, 2013, when we completed the
acquisition. These conditions resulted in significant increases in U.S. dollar equivalent net assets of Elpida.
The fair value of the noncontrolling interest in the table above primarily relates to Rexchip and was derived based on the
purchase price we paid the Powerchip Group for their 24% ownership interest.
Our results of operations for 2013 include $355 million of net sales and $46 million of operating income (losses) from the
Elpida operations after the July 31, 2013 acquisition date. Included in the selling, general and administrative expenses in the
results of operations for 2013 are transaction costs of $50 million incurred in connection with this acquisition.
63
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the Elpida Companies and their
subsidiaries are subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the Elpida
Companies prohibit the Elpida Companies from paying dividends, including any cash dividends, to us and require that excess
earnings be used in their businesses or to fund the Elpida Companies' installment payments. These prohibitions would also
effectively prevent the subsidiaries of the Elpida Companies from paying cash dividends to us as any such dividends would
have to be first paid to the Elpida Companies which are prohibited from repaying those amounts to us as dividends under the
plans of reorganization. In addition, pursuant to an order of the Japan Court, the Elpida Companies cannot make loans or
advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or
advances by subsidiaries of the Elpida Companies may be considered outside of the ordinary course of business and subject to
approval of the legal trustees and Japan Court. As a result, the assets of the Elpida Companies and their subsidiaries, while
available to satisfy the Elpida Companies' installment payments and the other obligations, capital expenditures and other
operating needs of the Elpida Companies and their subsidiaries, are not available for use by us in our other operations.
Moreover, certain uses of the assets of the Elpida Companies, including investments in certain capital expenditures and in
Rexchip, may require consent of Elpida's trustees and/or the Japan Court.
Total net assets, less noncontrolling interests, of the Elpida Companies and their subsidiaries as of August 29, 2013 were
$2,460 million. As of August 29, 2013, the Elpida Companies held cash and equivalents of $1,094 million and $556 million of
current restricted cash, none of which were available for cash dividends, loans or advances as a result of the above-described
restrictions. The restricted cash was held in accounts that are controlled by the trustees and are legally restricted for payment of
secured and unsecured creditors of the Elpida Companies pursuant to the plans of reorganization.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations as if the Elpida
Acquisition had occurred on September 2, 2011. The pro forma financial information includes the accounting effects of the
business combination, including adjustments to the amortization of intangible assets, depreciation of property, plant and
equipment, interest expense and elimination of intercompany activities. The historical results of operations of the Elpida Group
for the eleven months ended May 31, 2013 included a gain of $1,692 million for the forgiveness of debt related to liabilities
subject to compromise upon approval of the bankruptcy by the creditors of the Tokyo District Court and for the year ended June
30, 2012 included a $2,828 million loss for impairment of long-lived assets. No adjustment was made to the unaudited pro
forma financial information for these items, consistent with the requirements for preparation for the pro forma financial
information. The unaudited pro forma financial information below is not necessarily indicative of either future results of
operations or results that might have been achieved had the Elpida Acquisition occurred on September 2, 2011.
Net sales
Net income (loss)
Net income (loss) attributable to Micron
Earnings (loss) per share:
Basic
Diluted
$
$
2013
2012
$
$
12,494
3,725
3,670
3.59
3.47
11,492
(4,422)
(4,454)
(4.49)
(4.49)
The unaudited pro forma financial information for 2013 includes our results for the year ended August 29, 2013, which
includes one month of results from the Elpida Group following the closing of the Elpida Acquisition, and the results of the
Elpida Group, including the adjustments described above, for the eleven months ended May 31, 2013. The pro forma
information for 2012 includes our results for the year ended August 30, 2012 and the results of the Elpida Group, including the
adjustments described above, for the year ended June 30, 2012.
64
Investments
As of August 29, 2013 and August 30, 2012, available-for-sale investments, including cash equivalents, were as follows:
As of
2013
2012
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Money market funds
Corporate bonds
Certificates of deposit
Government securities
Asset-backed securities
Commercial paper
Marketable equity
securities
$
$
1,188
414
349
168
97
61
6
2,283
$
$
— $
1
—
—
—
—
—
1
$
— $
(1)
—
—
—
—
—
(1) $
1,188
414
349
168
97
61
6
2,283
$
$
2,159
233
31
144
77
39
10
2,693
$
$
— $
1
—
—
—
—
—
1
$
— $
—
—
—
—
—
—
— $
2,159
234
31
144
77
39
10
2,694
As of August 29, 2013, no available-for-sale security had been in a loss position for longer than 12 months. During 2013
and 2012, we recognized other-than-temporary impairments of our marketable equity securities of $4 million and $11 million,
respectively.
The table below presents the amortized cost and fair value of available-for-sale debt securities, including cash equivalents,
as of August 29, 2013 by contractual maturity:
Money market funds not due at a single maturity date
Due in 1 year or less
Due in 1 - 2 years
Due in 2 - 4 years
Due after 4 years
Amortized
Cost
Fair Value
$
1,188
$
1,188
596
224
253
16
596
224
253
16
$
2,277
$
2,277
Net unrealized holding gains reclassified out of accumulated other comprehensive income from sales of available-for-sale
securities were $31 million for 2012 and were not significant for any other period presented. Proceeds from the sales of
available-for-sale securities for 2013, 2012 and 2011 were $526 million, $149 million and $1 million, respectively. Gross
realized gains from sales of available-for-sale securities were $34 million for 2012 and gross realized gains and losses for all
other periods presented were not significant.
65
Receivables
As of
Trade receivables (net of allowance for doubtful accounts of $5 and $5, respectively)
Income and other taxes
Related party receivables
Other
2013
2012
$
$
2,069
74
8
178
2,329
$
$
933
80
63
213
1,289
Related party receivables primarily included amounts due from Aptina related to certain manufacturing services
agreements. (See "Equity Method Investments" note.)
As of August 29, 2013 and August 30, 2012, other receivables included $2 million and $63 million, respectively, from our
currency hedges. As of August 29, 2013 and August 30, 2012, other receivables included $34 million and $34 million,
respectively, due from Intel for amounts related to NAND Flash and certain emerging memory technologies product design and
process development activities under cost-sharing agreements. As of August 30, 2012, other receivables also included
$17 million due from Nanya for amounts related to DRAM product design and process development activities under a cost-
sharing agreement. (See "Derivative Financial Instruments," "Consolidated Variable Interest Entities" and "Equity Method
Investments" notes.)
Inventories
As of
Finished goods
Work in process
Raw materials and supplies
Property, Plant and Equipment
As of
Land
Buildings (includes $209 and $196, respectively, for capital leases)
Equipment (includes $1,305 and $919, respectively, for capital leases)
Construction in progress
Software
Accumulated depreciation (includes $463 and $253, respectively, for capital leases)
2013
2012
$
$
$
$
796
1,719
134
2,649
2013
86
4,835
15,600
84
315
20,920
(13,294)
7,626
$
$
$
$
512
1,148
152
1,812
2012
92
4,714
15,653
43
323
20,825
(13,722)
7,103
Depreciation expense was $1,721 million, $2,053 million and $2,026 million for 2013, 2012 and 2011, respectively. Other
noncurrent assets included buildings, equipment, and other assets classified as held for sale of $22 million as of August 29,
2013 and $25 million as of August 30, 2012 and land held for development of $54 million as of August 29, 2013.
As of August 29, 2013, production equipment and buildings with a carrying value of $541 million were collateral under
various notes payable. (See "Debt – Other Notes Payable" note.)
66
Equity Method Investments
As of
Inotera
Tera Probe
Other
2013
2012
Investment
Balance
Ownership
Percentage
Investment
Balance
Ownership
Percentage
$
$
344
40
12
396
35% $
40%
Various
$
370
—
19
389
40%
—%
Various
We recognize our share of earnings or losses from these entities under the equity method, generally on a two-month
lag. Equity in net income (loss) of equity method investees, net of tax, included the following:
For the year ended
Inotera
Other
2013
2012
2011
$
$
(79) $
(4)
(83) $
(189) $
(105)
(294) $
(112)
(46)
(158)
The summarized financial information in the tables below reflects aggregate amounts for all of our equity method
investees. Financial information is presented as of the respective dates and for the periods through which we recorded our
proportionate share of each investee's results of operations. Summarized results of operations are presented only for the periods
subsequent to the acquisition of our ownership interest.
As of
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
For the years ended
Net sales
Gross margin
Operating loss
Net loss
$
$
2013
2012
$
$
1,018
2,634
1,912
435
2012
1,798
(451)
(751)
(793)
724
3,024
2,519
155
2011
1,839
(268)
(559)
(594)
$
2013
1,788
1
(203)
(188)
Transform began using the liquidation basis of accounting in June 2012. Transform's statement of net assets (liabilities) in
liquidation included $9 million of assets and $8 million of liabilities as of August 29, 2013 and $29 million of assets and
$14 million of liabilities as of August 30, 2012, which were excluded from the table above. Additionally, Transform's statement
of changes in net assets (liabilities) in liquidation for the fourth quarter of 2012 included a decrease in the estimated fair values
of net assets of $67 million. Activity for 2013 was not significant. (See "Transform" below).
As of August 29, 2013, our maximum exposure to loss from our involvement with our equity method investments that
were VIEs was $344 million and primarily included our Inotera investment balance. We may also incur losses in connection
with our rights and obligations to purchase substantially all of Inotera's wafer production capacity under a supply agreement
with Inotera.
67
Inotera
We have partnered with Nanya in Inotera, a Taiwanese DRAM memory company, since the first quarter of 2009. In March
2012, we contributed $170 million to Inotera, which increased our ownership percentage to 40%. On May 28, 2013, Inotera
issued 634 million common shares to Nanya and certain of its affiliates in a private placement at a price equal to 9.47 New
Taiwan dollars per share (approximately $0.32 U.S. dollars), which was in excess of our carrying value per share. As a result
of the issuance, our ownership interest decreased to 35% and we recognized a gain of $48 million in 2013. As of August 29,
2013, we held a 35% ownership interest in Inotera, Nanya and certain of its affiliates held a 36% ownership interest and the
remaining ownership interest was publicly held.
As of August 29, 2013 the market value of our equity interest in Inotera was $854 million based on the closing trading
price of its shares in an active market. As of August 29, 2013 and August 30, 2012, there were gains of $44 million and
$49 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our
equity investment in Inotera.
The net carrying value of our initial and subsequent investments was less than our proportionate share of Inotera's equity at
the time of those investments. These differences are being amortized as a net credit to earnings through equity in net income
(loss) of equity method investees (the "Inotera Amortization"). For both 2012 and 2011, we recognized $48 million of Inotera
Amortization. As of August 30, 2012, the remaining amount of unrecognized Inotera Amortization was not significant.
As of June 30, 2013, Inotera's current liabilities exceeded its current assets by $1.0 billion, which exposes Inotera to
liquidity risk. Additionally, Inotera incurred net losses of $541 million for its fiscal year ended December 31, 2012. As of June
30, 2013, Inotera was not in compliance with certain of its loan covenants, and had not been in compliance for the past several
years, which may result in its lenders requiring repayment of such loans during the next year. Inotera has applied for a waiver
from complying with the June 30, 2013 financial covenants. Inotera's management has implemented plans to improve its
liquidity and for Inotera's six-month period ended June 30, 2013, Inotera generated net income of $91 million; however, there
can be no assurance that Inotera will be successful in sufficiently improving its liquidity and complying with their loan
covenants, which may result in its lenders requiring repayment of such loans during the next year.
In the second quarter of 2012, we loaned $133 million to Inotera under a 90-day note with a stated annual interest rate of
2% to facilitate the purchase of capital equipment necessary to implement new process technology. The loan was repaid to us
with accrued interest in March 2012.
On January 17, 2013, we entered into agreements with Nanya and Inotera to amend the joint venture relationship involving
Inotera. The amendments included a new supply agreement (the "Inotera Supply Agreement"), retroactively effective
beginning on January 1, 2013, between us and Inotera under which we are obligated to purchase for an initial period through
January, 2016, substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. The Inotera Supply Agreement contemplates annual negotiations with respect to potential successive
one-year extensions and if in any year the parties do not agree to an extension, the agreement will terminate following the end
of the then-existing term plus a subsequent three-year wind-down period. Our share of Inotera's capacity would decline over
the three year wind-down period. Under applicable accounting guidance, the Inotera Supply Agreement is treated as containing
an embedded operating lease with respect to Inotera's production assets during the initial three-year term of the lease. Effective
through December 31, 2012, we had rights and obligations to purchase 50% of Inotera's wafer production capacity based on a
margin-sharing formula among Nanya, Inotera and us. Under these agreements, we purchased $1,260 million, $646 million,
and $641 million of DRAM products in 2013, 2012 and 2011 respectively. In 2012, we recognized losses on our purchase
commitment under the Inotera Supply Agreement of $17 million, $19 million and $40 million in our fourth, second and first
quarters, respectively. In 2011, we recognized purchase commitment losses of $28 million, $3 million, $12 million and
$11 million in the fourth, third, second and first quarters, respectively.
Under a cost-sharing arrangement effective through December 31, 2012, we generally shared DRAM process and design
development costs with Nanya. As a result of the January 17, 2013 agreements, which were retroactively effective beginning
on January 1, 2013, Nanya no longer participates in the joint development program. Pursuant to the cost-sharing arrangement,
our research and development ("R&D") costs were reduced by $19 million, $138 million, and $141 million in 2013, 2012 and
2011, respectively. In addition, we recognized royalty revenue from Nanya of $3 million, $11 million, and $25 million in 2013,
2012 and 2011, respectively, for sales of DRAM products manufactured by or for Nanya on process nodes of 50nm or higher.
68
Tera Probe
On July 31, 2013, we acquired, as an asset of Elpida, a 40% interest in Tera Probe, Inc. ("Tera Probe"), a Japanese-based
company mainly engaged in wafer testing and contract wafer-level package testing services. Our investment in Tera Probe was
valued at $40 million, based on the aggregate trading price of the shares in an active market on the acquisition date (Level 1
fair value measurements). The net carrying value of our investment was less than our proportionate share of Tera Probe's
equity at the time of our investment, and the difference is being amortized as a net credit to earnings through equity in net
income (loss) of equity method investees (the "Tera Probe Amortization"). As of August 29, 2013, $35 million of unamortized
Tera Probe Amortization was being recognized over a weighted-average period of 7 years.
As of August 29, 2013, based on the closing trading price of Tera Probe's shares in an active market, the market value of
our equity interest was $30 million. We evaluated our investment in Tera Probe and concluded that the decline in the market
value below carrying value was not an other-than-temporary impairment primarily because of the limited amount of time the
fair value was below the carrying value, the subsequent recovery and historical volatility of the stock price.
Tera Probe performs probe services for certain of our manufacturing processes. Included in cost of goods sold for 2013 is
$13 million for probe services performed by Tera Probe.
Other
Transform: In the second quarter of 2010, we acquired a 50% interest in Transform, a developer, manufacturer and
marketer of photovoltaic technology and solar panels, from Origin. As of August 29, 2013, we and Origin each held a 50%
ownership interest in Transform. As a result of the ongoing challenging global environment in the solar industry and
unfavorable worldwide supply and demand conditions, on May 25, 2012, the Board of Directors of Transform approved a
liquidation plan. As a result of the liquidation plan, we recognized a charge of $69 million in 2012. As of August 30, 2012,
Transform's operations were substantially discontinued.
Other noncurrent assets as of August 30, 2012 included $26 million for a portion of our Boise, Idaho manufacturing
facilities leased to Transform and other noncurrent liabilities included $26 million for deferred rent revenue on the fully-paid
lease. In 2013, Transform terminated the lease and, as a result, we recognized a gain of $25 million from the termination.
During 2012 and 2011, we and Origin each contributed $17 million and $30 million, respectively, of cash to
Transform. We recognized net sales of $13 million and $20 million in 2012 and 2011, respectively, for transition services
provided to Transform. Revenue on our sales to Transform approximated costs. Revenue and associated costs for 2013 were
not significant.
Aptina: Other equity method investments included a 31% equity interest in Aptina. The amount of cumulative loss we
recognized from our investment in Aptina through the second quarter of 2012 reduced our investment balance to zero and we
ceased recognizing our proportionate share of Aptina's losses.
Through May 3, 2013, we manufactured components for CMOS image sensors for Aptina under a wafer supply
agreement. For 2013, 2012 and 2011, we recognized net sales of $182 million, $372 million and $349 million, respectively,
from products sold to Aptina, and cost of goods sold of $219 million, $395 million and $358 million, respectively. On May 3,
2013, we assigned to LFoundry our supply agreement with Aptina to manufacture image sensors at our 200mm Avezzano
facility. (See "Restructure and Asset Impairments - Micron Technology Italia, S.r.l." note.)
In connection with the sale of our 200mm Avezzano facility to LFoundry, on May 22, 2013, we entered into a short-term,
interest-free, unsecured loan agreement with Aptina that allowed Aptina to borrow up to $45 million, drawn at their option,
in three equal tranches through July 2013. Principal amounts drawn are due in three equal payments from September 2013 to
January 2014. As of August 29, 2013, other current assets included $45 million for amounts due under the short-term loan
agreement.
69
Intangible Assets
As of
Product and process technology
Customer relationships
Other
2013
2012
Gross
Amount
$
$
642
127
—
769
$
Accumulated
Amortization
$
Gross
Amount
575
127
1
703
Accumulated
Amortization
(234)
$
(98)
—
(332)
$
(269) $
(114)
—
(383) $
During 2013 and 2012, we capitalized $100 million and $47 million, respectively, for product and process technology with
weighted-average useful lives of 7 years and 10 years, respectively. Amortization expense was $83 million, $88 million and
$79 million for 2013, 2012 and 2011, respectively. Annual amortization expense is estimated to be $90 million for 2014, $73
million for 2015, $65 million for 2016, $54 million for 2017 and $44 million for 2018.
Accounts Payable and Accrued Expenses
As of
Accounts payable
Related party payables
Salaries, wages and benefits
Customer advances
Income and other taxes
Other
2013
2012
1,048
374
267
140
47
239
2,115
$
$
818
130
290
141
25
237
1,641
$
$
As of August 29, 2013 and August 30, 2012, related party payables included $345 million and $130 million, respectively,
due to Inotera primarily for the purchase of DRAM products under the Inotera Supply Agreement. As of August 29, 2013,
related party payables also included $29 million due to Tera Probe for probe services performed. (See "Equity Method
Investments" note.)
As of August 29, 2013 and August 30, 2012, customer advances included $134 million and $139 million, respectively, for
amounts received from Intel to be applied to Intel's future purchases under a NAND Flash supply agreement. In addition, as of
August 30, 2012, other noncurrent liabilities included $120 million, respectively, from this agreement. (See "Consolidated
Variable Interest Entities – IM Flash" note.)
As of August 30, 2012, other accounts payable and accrued expenses included $51 million of liabilities associated with
currency hedges executed in connection with the Sponsor Agreement and Rexchip Share Purchase Agreement. As of
August 29, 2013 and August 30, 2012, other accounts payable and accrued expenses included $8 million and $14 million,
respectively, due to Intel for NAND Flash product design and process development and licensing fees pursuant to cost-sharing
agreements. (See "Derivative Financial Instruments" and "Consolidated Variable Interest Entities – IM Flash" notes.)
70
Debt
As of
Elpida creditor installment payments
Capital lease obligations
2014 convertible senior notes
2027 convertible senior notes
2031A convertible senior notes
2031B convertible senior notes
2032C convertible senior notes
2032D convertible senior notes
2033E convertible senior notes
2033F convertible senior notes
Other notes payable
Less current portion
2013
2012
1,644
1,252
465
147
277
253
463
369
272
260
635
6,037
1,585
4,452
$
$
—
883
860
141
265
243
451
361
—
—
58
3,262
224
3,038
$
$
Our senior notes are unsecured obligations ranking equally in right of payment with all of our other existing and future
unsecured indebtedness, and are effectively subordinated to all of our other existing and future secured indebtedness, to the
extent of the value of the assets securing such indebtedness. The convertible notes and the Intel note of Micron Technology,
Inc. ("MTI") of $2,531 million are structurally subordinated to $1,863 million of other notes payable of its subsidiaries and
capital lease obligations. MTI guarantees certain debt obligations of its subsidiaries. MTI does not guarantee the Elpida
creditor installment payments. MTI's guarantees of its subsidiary debt obligations are unsecured obligations ranking equally in
right of payment with all of its other existing and future unsecured indebtedness.
Elpida Creditor Installment Payments
The Elpida Companies are currently subject to corporate reorganization proceedings under the Corporate Reorganization
Act of Japan. Both of the Elpida Companies have adopted plans of reorganization which set forth the treatment of the Elpida
Companies' pre-petition creditors and their claims, which plans were approved by the Elpida Companies' creditors and the
Tokyo District Court in February 2013. Under Elpida's plan of reorganization, secured creditors will recover 100% of the
amount of their fixed claims and unsecured creditors will recover at least 17.4% of the amount of their fixed claims. The actual
recovery of unsecured creditors will be higher, however, based on events and circumstances that occur following the plan
approval. The remaining portion of the unsecured claims will be discharged, without payment, over the period that payments
are made pursuant to the plans of reorganization. The plans of reorganization provide for the Elpida Companies' pre-petition
creditors to be paid in seven installments. Elpida's secured creditors will be paid in full on or before the sixth installment
payment date, while the unsecured creditors will be paid in seven installments. Akita's plan of reorganization provides that
secured creditors will recover 100% of the amount of their claims, whereas unsecured creditors will recover at least 19% of the
amount of their claims. The secured creditors of Akita will be paid in full on the first installment payment date, while the
unsecured creditors will be paid in seven installments.
Under the terms and conditions of the Elpida Companies' respective plans of reorganization, the Elpida Companies are
obligated to pay 200 billion yen (or the equivalent of $2.05 billion based on exchange rates as of August 29, 2013), less certain
expenses of their reorganization proceedings and certain other items, to the secured and unsecured creditors (the "Elpida
Creditor Installment Payments") in respect of the Elpida Companies' pre-petition creditors and their related claims.
Substantially all of the $615 million we paid in connection with the acquisition of Elpida was deposited into accounts that are
legally restricted for payment to the secured and unsecured creditors of Elpida in October 2013. The remaining 140 billion yen
is due in six annual installments payable at the end of each calendar year beginning in 2014, with payments of 20 billion yen in
each of 2014 through 2017, and payments of 30 billion yen in each of 2018 and 2019. Pursuant to the terms of the Sponsor
Agreement, we entered into a series of agreements with the Elpida Companies, including supply agreements, research and
development services agreements and general services agreements, which are intended to generate more stable operating cash
flows to meet the requirements of the Elpida Companies' businesses, including the funding of the Elpida Creditor Installment
Payments.
71
The remaining 140 billion yen of installment payments are also to be deposited into accounts that are legally restricted for
settlement of the Elpida Creditor Installment Payments and will be directed by the trustees of the Elpida Companies to the
secured and unsecured creditors of the Elpida Companies. A portion of the amounts are also subject to adjustment for certain
expenses of the reorganization proceedings and certain other items. Additionally, settlements of certain pre-petition
intercompany obligations between Elpida, Akita and Rexchip are included in the amounts scheduled to be deposited into the
restricted cash account, but are eliminated in consolidation and therefore are excluded from our consolidated obligation to the
secured and unsecured creditors of the Elpida Group. Also, a portion of each installment amount payable to the creditors of the
Elpida Companies will continue to be restricted by the trustees of the Elpida Companies in the event that any outstanding
claims, which were not treated as fixed claims under the plans of reorganization at the time the plans were filed with the Japan
Court, become fixed claims. These fixed claims will be paid under the plans of reorganization in the same manner as the fixed
claims of other creditors. To the extent the aggregate amounts reserved from the installment payments exceed the aggregate
amounts payable with respect to these unfixed claims once they become fixed, the excess amounts reserved will be distributed
to unsecured creditors with respect to their fixed claims, resulting in an increased recovery for the unsecured creditors out of
the installment payments. To the extent the aggregate amounts reserved are less than the aggregate amounts payable with
respect to these unfixed claims once they become fixed, the Elpida Companies would be responsible to fund any shortfall to
ensure that the creditors receive the minimum recovery to which they are entitled under the plans of reorganization with respect
to these claims. As a result, there is a possibility that the total amount payable by the Elpida Companies to their creditors under
the plans of reorganization will exceed 200 billion yen. In addition, certain of these unfixed claims may be resolved pursuant
to settlement arrangements or other post-petition agreements and a substantial portion of the amounts payable under such
agreements may have to be funded by the Elpida Companies outside of the plans of reorganization.
The Elpida Creditor Installment Payments were recognized at the acquisition date fair value, which reflects the present
value of the Elpida Creditor Installment Payments, discounted using a rate based on indices of leveraged loan markets, adjusted
for security-specific risks of the installment payments. As of August 29, 2013, the discount is being accreted to interest
expense over the remaining term of the Elpida Creditor Installment Payments, resulting in an effective interest rate of 6.25%.
The following table presents the amounts scheduled under the Sponsor Agreement to be restricted for settlement of the
Elpida Creditor Installment Payments, the estimated amounts payable to the secured and unsecured creditors of the Elpida
Companies (stated in Japanese yen and U.S. dollars) and the amount of unamortized discount.
As of August 29, 2013
July 31, 2013
2014
2015
2016
2017
2018
2019
2020
Less unamortized discount
Elpida Creditor Installment Payments
Scheduled
Deposits of
Restricted
Cash
Estimated Payments to
Elpida Creditors
¥
60,000
¥
— $
—
532
206
205
204
202
290
330
$
$
1,969
(325)
1,644
—
20,000
20,000
20,000
20,000
30,000
30,000
52,270
20,267
20,135
20,003
19,871
28,508
32,242
¥
200,000
¥
193,296
72
Capital Lease Obligations
We have various capital lease obligations due in periodic installments with a weighted-average remaining term of 4.0 years
and weighted-average effective interest rates of 4.1% as of 2013 and 4.9% as of 2012. In 2013, we received $126 million in
proceeds from equipment sale-leaseback transactions and as a result recorded capital lease obligations aggregating $126 million
at a weighted-average effective interest rate of 4.3%, payable in periodic installments through July 2017. On July 31, 2013, in
connection with our acquisition of the Elpida Companies and purchase of the Rexchip shares from Powerchip, we recorded
$377 million of capital lease obligations at a weighted-average effective interest rate of 3.2%, payable in periodic installments
with a weighted-average remaining term of 5.5 years. In 2012, we received $609 million in proceeds from equipment sale-
leaseback transactions and as a result recorded capital lease obligations aggregating $609 million at a weighted-average
effective interest rate of 4.2%, payable in periodic installments through August, 2016.
Convertible Notes With Debt and Equity Components
The accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion
require the debt and equity components to be separately accounted for in a manner that reflects our nonconvertible borrowing
rate when interest expense is recognized in subsequent periods. The amount recorded as debt is based on the fair value of the
debt component as a standalone instrument, determined using an average interest rate for similar nonconvertible debt issued by
entities with credit ratings comparable to ours at the time of issuance. The difference between the debt recorded at inception
and its principal amount is to be accreted to principal through interest expense through the estimated life of the note.
Conversion prices per share and the conversion value in excess of principal for our convertible notes were as follows:
Outstanding
Principal
Initial Conversion
Price Per
Share
Number of
Shares(1)
2014 Notes
2027 Notes
2031A Notes
2031B Notes
2032C Notes
2032D Notes
2033E Notes
2033F Notes
$
485
175
345
345
550
450
300
300
14.23
10.90
9.50
9.50
9.63
9.98
10.93
10.93
34.1
16.1
36.3
36.3
57.1
45.1
27.4
27.4
Conversion
Price Per
Share
Threshold(2)
18.50
Conversion Value
in Excess of Principal(3)
2013
2012
$
— $
14.17
12.35
12.35
12.52
12.97
14.21
14.21
43
148
148
225
162
72
72
—
—
—
—
—
—
—
—
(1)Shares issuable, upon conversion, for the principal amount of the notes.
(2)Holders may convert their notes during any calendar quarter if the closing price of our common stock for at least 20
trading days in a 30 trading day period ending on the last trading day of the immediately preceding calendar quarter is
130% of the initial conversion price per share.
(3)Based on our closing share price of $13.57 and $6.18 as of August 29, 2013 and August 30, 2012, respectively.
73
860
141
265
243
451
361
—
—
368
40
89
109
101
90
—
—
The debt and equity components of all of our convertible notes outstanding as of August 29, 2013 were required to be
accounted for separately. Principal and carrying amounts of the liability components for our convertible notes were as follows:
As of
2014 Notes
2027 Notes
2031A Notes
2031B Notes
2032C Notes
2032D Notes
2033E Notes
2033F Notes
Term
(Years)(1)
1
4
5
7
6
8
4
6
Outstanding
Principal
2013
Unamortized
Discount
Net Carrying
Amount
Outstanding
Principal
2012
Unamortized
Discount
Net Carrying
Amount
$
$
485
175
345
345
550
450
300
300
(20) $
(28)
(68)
(92)
(87)
(81)
(28)
(40)
$
465
147
277
253
463
369
272
260
$
949
175
345
345
550
450
—
—
(89) $
(34)
(80)
(102)
(99)
(89)
—
—
(1)Expected term for amortization of the remaining debt discount as of August 29, 2013.
Carrying amounts of the equity components for our convertible notes were as follows:
As of
2014 Notes
2027 Notes
2031A Notes
2031B Notes
2032C Notes
2032D Notes
2033E Notes
2033F Notes
2013
2012
$
$
353
40
89
109
101
90
30
42
74
Interest expense for our convertible notes was as follows:
For the year ended
Contractual interest expense:
2014 Notes, stated rate of 1.875%
2027 Notes, stated rate of 1.875%
2031A Notes, stated rate of 1.5%
2031B Notes, stated rate of 1.875%
2032C Notes, stated rate of 2.375%
2032D Notes, stated rate of 3.125%
2033E Notes, stated rate of 1.625%
2033F Notes, stated rate of 2.125%
Amortization of discount and issuance costs:
2014 Notes, effective rate of 7.9%
2027 Notes, effective rate of 6.9%
2031A Notes, effective rate of 6.5%
2031B Notes, effective rate of 7.0%
2032C Notes, effective rate of 6.0%
2032D Notes, effective rate of 6.3%
2033E Notes, effective rate of 4.5%
2033F Notes, effective rate of 4.9%
2014 Notes
2013
2012
2011
$
$
13
3
5
6
13
14
3
3
60
37
7
12
10
14
9
4
3
96
156
$
$
18
3
5
6
5
5
—
—
42
47
6
11
10
5
3
—
—
82
124
$
$
19
3
1
1
—
—
—
—
24
46
5
1
1
—
—
—
—
53
77
In May 2007, we issued $1.3 billion of aggregate principal amount of the 2014 Notes due June 2014, of which $464
million was repurchased on February 12, 2013 and $351 million was extinguished in 2011 in connection with debt restructures
(see "Debt Restructure" below). The initial conversion rate of the 2014 Notes is 70.2679 shares of common stock per $1,000
principal amount, or approximately $14.23 per share. Interest is payable in June and December of each year.
Conversion Rights: Holders may convert their 2014 Notes under the following circumstances: (1) during any calendar
quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the
last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price of the 2014 Notes
(approximately $18.50 per share); (2) if the 2014 Notes have been called for redemption; (3) if specified distributions or
corporate events occur, as set forth in the indenture for the 2014 Notes; (4) if the trading price of the 2014 Notes is less than
98% of the product of the closing price of our common stock and the conversion rate of the 2014 Notes during the periods
specified in the indenture; or (5) at any time on or after March 1, 2014.
We have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due
upon conversion. It is our intent to settle the principal amount of the 2014 Notes in cash upon conversion. As a result, upon
conversion of the 2014 Notes, only the amounts payable in excess of the principal amounts of the 2014 Notes are considered in
diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2014 Notes if the last reported sale price of our common
stock has been at least 130% of the conversion price (approximately $18.50 per share) for at least 20 trading days during any 30
consecutive trading-day period. The redemption price is the principal amount to be redeemed, plus accrued and unpaid interest.
Cash Repurchase at the Option of the Holder: Upon a change in control or a termination of trading, as defined in the
indenture, holders may require us to repurchase for cash all or a portion of their 2014 Notes at a repurchase price equal to the
principal amount, plus accrued and unpaid interest, if any.
75
2027 Notes
In connection with a debt restructure in 2011 (see "Debt Restructure" below), we issued $175 million of the 2027 Notes
due June 2027. The initial conversion rate is 91.7431 shares of common stock per $1,000 principal amount or approximately
$10.90 per share, and is subject to adjustment upon the occurrence of certain events specified in the indenture.
Conversion Rights: Holders may convert their 2027 Notes under the following circumstances: (1) during any calendar
quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the
last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price (approximately
$14.17 per share); (2) if the 2027 Notes have been called for redemption; (3) if specified distributions or corporate events
occur; (4) if the trading price of the 2027 Notes is less than 98% of the product of the closing price of our common stock and
the conversion rate of the 2027 Notes during the period specified in the indenture; (5) upon our election to terminate the
conversion right of the 2027 Notes; or (6) after March 1, 2027.
Upon conversion, we will pay cash up to the aggregate principal amount and shares of common stock or cash, at our
option, for any remaining conversion obligation. As a result of the conversion provisions in the indenture, upon conversion of
the 2027 Notes, only the amounts payable in excess of the principal amounts of the 2027 Notes are considered in diluted
earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2027 Notes on or after June 1, 2014 at a price equal to the
principal amount plus accrued and unpaid interest.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2027 Notes to repurchase for
cash the 2027 Notes on June 1, 2017. The repurchase price is equal to the principal amount, plus accrued and unpaid interest.
Upon a change in control or a termination of trading, as defined in the indenture, we may be required by the holders of the 2027
Notes to repurchase for cash all or a portion of their 2027 Notes at a repurchase price equal to the principal amount plus
accrued and unpaid interest.
Termination of Conversion Rights: We may elect to terminate the conversion right of the 2027 Notes if the daily volume
weighted average price of our common stock is greater than or equal to 130% of the conversion price (approximately $14.17
per share) for at least 20 trading days during any 30 consecutive trading day period. If we terminate the conversion right prior
to June 1, 2014 and any 2027 Notes are converted in connection with the termination, we will pay a make-whole premium
equal to the accrued interest as of the conversion date plus the present value of remaining interest that would have been paid
through June 1, 2014, discounted using a U.S. Treasury bond with an equivalent term. Subject to the terms of the indenture, we
may, at our election, deliver shares of common stock in lieu of cash with respect to this make-whole payment.
2031A and 2031B Notes
On July 26, 2011, we issued $345 million of the 2031A Notes and $345 million of 2031B Notes (collectively referred to as
the "2031 Notes"), each due August 2031. The initial conversion rate for the 2031 Notes is 105.2632 shares of common stock
per $1,000 principal amount, equivalent to an initial conversion price of approximately $9.50 per share of common stock.
Interest is payable in February and August of each year.
Conversion Rights: Holders may convert their 2031 Notes under the following circumstances: (1) during any calendar
quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the
last trading day of the preceding calendar quarter is more than 130% of the conversion price of the 2031 Notes (approximately
$12.35 per share); (2) if the 2031 Notes are called for redemption; (3) if specified distributions or corporate events occur, as set
forth in the indenture for the 2031 Notes; (4) if the trading price of the 2031 Notes is less than 98% of the product of the
closing price of our common stock and the conversion rate of the 2031 Notes during the periods specified in the indenture; or
(5) at any time after May 1, 2031.
Upon conversion, we will pay cash up to the lesser of the aggregate principal amount and the conversion value and cash,
shares of common stock or a combination of cash and shares of common stock, at our option, for any remaining conversion
obligations. As a result of the conversion provisions in the indenture, upon conversion of the 2031 Notes, only the amounts
payable in excess of the principal amounts of the 2031 Notes are considered in diluted earnings per share under the treasury
stock method.
76
Cash Redemption at Our Option: We may redeem for cash the 2031A Notes on or after August 5, 2013 and the 2031B
Notes on or after August 5, 2014 if the last reported sale price of our common stock has been at least 130% of the conversion
price (approximately $12.35 per share) for at least 20 trading days during any 30 consecutive trading day period. The
redemption price will equal the principal amount plus accrued and unpaid interest. If we redeem the 2031A Notes prior to
August 5, 2015, or the 2031B Notes prior to August 5, 2016, we will also pay a make-whole premium in cash equal to the
present value of all remaining scheduled payments of interest on the 2031 Notes from the redemption date to August 5, 2015
for the 2031A Notes and through August 5, 2016 for the 2031B Notes, using a discount rate equal to 150 basis points.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2031 Notes to repurchase for
cash all or a portion of the 2031A Notes on August 1, 2018 and all or a portion of the 2031B Notes on August 1, 2020. The
repurchase price is equal to the principal amount, plus accrued and unpaid interest. Upon a change in control or a termination
of trading, as defined in the indenture, we may be required by the holders of the 2031 Notes to repurchase for cash all or a
portion of their 2031 Notes at a repurchase price equal to the principal amount plus accrued and unpaid interest.
2032C and 2032D Notes
On April 18, 2012, we issued $550 million of the 2032C Notes and $450 million of the 2032D Notes (collectively referred
to as the "2032 Notes"), each due May 2032. The initial conversion rate for the 2032C Notes is 103.8907 shares of common
stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $9.63 per share of common stock.
The initial conversion rate for the 2032D Notes is 100.1803 shares of common stock per $1,000 principal amount, equivalent to
an initial conversion price of approximately $9.98 per share of common stock. Interest is payable in May and November of
each year.
Conversion Rights: Holders may convert their 2032 Notes under the following circumstances: (1) if the 2032 Notes are
called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in
the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the
conversion price (approximately $12.52 per share for the 2032C Notes and $12.97 per share for the 2032D Notes) of the 2032C
or 2032D Notes; (3) if the trading price of the 2032C or 2032D Notes is less than 98% of the product of the closing price of our
common stock and the conversion rate of the 2032C or 2032D Notes during the periods specified in the indenture; (4) if
specified distributions or corporate events occur, as set forth in the indenture for the 2032 Notes; or (5) at any time after
February 1, 2032.
We have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due
upon conversion. It is our intent to settle the principal amount of the 2032 Notes in cash upon conversion. As a result, upon
conversion of the 2032 Notes, only the amounts payable in excess of the principal amounts of the 2032 Notes are considered in
diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2032C Notes on or after May 1, 2016 and the 2032D
Notes on or after May 1, 2017 if the volume weighted average price of our common stock has been at least 130% of the
conversion price (approximately $12.52 per share for the 2032C Notes and $12.97 per share for the 2032D Notes) for at least
20 trading days during any 30 consecutive trading day period. The redemption price will equal the principal amount plus
accrued and unpaid interest. If we redeem the 2032C Notes prior to May 4, 2019, or the 2032D Notes prior to May 4, 2021, we
will also pay a make-whole premium in cash equal to the present value of all remaining scheduled payments of interest from
the redemption date to May 4, 2019 for the 2032C Notes, or to May 4, 2021 for the 2032D Notes, using a discount rate equal to
150 basis points.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2032 Notes to repurchase for
cash all or a portion of the 2032C Notes on May 1, 2019 and all or a portion of the 2032D Notes on May 1, 2021. The
repurchase price is equal to the principal amount plus accrued and unpaid interest. Upon a change in control or a termination of
trading, as defined in the indenture, holders of the 2032 Notes may require us to repurchase for cash all or a portion of their
2032 Notes at a repurchase price equal to the principal amount plus accrued and unpaid interest.
77
2033E and 2033F Notes
On February 12, 2013, we issued $300 million of Convertible Senior Notes due February 2033 (the "2033E Notes") and
$300 million of Convertible Senior Notes due February 2033 (the "2033F Notes" and together with the 2033E Notes, the "2033
Notes"). Issuance costs for the 2033 Notes totaled $16 million. The initial conversion rate for the 2033 Notes is 91.4808
shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $10.93 per
share of common stock. Interest is payable in February and August of each year.
Upon issuance of the 2033 Notes, we recorded $526 million of debt, $72 million of additional capital and $14 million of
deferred debt issuance costs (included in other noncurrent assets). The amount recorded as debt was based on the fair value of
the debt component as a standalone instrument and was determined using an average interest rate for similar nonconvertible
debt issued by entities with credit ratings comparable to ours at the time of issuance (Level 2 fair value measurements). The
difference between the debt recorded at inception and the principal amount ($31 million for the 2033E Notes and $43 million
for the 2033F Notes) is being accreted to principal as interest expense through February 2018 for the 2033E Notes and
February 2020 for the 2033F Notes, the expected life of the notes.
Conversion Rights: Holders may convert their 2033 Notes under the following circumstances: (1) if the 2033 Notes are
called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in
the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the
conversion price (approximately $14.21 per share) of the 2033 Notes; (3) if the trading price of the 2033 Notes is less than 98%
of the product of the closing price of our common stock and the conversion rate of the 2033 Notes during the periods specified
in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture for the 2033 Notes; or (5) at
any time after November 15, 2032.
Upon conversion, we will pay cash equal to the lesser of the aggregate principal amount and the conversion value of the
notes being converted and cash, shares of common stock or a combination of cash and shares of common stock, at our option,
for any remaining conversion obligation. As a result, upon conversion of the 2033 Notes, only the amounts payable in excess
of the principal amounts of the 2033 Notes are considered in diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2033E Notes on or after February 20, 2018 and the 2033F
Notes on or after February 20, 2020. The redemption price will equal the principal amount plus accrued and unpaid interest.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2033 Notes to repurchase for
cash all or a portion of the 2033E Notes on February 15, 2018 and on February 15, 2023 and all or a portion of the 2033F Notes
on February 15, 2020 and on February 15, 2023. The repurchase price is equal to the principal amount plus accrued and unpaid
interest. Upon a change in control or a termination of trading, as defined in the indenture, holders of the 2033 Notes may
require us to repurchase for cash all or a portion of their 2033 Notes at a repurchase price equal to the principal amount plus
accrued and unpaid interest.
Other Notes Payable
On August 27, 2013, we borrowed $312 million under a four-year term loan, collateralized by a security interest in certain
production equipment. Principal is payable in equal quarterly installments, commencing on November 27, 2013. Interest
accrues at a variable rate equal to the three-month London Interbank Offered Rate (“LIBOR”) rate plus a margin of 3.25% per
annum, payable quarterly in arrears. Also on August 27, 2013, we entered into a variable-for-fixed interest rate swap calculated
on an aggregate notional amount equal to the scheduled outstanding balance of the loan. The interest rate swap effectively
fixed the rate at 4.2% per annum. The facility agreement contains customary covenants, limitations or restrictions our ability to
create liens or dispose of the equipment securing the facility agreement. The facility also contains a covenant requiring us to
ensure that the ratio of the outstanding loan to the fair market value of the equipment that secures the loan does not exceed 0.8
to 1.0. If such ratio is exceeded, we are required to grant a charge over additional equipment and/or prepay the loan in an
amount sufficient to reduce such ratio to 0.8 to 1.0 or less. The facility agreement also contains customary events of default
which could result in the acceleration of all amounts and cancellation of all commitments under the facility agreement. As of
August 29, 2013, the outstanding balance was $309 million.
78
On October 2, 2012, we entered into a facility agreement to obtain financing collateralized by semiconductor production
equipment. Subject to customary conditions, we could draw up to $214 million under the facility agreement. Amounts drawn
are payable in 10 equal semi-annual installments beginning six months after the draw date. On October 18, 2012, we drew
$173 million with interest at 2.4% per annum. On January 31, 2013, we drew the remaining $41 million with interest at 2.4%
per annum. The facility agreement contains customary covenants and events of default. As of August 29, 2013, the
outstanding balance was $191 million.
On July 31, 2013, in connection with our acquisition of the Elpida Companies and purchase of the Rexchip shares from
Powerchip, we recorded a note payable of $120 million, which is collateralized by building and certain production equipment.
The note is denominated in New Taiwan dollars. Principal on the note is payable in equal quarterly installments through May
2016 and accrued interest is payable monthly. Interest accrues at a variable rate of 0.85% above the secondary market rate for
90-day New Taiwan dollar commercial paper, subject to a minimum interest rate of 2.50% per annum. As of August 29, 2013,
the outstanding balance was $110 million.
In connection with the IM Flash joint venture agreements, on April 6, 2012, we borrowed $65 million under a two-year
senior unsecured promissory note from Intel, payable in approximately equal quarterly installments with interest at a rate of
three-month LIBOR minus 50 basis points. The proceeds of the loan are to be used to fund purchases of equipment relating to
the research and development or manufacturing of certain emerging memory technologies. As of August 29, 2013, the
outstanding balance was $25 million. (See "Consolidated Variable Interest Entities – IM Flash" note.)
Revolving Credit Facilities
On September 5, 2012, we entered into a three-year revolving credit facility. Under this credit facility, we can draw up to
the lesser of $255 million or 80% of the net outstanding balance of certain trade receivables. Amounts drawn would be
collateralized by a security interest in such receivables. The availability of the facility is subject to certain customary
conditions, including the absence of any event or circumstance that has a material adverse effect on our business or financial
condition. The revolving credit facility contains customary covenants and a repayment provision in the event that the
maximum aging of the receivables exceeds a specified threshold. Interest is payable monthly on any outstanding principal
balance at a variable rate equal to the 30-day Singapore Interbank Offering Rate plus 2.8% per annum. As of August 29, 2013,
we had not drawn any of the $255 million available under this facility.
On June 27, 2013, we entered into a senior secured three-year revolving credit facility, collateralized by a security interest
in certain trade receivables. Under this facility, we can draw up to 85% of the net outstanding balance of certain trade
receivables, subject to certain adjustments, including an availability block that has the effect of limiting the maximum
committed draw amount to approximately $153 million. The revolving credit facility contains customary covenants and
conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on our
business or financial condition. Generally, interest is payable on any outstanding principal balance at a variable rate equal to
the LIBOR plus a spread from 1.5% to 2.0%, or at our option, at a rate equal to an alternate base rate (defined as the highest of
(1) the prime rate, (2) one-month LIBOR plus 1.0% or (3) the Federal Funds Effective Rate) plus a spread from 0.5% to 1.0%.
In either case, the spread added to the applicable interest rate basis varies depending upon the amount of the monthly average
undrawn availability under the facility. As of August 29, 2013, we had not drawn any of the $153 million available under this
facility.
2013 Notes Conversion
In 2012, we provided a written notice that we would redeem our 2013 convertible senior notes on June 4, 2012. As of June
4, 2012, the entire $139 million of principal amount of the 2013 Notes had been converted by holders into 27.3 million shares.
We were required to pay a make-whole premium of $9 million, which is reflected in interest expense.
79
Debt Restructure
On February 12, 2013, we repurchased $464 million of aggregate principal amount of our 2014 Notes for $477 million in
privately negotiated transactions. The liability and equity components of the 2014 Notes were stated separately pursuant to the
accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion.
Accordingly, the repurchase resulted in the derecognition of $431 million in debt for the principal amount (net of $33 million of
debt discount) and $15 million in additional capital for the equity component. We recognized a charge of $31 million
associated with the early repurchase, based on the estimated $462 million fair value of the debt component and the $431
million carrying value (net of unamortized discount) of the notes repurchased. The fair value of the debt component was
estimated using an interest rate for non-convertible debt, with terms similar to the debt component of the 2014 Notes on a
stand-alone basis issued by entities with credit ratings similar to ours at the repurchase date (Level 2 fair value measurements).
In the first quarter of 2011, in connection with a series of debt restructure transactions with certain holders of our
convertible notes, we recognized a loss of $111 million as follows:
•
•
•
$15 million on the exchange of $175 million in aggregate principal amount of our 2014 Notes for $175 million in
aggregate principal amount of new 2027 Notes;
$17 million (including transaction fees) on the repurchase of $176 million in aggregate principal amount of our 2014
Notes for $171 million in cash; and
$79 million (including transaction fees) on the repurchase of $91 million in aggregate principal amount of our 2013
Notes for $166 million in cash.
Maturities of Notes Payable and Future Minimum Lease Payments
As of August 29, 2013, maturities of notes payable, including the Elpida Creditor Installment Payments, and future
minimum lease payments under capital lease obligations were as follows:
As of August 29, 2013
2014
2015
2016
2017
2018
2019 and thereafter
Discounts and interest, respectively
Notes
Payable
Capital Lease
Obligations
$
1,203
$
367
356
500
869
2,263
(773)
4,785
$
$
449
349
307
85
41
135
(114)
1,252
80
Commitments
As of August 29, 2013, we had commitments of approximately $775 million for the acquisition of property, plant and
equipment. We lease certain facilities and equipment under operating leases. Total rental expense was $41 million, $48 million
and $69 million for 2013, 2012 and 2011, respectively. As of August 29, 2013, minimum future rental commitments are as
follows:
As of August 29, 2013
2014
2015
2016
2017
2018
2019 and thereafter
Contingencies
Operating
Lease
Commitments
22
$
14
12
11
10
37
106
$
We have 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. We are currently a party to other
legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our
business, results of operations or financial condition.
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 our products or manufacturing processes infringe their intellectual property rights.
We are engaged in litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents and certain of our claims
and defenses. Our lawsuits with Rambus related to patent matters 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 August 28, 2000, we filed
a complaint against Rambus in the U.S. District Court for the District of Delaware seeking declaratory and injunctive relief.
The complaint alleges, among other things, various anticompetitive activities and also seeks a declaratory judgment that certain
Rambus patents are invalid and/or unenforceable. Rambus subsequently filed an answer and counterclaim in Delaware
alleging, among other things, infringement of twelve Rambus patents and seeking monetary damages and injunctive relief. We
subsequently added claims and defenses based on Rambus' alleged spoliation of evidence and litigation misconduct. The
spoliation and litigation misconduct claims and defenses were heard in a bench trial before Judge Robinson in October 2007.
On January 9, 2009, Judge Robinson entered an opinion in our favor holding that Rambus had engaged in spoliation and that
the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision to the U.S.
Court of Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of
spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy
based on the Federal Circuit's decision. On January 2, 2013, Judge Robinson entered a new opinion in our favor holding that
Rambus had engaged in spoliation, that Rambus' spoliation was done in bad faith, that the spoliation prejudiced us, and that the
appropriate sanction was to declare the twelve Rambus patents in the suit unenforceable against us. On March 27, 2013,
Rambus filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. Separately, on January 13, 2006, Rambus
filed a lawsuit against us in the U.S. District Court for the Northern District of California alleging that certain of our DDR2,
DDR3, RLDRAM and RLDRAM II products infringe as many as fourteen Rambus patents and seeking monetary damages,
treble damages, and injunctive relief. The Northern District of California Court stayed the trial of the patent phase of the
Northern District of California case upon appeal of the Delaware spoliation issue to the Federal Circuit.
81
On September 1, 2011, HSM Portfolio LLC and Technology Properties Limited LLC filed a patent infringement action in
the U.S. District Court for the District of Delaware against us and seventeen other defendants, including Elpida Memory, Inc.
and Elpida Memory (USA) Inc. (collectively "Elpida"). The complaint alleges that certain of our DRAM and image sensor
products infringe two U.S. patents and that certain Elpida DRAM products infringe two U.S. patents and seeks damages,
attorneys' fees, and costs. On March 23, 2012, Elpida filed a Notice of Filing and Hearing on Petition Under Chapter 15 of the
U.S. Bankruptcy Code and Issuance of Provisional Relief that included an order of the U.S. Bankruptcy Court for the District
of Delaware staying judicial proceedings against Elpida. Accordingly, the plaintiffs' case against Elpida is stayed. On August
21, 2013, the Court granted a motion by the plaintiffs to amend the complaint to assert two additional patents against us and
one additional patent against Elpida.
On September 9, 2011, Advanced Data Access LLC filed a patent infringement action in the U.S. District Court for the
Eastern District of Texas (Tyler) against us and seven other defendants. On November 16, 2011, Advanced Data Access filed
an amended complaint. The amended complaint alleged that certain of our DRAM products infringed two U.S. patents and
sought injunctive relief, damages, attorneys' fees, and costs. On March 20, 2013, we executed a settlement agreement resolving
this litigation. The settlement amount did not have a material effect on our business, results of operations or financial
condition.
On September 14, 2011, Smart Memory Solutions LLC filed a patent infringement action in the U.S. District Court for the
District of Delaware against us and Winbond Electronics Corporation of America. The complaint alleged that certain of our
NOR Flash products infringed a single U.S. patent and sought injunctive relief, damages, attorneys' fees, and costs. On March
20, 2013, we executed a settlement agreement resolving this litigation. The settlement amount did not have a material effect on
our business, results of operations or financial condition.
On December 5, 2011, the Board of Trustees for the University of Illinois filed a patent infringement action against us in
the U.S. District Court for the Central District of Illinois. The complaint alleges that unspecified semiconductor products of
ours infringe three U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs. We have filed three petitions
for inter-partes review by the Patent and Trademark Office, challenging the validity of each of the patents in suit. The District
Court has stayed the litigation pending the outcome of the inter-partes review by the Patent Office.
On March 26, 2012, Semiconductor Technologies, LLC filed a patent infringement action in the U.S. District Court for the
Eastern District of Texas (Marshall) against us. The complaint alleged that certain of our DRAM products infringed five U.S.
patents and sought injunctive relief, damages, attorneys' fees, and costs. On March 20, 2013, we executed a settlement
agreement resolving this litigation. The settlement amount did not have a material effect on our business, results of operations
or financial condition.
On April 27, 2012, Semcon Tech, LLC filed a patent infringement action against us in the U.S. District Court for the
District of Delaware. The complaint alleges that our use of various chemical mechanical planarization systems purchased from
Applied Materials and others infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. On
September 24, 2013, the Court entered an order staying our case pending the resolution of co-pending cases brought by Semcon
Tech, LLC against Applied Materials and Ebara Technologies, Inc.
On December 7, 2007, Tessera, Inc. filed a patent infringement against Elpida Memory, Inc., Elpida Memory (USA) Inc.
(collectively "Elpida"), and numerous other defendants, in the United States District Court for the Eastern District of Texas.
The complaint alleges that certain Elpida products infringe four U.S. patents and seeks injunctive relief, damages, attorneys'
fees, and costs. Prior to answering the complaint, Elpida and other defendants filed motions to stay the case pending final
resolution of a case before the International Trade Commission ("ITC") against Elpida and other respondents, alleging
infringement of the same patents asserted in the Eastern District of Texas case (In The Matter of Certain Semiconductor Chips
with Minimized Chip Package Size and Products Containing Same (III), ITC No. 337-TA-630 (the "ITC Action")). On
February 25, 2008, the Eastern District of Texas Court granted the defendants' motion to stay the action. On December 29,
2009, the ITC issued a Notice of Final Determination in the ITC Action finding no violation by Elpida. Tessera Inc.
subsequently appealed the matter to the U.S. Court of Appeals for the Federal Circuit. On May 23, 2011, the Federal Circuit
affirmed the ITC's Final Determination. The Eastern District of Texas case currently remains stayed.
Among other things, the above lawsuits pertain to certain of our SDRAM, DDR, DDR2, DDR3, RLDRAM, NAND Flash,
NOR Flash and image sensor products, which account for a significant portion of our net sales.
82
We are unable to predict the outcome of assertions of infringement made against us and therefore cannot estimate the range
of possible loss, except as noted in the discussion of the Advanced Data Access LLC, Smart Memory Solutions LLC and
Semiconductor Technologies, LLC matters above. 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 could have a material adverse effect on our business, results of
operations or financial condition.
Antitrust Matters
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against
us and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in concerted and unlawful efforts
affecting Rambus DRAM by eliminating competition and stifling innovation in the market for computer memory technology
and computer memory chips. Rambus' complaint alleged various causes of action under California state law including, among
other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective
economic advantage, and unfair competition. Rambus sought a judgment for damages of approximately $3.9 billion, joint and
several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the
conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the
jury on September 21, 2011. On November 16, 2011, the jury found for us on all claims. On April 2, 2012, Rambus filed a
notice of appeal to the California 1st District Court of Appeal.
At least sixty-eight purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers in
various federal and state courts in the United States and in Puerto Rico on behalf of indirect purchasers alleging a conspiracy to
increase DRAM prices in violation of federal and state antitrust laws and 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
were removed to federal court and transferred to the U.S. District Court for the Northern District of California for consolidated
pre-trial proceedings. In July, 2006, the Attorneys General for approximately forty U.S. states and territories filed suit in the
U.S. District Court for the Northern District of California. The complaints allege, among other things, violations of the
Sherman Act, Cartwright Act, and certain other states' consumer protection and antitrust laws and seek joint and several
damages, trebled, as well as injunctive and other relief. On October 3, 2008, the California Attorney General filed a similar
lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other
things, violations of the Cartwright Act and state unfair competition law. On June 23, 2010, we executed a settlement
agreement resolving these purported class-action indirect purchaser cases and the pending cases of the Attorneys General
relating to alleged DRAM price-fixing in the United States. Subject to certain conditions, including final court approval of the
class settlements, we agreed to pay approximately $67 million in aggregate in three equal installments over a two-year period.
We had paid the full amount into an escrow account by the end of the first quarter of 2013 in accordance with the settlement
agreement.
Three putative class action lawsuits alleging price-fixing of DRAM products also have been filed against us in Quebec,
Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, asserting violations of the Canadian
Competition Act and other common law claims (collectively the "Canadian Cases"). The claims were initiated between
December 2004 (British Columbia) and June 2006 (Quebec). The plaintiffs seek monetary damages, restitution, costs, and
attorneys' fees. 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. On November 12, 2009, the British
Columbia Court of Appeal reversed, and on November 16, 2011, the Quebec Court of Appeal also reversed the denial of class
certification and remanded the cases for further proceedings. On October 16, 2012, we entered into a settlement agreement
resolving these three putative class action cases subject to certain conditions including final court approval of the settlement.
The settlement amount did not have a material effect on our business, results of operations or financial condition.
On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice ("SDE") announced that it had
initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. The SDE's Notice of
Investigation names various DRAM manufacturers and certain executives, including us, and focuses on the period from July
1998 to June 2002.
We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss, except as
noted in the U.S. indirect purchaser cases and the Canadian Cases above. The final resolution of these alleged violations of
antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations
or financial condition.
83
Securities Matters
On July 12, 2013, seven former shareholders of Elpida Memory, Inc. (“Elpida”) filed a complaint against Messrs.
Sakamoto, Adachi, Gomi, Shirai, Tsay-Jiu, Wataki, Kinoshita, and Takahasi in their capacity as members of the board of
directors of Elpida as of February 2013. The complaint alleges that the defendants engaged in various acts and
misrepresentations to hide the financial condition of Elpida and deceive shareholders prior to Elpida filing a petition for
corporate reorganization on February 27, 2013. The plaintiffs seek joint and several damages equal to the market value of
shares owned by each of the plaintiffs on February 23, 2013, along with attorneys’ fees and interest. At a hearing on September
25, 2013, the plaintiffs withdrew the complaint against Mr. Tsay-Jiu.
We are unable to predict the outcome of this matter and therefore cannot estimate the range of possible loss. The final
resolution of this matter could result in significant liability and could have a material adverse effect on our business, results of
operations or financial condition.
Commercial Matters
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit
against us and Micron Semiconductor B.V., our Netherlands subsidiary, in the District Court of Munich, Civil Chamber. The
complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between us and Qimonda
signed in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order
requiring us to retransfer the Inotera shares purchased from Qimonda to the Qimonda estate. The complaint also seeks to
terminate under Sections 103 or 133 of the German Insolvency Code a patent cross license between us and Qimonda entered
into at the same time as the share purchase agreement. A three-judge panel will render a decision after a series of hearings with
pleadings, arguments and witnesses. Hearings were held on September 25, 2012, February 5, 2013, June 11, 2013 and July 2,
2013. An additional hearing is scheduled for November 12, 2013. We are unable to predict the outcome of this lawsuit and
therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera
shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse
effect on our business, results of operation or financial condition. As of August 29, 2013, the Inotera shares purchased from
Qimonda had a carrying value of $190 million.
Other
In the normal course of business, we are a party to a variety of agreements pursuant to which we 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 our obligations and the unique facts and circumstances involved in each particular
agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business,
results of operations or financial condition.
84
Shareholders' Equity
Repurchase of Common Stock
On July 26, 2011, we paid $150 million to repurchase 19.7 million shares of our common stock at $7.60 per share.
Capped Calls
Issued and Outstanding Capped Calls: In July 2011, we entered into capped call transactions (the "2031 Capped Calls")
that have an initial strike price which was set to equal, subject to certain adjustments, the initial conversion price of the 2031
Notes. The 2031 Capped Calls are in four equal tranches. In April 2012, we entered into capped call transactions (the "2032C
Capped Calls" and "2032D Capped Calls," collectively the "2032 Capped Calls") that have an initial strike price which was set
to be, subject to certain adjustments, slightly higher than the initial conversion prices of the 2032C Notes and the 2032D
Notes. The 2032C and 2032D Capped Calls are each in four tranches. On February 6, 2013 and February 12, 2013, we entered
into capped call transactions (the "2033E Capped Calls" and "2033F Capped Calls," collectively the "2033 Capped Calls") that
have an initial strike price which was set to equal, subject to certain adjustments, the initial conversion price of the 2033
Notes. We paid $57 million, $103 million and $48 million, to purchase the 2031, 2032 and 2033 Capped Calls, respectively.
The capped calls transactions are considered capital transactions and the related cost was recorded as a charge to additional
capital. The 2031, 2032 and 2033 Capped Calls are intended to reduce the effect of potential dilution upon conversion of the
2031, 2032 and 2033 Notes, respectively and may be settled in shares or cash, at our election.
The following table presents information related to the issued and outstanding capped calls as of August 29, 2013.
Capped
Calls
2031
2032C
2032D
2033E
2033F
1
2
Expiration Dates
Jul 2014
- Feb 2016
$
May 2016
- Nov 2017
Nov 2016
- May 2018
Jan 2018
- Feb 2018
Jan 2020
- Feb 2020
Strike
Price1
9.50
9.80
10.16
10.93
10.93
Cap Price Range
Low
High
Common
Shares
Covered
Value at Expiration2
Minimum Maximum
$
11.40
$
14.26
14.62
14.51
14.51
13.17
15.69
16.04
14.51
14.51
72.6
56.3
44.3
27.5
27.5
$
— $
—
—
—
—
228.2
$
— $
207
307
244
98
98
954
Initial strike prices are subject to certain adjustments
Settlement in cash on the respective expiration dates would result in us receiving an amount ranging from zero, if the
market price per share of our common stock is at or below the respective low strike price, to the respective maximum
amount if the market price per share of our common stock is at or above the respective high cap price. If share
settlement were elected, the number of shares repurchased would be determined by the value of the capped calls at the
time of settlement divided by the share price on the settlement date.
Settlement of Capped Calls: Concurrent with the issuance in April 2009 of our 4.25% Convertible Senior Notes due 2013,
we entered into capped call transactions (the "2013 Capped Calls") covering approximately 45.2 million shares of common
stock with an initial strike price of approximately $5.08 per share and a cap price of $6.64 per share. The 2013 Capped Calls
expired in October 2012 and November 2012. We elected cash settlement and received $24 million in 2013.
Concurrent with the offering of the 2014 Notes, we purchased capped calls with a strike price of approximately $14.23 per
share and various expiration dates between November 2011 and December 2012 (the "2014 Capped Calls"). In the first six
months of 2012, 2014 Capped Calls covering 30.4 million shares expired according to their terms. In April 2012, we settled the
remaining 2014 Capped Calls, covering 60.9 million shares, and received a de minimis payment.
85
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax, attributable to Micron shareholders at the
end of each year, as well as other comprehensive income for the year ended August 29, 2013, were as follows:
Cumulative foreign currency translation adjustments
Gain (loss) on derivatives, net
Gain (loss) on investments, net
Pension liability adjustments
Accumulated other comprehensive income
Derivative Financial Instruments
As of
August 30,
2012
$
$
49
31
1
(1)
80
$
Other
Comprehensive
Income (Loss)
$
As of
August 29,
2013
44
21
—
(2)
63
(5) $
(10)
(1)
(1)
(17) $
We are exposed to currency exchange rate risk for monetary assets and liabilities held or denominated in foreign
currencies, primarily the euro, shekel, Singapore dollar and yen. We are also exposed to currency exchange rate risk for capital
expenditures and operating cash flows, primarily denominated in the euro and yen. In connection with the Elpida Installment
Payments, we are exposed to significant currency exchange rate risk for the yen. Additionally, we are exposed to interest rate
fluctuation risk on our four-year note payable, under which we borrowed $312 million on August 27, 2013 at a variable interest
rate. We use derivative instruments to manage a portion of our exposures to changes in currency exchange rates and variable
interest rates. For exposures associated with our monetary assets and liabilities, our primary objective in entering into currency
derivatives is to reduce the volatility that changes in currency exchange rates have on our earnings. For exposures associated
with our capital expenditures and operating cash flows, our primary objective of entering into currency derivatives is to reduce
the volatility that changes in currency exchange rates have on future cash flows. For exposures associated with our yen-
denominated Elpida Installment Payments, our primary objective for entering into currency derivatives is to mitigate risks if
those currencies strengthen relative to the U.S. dollar, while preserving some ability for us to benefit if those currencies
weaken. For exposures associated with our variable-rate debt, our primary objective is to reduce the volatility that changes in
interest rates have on interest expense.
Our currency derivatives consist primarily of forward contracts and currency options and our interest rate derivative
consists of interest rate swap agreements. These derivatives expose us to credit risk to the extent the counterparties may be
unable to meet the terms of the derivative instrument. As of August 29, 2013, our maximum exposure to loss due to credit risk
if counterparties fail completely to perform according to the terms of the contracts, was generally equal to the fair value of our
assets for these contracts as listed in the tables below. We seek to mitigate such risk by limiting our counterparties to major
financial institutions and by spreading risk across multiple major financial institutions. In addition, we monitor the potential
risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis. We also seek to mitigate risk
through master netting arrangements (see "Master Netting Arrangements" below).
We have the following risk management programs:
Derivatives without Hedge Accounting Designation
We utilize a rolling hedge strategy with currency forward contracts that generally mature within 35 days to hedge our
exposure to changes in currency exchange rates from our monetary assets and liabilities. At the end of each reporting period,
monetary assets and liabilities held or denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and
the associated outstanding forward contracts are marked-to-market. Currency forward contracts are valued at fair values based
on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). Currency options are
valued at their fair value using a modified Black-Scholes option valuation model using inputs of the current spot rate, strike
price, risk-free interest rate, maturity, volatility and credit-risk spread (Level 2 fair value measurements). These options are
marked-to-market at the end of each reporting period. Realized and unrealized gains and losses on derivative instruments
without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in
currency exchange rates are included in other non-operating income (expense).
86
In connection with the currency exchange rate risk associated with our acquisition of Elpida and the Rexchip shares from
the Powerchip Group, we entered into currency exchange transactions (the "Elpida Hedges" and the "Rexchip Hedges" and,
together, the "Elpida Acquisition Hedges"). The Elpida Acquisition Hedges were not designated for hedge accounting and were
remeasured at fair value each period with gains and losses reflected in other non-operating income (expense). We recorded
losses from the Elpida Acquisition Hedges in 2013 of $228 million and gains in 2012 of $8 million. To mitigate the risk that
increases in exchange rates have on the payments due in 2014 and 2015, we entered into forward contracts to purchase
20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015.
We entered into interest rate swap contracts that mature in 4 years to hedge against the variability of future interest
payments due on our $312 million floating rate debt. We designated 80% of the swaps as cash flow hedges and the remaining
20% were not designated for hedge accounting treatment. Changes in the fair value of the undesignated portion are included in
interest income (expense). The fair values of the interest rate swaps are calculated by discounting the expected future cash
flows based on inputs that are readily available in publicly quoted markets (Level 2 fair value measurements).
Total gross notional amounts and fair values for currency derivatives and interest rate swaps without hedge accounting
designation were as follows:
As of August 29, 2013
Currency forward contracts:
Yen
Singapore dollar
Euro
Shekel
Currency options:
New Taiwan dollar
Interest rate swap contracts
As of August 30, 2012
Forward contracts:
Singapore dollar
Euro
Shekel
Yen
Currency options:
Yen
New Taiwan dollar
Notional
Amount
(in U.S.
Dollars)
Current
Assets(1)
Fair Value of
Noncurrent
Assets(2)
(Current
Liabilities)(3)
$
$
$
$
$
$
$
336
218
217
78
351
62
1,262
251
173
65
18
5,050 (4)
342
5,899
$
1
—
1
—
—
—
2
$
$
— $
2
—
—
57
2
61
$
3
—
—
—
—
—
3
$
$
— $
—
—
—
—
—
— $
—
—
(1)
(1)
—
—
(2)
(1)
(1)
(1)
—
—
—
(3)
Included in receivables - other.
Included in other noncurrent assets.
Included in accounts payable and accrued expenses - other.
(1)
(2)
(3)
(4) Notional amount includes purchased options of $2,527 million and sold options of $2,523 million for the Elpida Hedges.
For currency forward contracts and options without hedge accounting designation, we recognized net losses of
$222 million for 2013, net losses of $17 million for 2012 and net gains of $21 million for 2011, which were included in other
non-operating income (expense).
87
Derivatives with Cash Flow Hedge Accounting Designation
We utilize currency forward contracts that generally mature within 12 months and currency options that generally mature
from 12 to 18 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain
capital expenditures and forecasted operating cash flows. Currency forward contracts are valued at their fair values based on
market-based observable inputs including currency exchange spot and forward rates, interest rate and credit risk spread (Level
2 fair value measurements). Currency options are valued at their fair value using a modified Black-Scholes option valuation
model using inputs of the current spot rate, strike price, risk-free interest rate, maturity, volatility and credit-risk spread (Level 2
fair value measurements). We entered into interest rate swap contracts that mature in 4 years to hedge against the variability in
future interest payments due on our $312 million floating rate debt and designated 80% of the swaps as cash flow hedges. The
fair values of the interest rate swaps have been calculated by discounting the expected future cash flows based on inputs that
are readily available in publicly quoted markets (Level 2 fair value measurements).
For derivatives designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the
derivatives is included as a component of accumulated other comprehensive income (loss). For derivatives hedging capital
expenditures, the amounts in accumulated other comprehensive income (loss) for these cash flow hedges are reclassified into
earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying
transactions affect earnings. Amounts in accumulated other comprehensive income (loss) for inventory purchases are
reclassified to earnings when inventory is sold. Amounts in accumulated other comprehensive income (loss) for interest rate
swaps are reclassified to earnings when the related interest payments affect earnings. The ineffective or excluded portion of the
realized and unrealized gain or loss is included in other non-operating income (expense). Total gross notional amounts and fair
values for derivatives with cash flow hedge accounting designation were as follows:
As of August 29, 2013
Currency forward contracts:
Yen
Euro
Currency options:
Yen
Interest swap contracts:
As of August 30, 2012
Currency forward contracts:
Yen
Euro
Currency options:
Yen
Notional
Amount
(in U.S.
Dollars)
Fair Value of
Current
Assets(1)
(Current
Liabilities)(2)
$
$
$
$
6
6
21
250
283
108
35
32
175
$
$
$
$
— $
—
—
—
— $
$
2
—
— $
$
2
(1)
—
(2)
—
(3)
—
—
—
—
(1)
(2)
Included in receivables - other.
Included in accounts payable and accrued expenses - other.
For 2013, 2012 and 2011, we recognized $8 million of net pre-tax derivative losses, $9 million of net derivative losses and
$49 million of net derivative gains, respectively, in accumulated other comprehensive income (loss) from the effective portion
of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income
(expense) were not significant in 2013, 2012 or 2011. In 2013 and 2012, $1 million and $9 million, respectively, of net gains
were reclassified from accumulated other comprehensive income (loss) to earnings. As of August 29, 2013, the amount of pre-
tax net derivative gains included in accumulated other accumulated comprehensive income (loss) expected to be reclassified
into earnings in the next 12 months was $4 million.
88
Master Netting Arrangements
We seek to enter into master netting arrangements to mitigate credit risk in derivative transactions. These master netting
arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can
be net settled under these arrangements have been presented in our consolidated balance sheet on a net basis. The following
table presents the gross amounts of our derivative assets and liabilities and the net amounts recorded in our consolidated
balance sheet:
As of August 29, 2013
Gross amount
Gross amounts offset in the statement of financial position
Net amounts presented in the statement of financial position
(1) Included in receivables - other.
(2) Included in other noncurrent assets.
(3) Included in accounts payable and accrued expenses - other.
Current
Assets(1)
Noncurrent
Assets(2)
$
$
2
(1)
1
$
$
3
—
3
(Current
Liabilities)(3)
(5)
$
1
(4)
$
89
Fair Value Measurements
Accounting standards establish 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), 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
All marketable debt and equity investments are classified as available-for-sale and are carried at fair value. Assets
measured at fair value on a recurring basis were as follows:
As of
2013
2012
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Cash equivalents:
Money market funds
Certificates of deposit
Commercial paper
Government securities
Short-term investments:
Corporate bonds
Government securities
Commercial paper
Certificates of deposit
Asset-backed securities
Long-term marketable
investments:
Corporate bonds
Government securities
Asset-backed securities
Marketable equity
securities
Restricted cash:
Certificates of deposit
$
$
1,188
—
—
—
1,188
— $
38
35
—
73
$
— $
—
—
—
—
1,188
38
35
—
1,261
$
2,159
—
—
—
2,159
— $
27
29
5
61
— $
—
—
—
—
2,159
27
29
5
2,220
—
—
—
—
—
—
—
—
—
6
6
—
—
112
72
26
9
2
221
302
96
95
—
493
302
302
—
—
—
—
—
—
—
—
—
—
—
—
—
112
72
26
9
2
221
302
96
95
6
499
302
302
—
—
—
—
—
—
—
—
—
5
5
—
—
31
51
10
4
4
100
203
88
73
5
369
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31
51
10
4
4
100
203
88
73
10
374
—
—
$
1,194
$
1,089
$
— $
2,283
$
2,164
$
530
$
— $
2,694
Government securities consist of securities issued directly by or deemed to be guaranteed by government entities such as
U.S and non U.S. agency securities, government bonds and treasury securities. Level 2 securities are valued using information
obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus
prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at
the measurement date. We perform supplemental analysis to validate information obtained from our pricing services. As of
August 29, 2013, no adjustments were made to such pricing information.
Fair Value Measurements on a Nonrecurring Basis
Our non-marketable securities, equity method investments, and non-financial assets such as intellectual property and
property, plant and equipment are carried at cost unless impairment is deemed to have occurred.
90
During the third quarter of 2012, the Board of Directors of Transform approved a liquidation plan. As a result, we
impaired our investment in Transform to the estimated liquidation values for its assets and liabilities measured using
unobservable inputs (Level 3). Transform's primary assets were semiconductor equipment and a manufacturing facility. The
fair values for semiconductor equipment were based on quotations obtained from equipment dealers, which consider the
remaining useful life and configuration of the equipment. Fair value for the facility was determined based on sales of similar
facilities and properties in comparable markets. Based on our valuation of Transform's net assets, we recognized an other-than-
temporary impairment charge of $69 million in equity in net income (losses) of equity method investees.
Fair Value of Financial Instruments
Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value.
The estimated fair value and carrying value of debt instruments (carrying value excludes the equity components of our
convertible notes classified in equity) were as follows:
As of
2013
2012
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Convertible notes
Elpida creditor installment payments and other notes
$
$
4,167
2,269
$
2,506
2,279
$
2,669
56
2,321
58
The fair values of our convertible debt instruments were determined based on inputs that are observable in the market or
that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on
similar debt issued by parties with credit ratings similar to ours (Level 2). The fair value of our other debt instruments was
estimated 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, including interest rates based on similar debt issued by parties with credit ratings
similar to ours (Level 2).
Equity Plans
As of August 29, 2013, we had an aggregate of 160.2 million shares of common stock reserved for the issuance of stock
options and restricted stock awards, of which 83.8 million shares were subject to outstanding awards and 76.4 million shares
were available for future awards. Awards are subject to terms and conditions as determined by our Board of Directors.
Stock Options
Our stock options are generally exercisable in increments of either one-fourth or one-third per year beginning one year
from the date of grant. Stock options issued after September 2004 generally expire six years from the date of grant. All other
options expire ten years from the grant date.
Option activity for 2013 is summarized as follows:
Outstanding at August 30, 2012
Granted
Exercised
Cancelled or expired
Outstanding at August 29, 2013
Exercisable at August 29, 2013
Expected to vest after August 29, 2013
Number of
Shares
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Life
(In Years)
Aggregate
Intrinsic Value
$
95.7
17.8
(22.8)
(19.9)
70.8
$
31.2
37.6
8.42
6.62
6.60
12.47
7.41
8.21
6.78
91
$
$
3.3
1.8
4.4
439
170
255
The weighted-average grant-date fair value per share was $3.34, $3.18 and $4.46 for options granted during 2013, 2012
and 2011, respectively. The total intrinsic value was $103 million, $6 million, and $35 million for options exercised during
2013, 2012 and 2011, respectively.
The fair values of option awards were estimated at each grant date using the Black-Scholes option valuation model. The
Black-Scholes model requires the input of assumptions, including the expected stock-price volatility and estimated option
life. The expected volatilities utilized were based on implied volatilities from traded options on our stock and on historical
volatility. The expected lives of options granted were based, in part, on historical experience and on the terms and conditions
of the options. The risk-free interest rates utilized were based on the U.S. Treasury yield in effect at each grant date. No
dividends were assumed in estimated option values. Assumptions used in the Black-Scholes model are presented below:
For the year ended
Average expected life in years
Weighted-average expected volatility
Weighted-average risk-free interest rate
2013
2012
2011
5.1
59%
0.7%
5.1
66%
0.9%
5.1
56%
1.8%
Restricted Stock and Restricted Stock Units ("Restricted Stock Awards")
As of August 29, 2013, there were 13.0 million shares of Restricted Stock Awards outstanding, of which 3.4 million were
performance-based Restricted Stock Awards. For service-based Restricted Stock Awards, restrictions generally lapse in one-
fourth increments during each year of employment after the grant date. For performance-based Restricted Stock Awards,
vesting is contingent upon meeting certain performance goals. Restricted Stock Awards activity for 2013 is summarized as
follows:
Weighted-
Average Grant
Date Fair
Value Per
Share
Number of
Shares
Outstanding at August 30, 2012
Granted
Restrictions lapsed
Cancelled
Outstanding at August 29, 2013
Expected to vest after August 29, 2013
$
9.4
6.6
(2.5)
(0.5)
13.0
11.9
$
Restricted Stock Awards granted for 2013, 2012 and 2011 were as follows:
For the year ended
Service-based awards
Performance-based awards
Weighted-average grant-date fair values per share
2013
2012
2011
5.4
1.2
6.23
$
3.9
1.9
5.43
$
$
6.87
6.23
7.06
7.29
6.49
6.41
4.4
1.2
8.72
The aggregate fair value at the lapse date of awards for which restrictions lapsed during 2013, 2012 and 2011 was $17
million, $32 million and $43 million, respectively.
92
Stock-based Compensation Expense
For the year ended
Stock-based compensation expense by caption:
Cost of goods sold
Selling, general and administrative
Research and development
Other operating (income) expense
Stock-based compensation expense by type of award:
Stock options
Restricted stock awards
2013
2012
2011
$
$
$
$
27
45
18
1
91
57
34
91
$
$
$
$
23
47
17
—
87
57
30
87
$
$
$
$
20
38
17
1
76
44
32
76
Stock-based compensation expense of $6 million and $5 million was capitalized and remained in inventory as of
August 29, 2013 and August 30, 2012, respectively. As of August 29, 2013, $136 million of total unrecognized compensation
costs, net of estimated forfeitures, related to non-vested awards was expected to be recognized through the fourth quarter of
2017, resulting in a weighted-average period of 1.2 years. Stock-based compensation expense in the above presentation does
not reflect any significant income tax benefits, which is consistent with our treatment of income or loss from our U.S.
operations. (See "Income Taxes" note.)
Employee Benefit Plans
We have employee retirement plans at our U.S. and international sites. Details of the more significant plans are discussed
as follows:
Employee Savings Plan for U.S. Employees
We have 401(k) retirement plans ("RAM Plans") under which U.S. employees may contribute up to 75% of their eligible
pay (subject to IRS annual contribution limits) to various savings alternatives, none of which include direct investment in our
common stock. We match in cash eligible contributions from employees up to 5% of the employee's annual eligible earnings.
Contribution expense for the RAM Plans was $41 million, $41 million and $26 million in 2013, 2012 and 2011, respectively.
Retirement Plans
We have pension plans in various countries worldwide. The pension plans are only available to local employees and are
generally government mandated. We have determined that these pension plans are not material for separate disclosure.
Restructure and Asset Impairments
For the year ended
Loss on impairment of MIT assets
Loss on impairment of LED assets
Loss on restructure of ST consortium agreement
Gain on termination of lease to Transform
Gain from disposition of Japan Fabrication Facility
Other
2013
2012
2011
$
$
62
33
26
(25)
—
30
126
$
$
— $
—
—
—
—
10
10
$
—
—
—
—
(54)
(21)
(75)
93
In order to optimize operations, improve efficiency and increase our focus on our core memory operations, we have
entered into various restructure activities. For 2013, restructure and asset impairment charges of $12 million, $11 million,
$11 million and $6 million were recorded by our ESG, WSG, NSG and DSG operating segments. For 2012, restructure and
asset impairment charges of $6 million and $3 million were recorded by our WSG and ESG operating segments and a gain of
$1 million was recorded by our NSG operating segment. For 2011, restructure and asset impairment charges of $23 million,
$21 million, $21 million and $4 million were recorded by our DSG, NSG, WSG and ESG operating segments. Our other
segments that do not meet the quantitative thresholds of a reportable segment are reported under All Other and recorded the
remaining restructure and asset impairment charges. (See "Segments" note.) As of August 29, 2013, we had accrued
$12 million for unpaid other restructure activities related to our workforce optimization activity. As of August 29, 2013, we do
not anticipate incurring any significant additional costs for these restructure activities.
Micron Technology Italia, S.r.l. ("MIT")
On May 3, 2013, we sold MIT, a wholly-owned subsidiary, including its 200mm wafer fabrication facility assets in
Avezzano, Italy, to LFoundry. In exchange for the shares of MIT, we received consideration from LFoundry valued at
$35 million, substantially all of which was under a 7-year, non-interest bearing term note. Under the terms of the agreements,
we assigned to LFoundry our supply agreement with Aptina for CMOS image sensors manufactured at the Avezzano facility.
The assets and liabilities of MIT, and related imager inventories, were classified as held for sale in 2013 and we recorded
an impairment loss of $62 million to write down the assets and liabilities to their estimated fair values. The fair values were
determined primarily based on the estimated fair value of proceeds from the sale to LFoundry (Level 3 fair value
measurement). The carrying values of the MIT assets and liabilities sold, after the effects of the write down, were as follows:
Other current assets
Other noncurrent assets
Accounts payable and accrued expenses
Other noncurrent liabilities
Light-emitting Diode ("LED")
$
$
75
37
(43)
(34)
35
In 2013, we discontinued the development activities of our LED operations. In connection therewith, we recognized a
charge of $33 million primarily to write down certain production assets used in the development of LED technology to the
expected proceeds from their sale. Fair value for these assets was based on quotations obtained from equipment dealers, which
consider the remaining useful life and configuration of the equipment (Level 3 fair value measurement).
STMicroelectronics S.r.l. ("ST") Consortium Agreement
In 2013, we restructured a consortium agreement with ST whereby certain assets and approximately 500 employees from
our Agrate, Italy fabrication facility were transferred to ST. The consortium agreement supports the R&D activities of us and
ST and the manufacturing of semi-finished and advanced commercial semiconductor devices. In connection therewith, we
recognized a restructure charge of $26 million for 2013, primarily from transfers of equipment.
Lease to Transform
In May 2012, the Board of Directors of Transform approved a liquidation plan. In connection therewith, Transform
terminated a lease to a portion of our manufacturing facilities in Boise, Idaho and we recognized a gain of $25 million in 2013.
94
Japan Fabrication Facility
On June 2, 2011, we sold our wafer fabrication facility in Japan (the "Japan Fab") to Tower Semiconductor Ltd. ("Tower").
Under the arrangement, Tower paid $40 million in cash, approximately 1.3 million ordinary shares of Tower (subsequent to a 1
for 15 reverse stock split on August 6, 2012), and $20 million in installment payments, which we received in 2012. The net
carrying value of assets sold and liabilities transferred to Tower on the transaction date prior to the effects of the transaction
was $23 million and we recorded a gain of $54 million (net of transaction costs of $3 million) in connection with the sale of the
Japan Fab. We also recorded a tax provision of $74 million related to the gain on the sale and to write down certain deferred
tax assets associated with the Japan Fab. In connection with the sale of the Japan Fab, we entered into a supply agreement for
Tower to manufacture products for us in the facility through approximately May 2014.
Other Restructure and Asset Impairment Activities
In order to improve efficiency, labor productivity and competitiveness, we initiated certain limited activities for workforce
optimization in 2013. In connection therewith, we incurred charges of $17 million for severance and other employee-related
costs in 2013.
In September 2013, we entered into an agreement to sell our 200mm wafer fabrication equipment in Kiryat Gat, Israel to
Intel and to terminate the related facility lease with Intel. Through a series of arrangements, Intel will continue to manufacture
wafers for us through 2014. We recognized an impairment charge of $14 million in 2013 to write down the value of these
assets to their estimated fair values. The fair value of $38 million was determined primarily based on the expected proceeds of
the sale and the fair value of a supply agreement to manufacture NOR flash memory at the facility (Level 3 fair value
measurement).
Other Operating (Income) Expense, Net
For the year ended
(Gain) loss on disposition of property, plant and equipment
Samsung patent cross-license agreement
Other
2013
2012
2011
$
$
(3) $
—
(5)
(8) $
5
—
27
32
$
$
(17)
(275)
(19)
(311)
In 2011, we entered into a 10-year patent cross-license agreement with Samsung Electronics Co. Ltd. ("Samsung"). Other
operating income for 2011 included gains of $275 million for cash received from Samsung under the agreement. The license is
a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents.
Other operating expense for 2012 included $17 million from the termination of a lease with IMFT, and a charge of $10
million to write off a receivable in connection with resolution of certain prior year tax matters.
Other Non-Operating Income (Expense), Net
For the year ended
Gain (loss) from changes in currency exchange rates
Loss on extinguishment of debt
Gain (loss) from investments
Gain from issuance of Inotera shares
Other
2013
2012
2011
$
$
(229) $
(31)
(5)
48
(1)
(218) $
(6) $
—
35
—
—
29
$
(6)
(113)
(3)
—
13
(109)
95
Loss on extinguishment of debt for 2013 resulted from the early repurchase of a portion of our 2014 Notes. Loss on
extinguishment of debt for 2011 included $111 million recognized in connection with a series of debt restructure transactions
with certain holders of our convertible notes. (See "Debt" note.)
Other non-operating income for 2011 included $15 million for the termination of our debt guarantee obligation that we
recorded in connection with our acquisition of Numonyx.
Income Taxes
For the year ended
Income (loss) before taxes, net income attributable to noncontrolling interests
and equity in net income (loss) of equity method investees:
2013
2012
2011
U.S.
Foreign
Income tax (provision) benefit:
Current:
U.S. federal
Foreign
State
Deferred:
U.S. federal
Foreign
Income tax (provision) benefit
$
$
$
$
446
839
1,285
$
$
(1,028) $
274
(754) $
— $
(17)
—
(17)
—
9
9
(8) $
14
(22)
—
(8)
—
25
25
17
$
$
257
294
551
—
(89)
(1)
(90)
—
(113)
(113)
(203)
Income tax (provision) benefit computed using the U.S. federal statutory rate reconciled to income tax (provision) benefit
was as follows:
For the year ended
U.S. federal income tax (provision) benefit at statutory rate
Change in valuation allowance
Transaction costs to acquire Elpida
Gain on acquisition of Elpida
Foreign operations
Tax credits
State taxes, net of federal benefit
Debt repurchase premium
Other
Income tax (provision) benefit
2013
2012
2011
(450) $
(370)
(38)
520
282
36
6
—
6
(8) $
264
(373)
—
—
104
2
9
—
11
17
$
$
(193)
103
—
—
(119)
17
(5)
(20)
14
(203)
$
$
96
Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for
financial reporting and income tax purposes. Deferred tax assets and liabilities consist of the following as of the end of the
periods shown below:
As of
Deferred tax assets:
Net operating loss and credit carryforwards
Property, plant and equipment
Accrued salaries, wages and benefits
Deferred income
Other
Gross deferred tax assets
Less valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Debt discount
Unremitted earnings on certain subsidiaries
Product and process technology
Other
Deferred tax liabilities
Net deferred tax assets
Reported as:
Current deferred tax assets (included in other current assets)
Noncurrent deferred tax assets
Current deferred tax liabilities (included in accounts payable and accrued expenses)
Noncurrent deferred tax liabilities (included in other noncurrent liabilities)
Net deferred tax assets
2013
2012
$
4,048
373
107
39
138
4,705
(3,215)
1,490
(294)
(126)
(74)
(14)
(508)
1,733
16
99
39
92
1,979
(1,522)
457
(182)
(111)
(61)
(38)
(392)
982
$
65
123
861
(2)
—
982
$
$
19
47
—
(1)
65
$
$
$
$
The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not
be realized. We have a valuation allowance against substantially all U.S. net deferred tax assets as well as $1.5 billion related
to our foreign subsidiaries. Elpida represents $912 million of the net deferred tax assets.
As of August 29, 2013, our federal and state net operating loss carryforwards were $4.2 billion and $2.2 billion,
respectively. If not utilized our federal and state net operating loss carryforwards will expire at various dates through 2033. As
of August 29, 2013, our federal and state tax credit carryforwards were $238 million and $203 million, respectively. If not
utilized our federal and state tax credit carryforwards will expire at various dates through 2033.
As of August 29, 2013, our foreign net operating loss carryforwards were $7.0 billion, of which $5.9 billion pertains to
Elpida. Our foreign net operating loss carryforwards will expire at various dates through 2023. We have placed a valuation
allowance against $4.7 billion of these foreign net operating loss carryforwards, of which $3.8 billion pertains to Elpida. This
partial valuation allowance against foreign net operating loss carryforwards, which is primarily attributable to Elpida, results
from our current projections of taxable income, being more likely than not, insufficient to utilize the full amount of the net
operating loss deferred tax assets.
We have approximately $67 million of net tax benefits related to excess stock compensation benefits, which are not
recorded as deferred tax assets. These excess stock compensation benefits will be credited to additional paid-in capital when
recognized. We use the "with and without" method, as described in ASC 740, for purposes of determining when excess tax
benefits have been realized.
97
The changes in valuation allowance of $1,693 million and $315 million in 2013 and 2012, respectively, are primarily due
to uncertainties of realizing certain U.S. and foreign net operating losses and certain tax credit carryforwards. Elpida represents
$1,292 million of the change in the valuation allowance during 2013.
Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend
payments from such companies are expected to result in additional tax liability. Remaining undistributed earnings of
$1.8 billion as of August 29, 2013 have been indefinitely reinvested; therefore, no provision has been made for taxes due upon
remittance of these earnings. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings
is not practicable.
Below is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
For the year ended
Beginning unrecognized tax benefits
Settlements with tax authorities
Decreases related to tax positions from prior years
Foreign currency translation increases (decreases) to tax positions
Increases related to tax positions taken during current year
Increases related to tax positions from prior years
Unrecognized tax benefits acquired in current year
Ending unrecognized tax benefits
2013
2012
2011
77
(8)
—
4
4
—
1
78
$
$
121
(29)
(14)
(9)
6
2
—
77
$
$
88
(2)
(3)
6
28
4
—
121
$
$
Included in the unrecognized tax benefits balance as of August 29, 2013, August 30, 2012 and September 1, 2011 were
$63 million, $66 million and $113 million, respectively, of unrecognized income tax benefits, which if recognized, would affect
our effective tax rate. We recognize interest and penalties related to income tax matters within income tax expense. As of
August 29, 2013, August 30, 2012 and September 1, 2011, accrued interest and penalties related to uncertain tax positions was
$16 million, $12 million and $16 million, respectively.
We are unable to reasonably estimate possible increases or decreases in uncertain tax positions that may occur within the
next 12 months due to the uncertainty of the timing of the resolution and/or closure on audits. However, we do not anticipate
any such change would be significant.
We currently operate in several tax jurisdictions where we have arrangements that allow us to compute our tax provision at
rates below the local statutory rates that expire in whole or in part at various dates through 2026. These arrangements
benefitted our tax provision in 2013, 2012 and 2011 by $141 million ($0.13 per diluted share), $52 million ($0.05 per diluted
share) and $72 million ($0.07 per diluted share), respectively.
We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states and various foreign
jurisdictions throughout the world. Our federal and state tax returns remain open to examination for 2009 through 2013. In
addition, tax years open to examination in multiple foreign taxing jurisdictions range from 2005 to 2013. We are currently
under examination in various taxing jurisdictions in which we conduct business operations. We believe that adequate amounts
of taxes and related interest and penalties have been provided for, and any adjustments as a result of the examinations are not
expected to materially adversely affect our business, results of operations or financial condition.
98
Earnings Per Share
For the year ended
2013
2012
2011
Net income (loss) available to Micron shareholders – Basic and Diluted
$
1,190
$
(1,032) $
167
Weighted-average common shares outstanding – Basic
Net effect of dilutive equity awards, convertible notes and escrow shares
Weighted-average common shares outstanding – Diluted
1,021.7
34.6
1,056.3
991.2
—
991.2
988.0
19.5
1,007.5
Earnings (loss) per share:
Basic
Diluted
$
$
1.16
1.13
(1.04) $
(1.04)
0.17
0.17
Listed below are the potential common shares, as of the end of the periods shown, that could dilute basic earnings per
share in the future that were not included in the computation of diluted earnings per share because to do so would have been
antidilutive:
For the year ended
Employee stock plans
Convertible notes
2013
2012
2011
39.9
186.0
104.8
257.6
81.4
182.7
Our 2027 Notes, 2031 Notes and 2033 Notes contain terms that upon conversion require us to settle the aggregate principal
amount in cash and the remainder of our conversion obligation amount in either shares of our common stock or cash, at our
election. Our 2014 Notes and 2032 Notes contain terms that upon conversion provide us the option to pay cash, issue shares of
common stock or any combination thereof for the aggregate amount due. It is our current intent to settle the principal amount
of the 2014 Notes and 2032 Notes in cash upon conversion. As a result of these conversion terms, the 279.8 million shares
underlying the 2014 Notes, 2027 Notes, 2031 Notes, 2032 Notes and 2033 Notes are considered in diluted earnings per share
under the treasury stock method. (See "Debt" note.)
Consolidated Variable Interest Entities
IM Flash
We partnered with Intel to form IMFT in 2006 and IMFS in 2007 to manufacture NAND Flash memory products for the
exclusive use of the members. IMFT (and IMFS prior to April 6, 2012) is governed by a Board of Managers. The number of
managers appointed by each member to the board varies based on the members' respective ownership interests. The members'
ownership percentage is based on contributions to the partnership. We have owned 51% of IMFT from inception through
August 29, 2013. Our ownership percentage of IMFS had increased from 51% at inception to 82% as of April 6, 2012 due to a
series of contributions by us that were not fully matched by Intel.
On April 6, 2012, we entered into a series of agreements with Intel to restructure IM Flash. We acquired Intel's remaining
18% interest in IMFS for $466 million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication
facility, for which Intel received a distribution from IMFT of $139 million. For both transactions, the amounts Intel received
approximated the book values of Intel's interests in the assets acquired. Additionally, we received a $300 million deposit from
Intel which may be applied either to Intel's purchases of NAND Flash under a supply agreement or, under certain
circumstances, refunded. As of August 29, 2013, $134 million of the deposit remained to be applied or refunded.
The agreements also provided for the following:
•
•
•
expansion of the scope of the IMFT joint venture to include certain emerging memory technologies;
supply of NAND Flash memory products and certain emerging memory products to Intel on a cost-plus basis and
termination of IMFS's supply agreement with us and Intel;
extension of IMFT's joint venture agreement through 2024;
99
•
•
•
certain buy-sell rights, commencing in 2015, pursuant to which Intel may elect to sell to us, or we may elect to
purchase from Intel, Intel’s interest in IMFT (if Intel so elects, we would set the closing date of the transaction within
two years following such election and could elect to receive financing from Intel for one to two years);
financing of $65 million provided by Intel to us under a two-year senior unsecured promissory note, payable with
interest in approximately equal quarterly installments (as of August 29, 2013, $25 million of the note was
outstanding); and
termination of IMFT's lease to use approximately 50% of our Virginia fabrication facility, which resulted in a charge
to other operating expense of $17 million in 2012.
The following table presents IM Flash's distributions to and contributions from its members ("IM Flash" includes both
IMFT and IMFS for all periods prior to April 6, 2012 and includes only IMFT for the period after April 6, 2012):
For the year ended
IM Flash distributions to Micron
IM Flash distributions to Intel
Micron contributions to IM Flash
Intel contributions to IM Flash
$
2013
2012
2011
$
38
37
12
11
$
439
391
151
177
234
225
1,580
—
IM Flash sells products to the joint venture members generally in proportion to their ownership interests at long-term
negotiated prices approximating cost. Due to the changes in ownership, our share of IMFS output grew from 51% in the first
quarter of 2011 to 78% in the second quarter of 2012. As a result of our restructuring of IM Flash on April 6, 2012, Intel has no
continuing rights to the output from the IMFS and Virginia facilities. Intel continues to receive output from IMFT in proportion
to its ownership interest at long-term negotiated prices approximating cost and, subsequent to April 6, 2012, also purchases
NAND Flash products from us under a cost-plus supply arrangement. Aggregate sales of NAND Flash products to Intel
(including sales by IMFT at prices approximating cost and sales by us under the cost-plus supply agreement) were
$849 million, $986 million and $884 million for 2013, 2012 and 2011, respectively. Receivables from Intel for sales of NAND
Flash products as of August 29, 2013 and August 30, 2012, were $198 million and $103 million, respectively.
As a result of changes to the timing of the passage of title in the IMFT supply agreement with Intel, effective April 6, 2012,
sales are now recognized upon completion of wafer fabrication, rather than after backend assembly and test are completed. As
a result, we sold $97 million of backend inventories, which generated a one-time increase in NAND sales and reduction in
work in process inventories in 2012.
100
The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets, excluding
intercompany balances:
As of
Assets
Cash and equivalents
Receivables
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued expenses
Deferred income
Equipment purchase contracts
Current portion of long-term debt
Total current liabilities
Long-term debt
Other noncurrent liabilities
Total liabilities
2013
2012
62
76
49
4
191
1,382
46
1,619
88
9
78
6
181
13
118
312
$
$
$
$
157
78
67
5
307
1,342
36
1,685
104
10
58
6
178
18
129
325
$
$
$
$
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Our ability to access IMFT's cash and other assets through cash dividends, loans or advances, including to finance our
other operations, is subject to agreement by Intel. Creditors of IMFT have recourse only to its assets and do not have recourse
to any other of our assets.
IM Flash manufactures NAND Flash memory products using designs and technology we develop with Intel. We generally
share product design and other NAND Flash R&D costs with Intel. The April 6, 2012 agreements with Intel expanded our
NAND Flash R&D cost-sharing agreement with Intel to include certain emerging memory technologies, but did not change the
cost-sharing percentage. R&D expenses were reduced by reimbursements from Intel of $127 million, $87 million and $95
million for 2013, 2012 and 2011, respectively.
MP Mask
In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation
semiconductors. At inception and through August 29, 2013, we owned 50.01% and Photronics owned 49.99% of MP Mask.
We contributed $21 million to MP Mask and Photronics contributed $20 million to MP Mask in 2012. In connection with the
formation of the joint venture, we 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. Deferred income and other noncurrent liabilities
included an aggregate of $19 million and $26 million as of August 29, 2013 and August 30, 2012, respectively, related to this
agreement. We purchase a substantial majority of the reticles produced by MP Mask pursuant to a supply arrangement.
Total MP Mask assets and liabilities included in our consolidated balance sheets were as follows:
As of
Current assets
Noncurrent assets (primarily property, plant and equipment)
Current liabilities
$
2013
2012
$
26
182
25
19
170
12
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
101
Creditors of MP Mask have recourse only to the assets of MP Mask and do not have recourse to any other of our assets.
Through February 24, 2012, we leased to Photronics a facility to produce photomasks under an operating lease. On
February 24, 2012, we sold the facility to Photronics for $35 million. The proceeds were equal to our net carrying value and no
gain or loss was realized from the sale.
Segment Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision
makers. Factors used to identify our segments include, among others, products, technologies and customers. We have the
following four reportable segments:
DRAM Solutions Group ("DSG"): Includes DRAM products sold to the PC, consumer electronics, networking and
server markets.
NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music
players, and the high-density computing market, as well as NAND Flash products sold to Intel through our IM Flash
joint venture.
Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip
packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and
industrial applications, as well as NOR and NAND Flash sold to consumer electronics, networking, PC and server
markets.
Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other.
Certain operating expenses directly associated with the activities of a specific reportable segment are charged to that
segment. Other indirect operating expenses (income) are generally allocated to the reportable segments based on their
respective percentage of cost of goods sold or forecasted wafer production. In 2013, we reclassified the (gains) losses from
changes in currency exchange rates from other operating (income) expense, net to other non-operating income (expense), net in
the consolidated statements of income. As a result, the (gains) losses from changes in currency exchange rates have been
reclassified out of operating income (loss) for our segments for 2012 and 2011.
We do not identify or report internally our assets or capital expenditures by segment, nor do we allocate gains and losses
from equity method investments, interest, other non-operating income or expense items or taxes to operating segments. There
are no differences in the accounting policies for segment reporting and our consolidated results of operations.
For the year ended
Net sales:
DSG
NSG
WSG
ESG
All Other
Operating income (loss):
DSG
NSG
WSG
ESG
All Other
2013
2012
2011
$
$
$
$
3,519
2,841
1,221
1,194
298
9,073
143
201
(263)
271
(116)
236
$
$
$
$
2,691
2,853
1,184
1,054
452
8,234
$
$
(494) $
205
(368)
158
(113)
(612) $
3,203
2,196
1,959
1,002
428
8,788
290
276
19
236
(60)
761
102
Depreciation and amortization expense was as follows:
For the year ended
2013
2012
2011
DSG
NSG
WSG
ESG
All Other
Depreciation and amortization expense included in operating income
(loss)
Other amortization
Total depreciation and amortization expense
Product Sales
For the year ended
DRAM
NAND Flash
NOR Flash
Other
Certain Concentrations
$
$
$
$
708
553
295
189
68
1,813
113
1,926
2013
4,361
3,589
792
331
9,073
$
$
$
$
770
651
374
211
138
2,144
78
2,222
2012
3,178
3,627
977
452
8,234
$
$
$
$
750
513
512
196
130
2,101
61
2,162
2011
3,620
3,193
1,547
428
8,788
Market concentrations as a percent of net sales were approximately as follows:
For the year ended
2013
2012
2011
Computing (including desktop PCs, servers, notebooks and workstations)
Mobile
Consumer electronics
Solid state drives
Networking and storage
30%
15%
15%
15%
10%
25%
15%
20%
10%
10%
30%
25%
15%
5%
15%
Customer concentrations included net sales to Intel of 10%, 12% and 10% for 2013, 2012 and 2011, respectively and net
sales to Hewlett-Packard Company ("HP") of 10% in 2013. Substantially all of our sales to Intel are included in the NSG
segment and substantially all of our sales to HP are included in the DSG and NSG segments.
Certain of the raw materials and production equipment we use in manufacturing semiconductor products are available from
multiple sources and in sufficient supply; however, only a limited number of suppliers are capable of delivering certain raw
materials that meet our standards. In some cases, materials are provided by a single supplier.
103
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, money market
accounts, certificates of deposit, fixed-rate debt securities, trade receivables and derivative contracts. We invest through high-
credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting
investments with any single obligor. A concentration of credit risk may exist with respect to receivables as a substantial portion
of our customers are affiliated with the computing industry. We perform ongoing credit evaluations of customers worldwide
and generally do not require collateral from our customers. Historically, we have not experienced significant losses on
receivables. A concentration of risk may also exist with respect to derivatives as the number of counterparties to our currency
and interest rate swap hedges is limited and the notional amount is relatively large. We seek to mitigate such risk by limiting
our counterparties to major financial institutions. The 2031 Capped Calls, 2032 Capped Calls and 2033 Capped Calls expose
us to credit risk to the extent the counterparties may be unable to meet the terms of the agreements. We seek to mitigate such
risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial
institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored
on an ongoing basis. (See "Shareholders' Equity – Capped Calls" note.)
Geographic Information
Geographic net sales based on customer ship-to location were as follows:
For the year ended
China
United States
Asia Pacific (excluding China, Taiwan and Malaysia)
Taiwan
Europe
Malaysia
Other
Net property, plant and equipment by geographic area were as follows:
As of
Singapore
United States
Japan
China
Taiwan
Israel
Italy
Other
2013
2012
2011
$
$
$
$
3,783
1,512
1,342
980
820
193
443
9,073
2013
3,225
3,041
615
350
307
28
18
42
7,626
$
$
$
$
2,936
1,262
1,241
1,022
827
546
400
8,234
2012
3,270
3,246
2
328
—
59
163
35
7,103
$
$
$
$
2,983
1,363
1,518
744
924
737
519
8,788
2011
3,569
3,487
1
179
—
94
190
35
7,555
104
Quarterly Financial Information (Unaudited)
(in millions except per share amounts)
2013
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Net income (loss) attributable to Micron
Earnings (loss) per share:
Basic
Diluted
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
2,843
708
207
1,710
1,708
$
2,318
556
149
43
43
$
2,078
366
(23)
(284)
(286)
1,834
217
(97)
(275)
(275)
$
1.65
1.51
$
0.04
0.04
(0.28) $
(0.28)
(0.27)
(0.27)
$
$
The results of operations for the fourth quarter of 2013 include a gain of $1,484 million for the acquisition of Elpida. The
fourth quarter of 2013 includes Elpida's results of operation from the July 31, 2013 acquisition date. (See "Acquisition of
Elpida" note.)
The results of operations for the fourth quarter of 2013 include a gain of $48 million from the issuance of shares by
Inotera, which reduced our ownership interest from 39.7% to 35.5%. (See "Equity Method Investment - Inotera" note.)
The results of operations for the fourth, third, second and first quarters of 2013 include losses of $3 million, $47 million,
$120 million and $58 million, respectively, for the Elpida Acquisition Hedges. (See "Derivatives - Elpida Acquisition Hedges"
note.)
In 2013 we took action to dispose of 200mm wafer manufacturing facilities and optimize operations including our
workforce. The results of operations for the fourth, third and second quarters of 2013 include charges of $32 million, $55
million and $60 million, respectively, for the restructure and asset impairments. The results of operations for the first quarter of
2013 included a credit of $21 million for restructure activities. (See "Restructure and Asset Impairments" note.)
The results of operations in the second quarter of 2013 included a loss of $31 million loss on extinguishment of debt. (See
"Debt - Debt Restructure" note.)
2012
Net sales
Gross margin
Operating loss
Net loss
Net loss attributable to Micron
Loss per share:
Basic
Diluted
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
1,963
219
(149)
(242)
(243)
$
2,172
234
(188)
(320)
(320)
$
2,009
210
(204)
(282)
(282)
2,090
305
(71)
(187)
(187)
(0.24) $
(0.24)
(0.32) $
(0.32)
(0.29) $
(0.29)
(0.19)
(0.19)
$
$
As a result of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and
demand conditions, on May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As a result of the
liquidation plan, we recognized a charge of $69 million in the third quarter of 2012. (See "Equity Method Investment - Other -
Transform" note.)
On March 23, 2012, we entered into a settlement agreement with Oracle pursuant to which we agreed to make a payment
of $58 million to Oracle for a settlement and full release of all claims and a dismissal with prejudice of their suit against us.
The settlement amount was accrued and charged to operations in the second quarter of 2012.
105
Income taxes for the third quarter of 2012 included a tax benefits of $42 million related to the favorable resolution of a
certain prior year tax matter, which was previously reserved as an uncertain tax position.
106
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Micron Technology, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8 present fairly, in
all material respects, the financial position of Micron Technology, Inc. and its subsidiaries at August 29, 2013 and August 30,
2012, and the results of their operations and their cash flows for each of the three years in the period ended August 29, 2013 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of August 29, 2013, based on criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial
statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial
Reporting appearing in Item 9A. Our responsibility is to express opinions on these financial statements, on the financial
statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting appearing in Item 9A, management has
excluded Elpida Memory, Inc. (“Elpida”) and its subsidiaries, including Rexchip Electronics Corporation from its assessment
of internal control over financial reporting as of August 29, 2013 because it was acquired by the Company in a purchase
business combination on July 31, 2013. We have also excluded Elpida and its subsidiaries from our audit of internal control
over financial reporting. Elpida and its subsidiaries are consolidated entities whose total assets and total revenues represent
27% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended August 29,
2013.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
October 28, 2013
107
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, of the effectiveness of the design and operation of our 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 us in the reports
that we file or submit under the Exchange Act are 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 our
management, including the principal executive officer and principal financial officer, to allow timely decision regarding
disclosure.
During the fourth quarter of 2013, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that in reasonable detail accurately reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance regarding the prevention or detection of
misstatements because of inherent limitations. These inherent limitations are known by management and considered in the
design of our internal control over financial reporting which reduce, though not eliminate, this risk.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in "Internal Control – Integrated Framework" (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of August 29, 2013. The effectiveness of our internal control over financial reporting as of August 29, 2013 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which
is included in Part II, Item 8, of this Form 10-K.
Management's evaluation of the effectiveness of its internal control over financial reporting as of August 29, 2013
excluded Elpida Memory, Inc. ("Elpida") and its subsidiaries, including Rexchip Electronics Corporation from its assessment of
internal control over financial reporting as of August 29, 2013 because it was acquired by us in a purchase business
combination on July 31, 2013. Elpida and its subsidiaries are consolidated entities whose total assets and total revenues
represent 27% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended
August 29, 2013.
ITEM 9B. OTHER INFORMATION
None.
108
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Certain information concerning our executive officers is included under the caption, "Directors and Executive Officers of
the Registrant," in Part I, Item 1 of this report. Other information required by Items 10, 11, 12, 13 and 14 will be contained in
our Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days after August 29, 2013
and is incorporated herein by reference.
109
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
PART IV
1.
2.
3.
Exhibit
Number
1.4
1.5
2.1*
2.2*
2.3*
2.4*
2.5
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
Financial Statements: See Index to Consolidated Financial Statements under Item 8.
Certain Financial Statement Schedules have been omitted since they are either not required, not applicable or
the information is otherwise included.
Exhibits.
Description of Exhibit
Purchase Agreement dated as of April 12, 2012, by and among Micron Technology, Inc. and Morgan Stanley
& Co. LLC and J.P. Morgan Securities, LLC, as representatives of the initial purchasers (1)
Purchase Agreement, dated as of February 6, 2013, by and among Micron Technology, Inc. and Morgan
Stanley & Co. LLC, J.P. Morgan Securities LLC and Goldman, Sachs & Co., as representatives of the initial
purchasers (2)
English Translation of Agreement on Support for Reorganization Companies with Nobuaki Kobayashi and
Ykio Sakamoto, the trustees of Elpida Memory, Inc. and its wholly-owned subsidiary, Akita Elpida Memory,
Inc. dated July 2, 2012 (3)
Share Purchase Agreement dated July 2, 2012, among Micron Technology, Inc., Micron Semiconductor B.V,
Powerchip Technology Corporation, Li-Hsin Investment Co. Ltd., Quantum Vision Corporation, Maxchip
Electronics Corporation and Dr. Frank Huang (4)
English Translation of Agreement Amending Agreement on Support for Reorganization Companies, dated
October 29, 2012, by and among Micron Technology, Inc. and Nobuaki Kobayashi and Yukio Sakamoto, the
trustees of Elpida Memory, Inc. and Akita Elpida Memory, Inc. (5)
English Translation of Agreement Amending Agreement on Support for Reorganization Companies, dated
July 31, 2013, by and among Micron Technology, Inc. and Nobuaki Kobayashi and Yukio Sakamoto, the
trustees of Elpida Memory, Inc. and Akita Elpida Memory, Inc. (6)
English Translation of the Reorganization Plan of Elpida Memory, Inc. (6)
Restated Certificate of Incorporation of the Registrant (7)
Bylaws of the Registrant, as amended (8)
Indenture dated November 3, 2010, by and between Micron Technology, Inc. and Wells Fargo Bank, National
Association (9)
Indenture dated as of April 18, 2012, by and between Micron Technology, Inc. and U.S. Bank National
Association, as Trustee for 2.375% Convertible Senior Notes due 2032 (1)
Indenture dated as of April 18, 2012, by and between Micron Technology, Inc. and U.S. Bank National
Association, as Trustee for 3.125% Convertible Senior Notes due 2032 (1)
Form of 2032C Note (included in Exhibit 4.2) (1)
Form of 2032D Note (included in Exhibit 4.3) (1)
Indenture dated as of May 23, 2007, by and between Micron Technology, Inc. and Wells Fargo Bank,
National Association, as trustee (10)
Convertible Senior Indenture between the Company and Wells Fargo Bank, National Association, dated as of
April 15, 2009 (11)
Form of 4.25% Convertible Senior Note due October 15, 2013 (included in Exhibit 4.7) (11)
Indenture dated July 26, 2011, by and between Micron Technology, Inc. and U.S. Bank National Association,
as Trustee for 1.50% Convertible Senior Notes due 2031 (12)
Indenture dated July 26, 2011, by and between Micron Technology, Inc. and U.S. Bank National Association,
as Trustee for 1.875% Convertible Senior Notes due 2031 (12)
Form of 2031A Note (included in Exhibit 4.9) (12)
Form of 2031B Note (included in Exhibit 4.10) (12)
Indenture, dated as of February 12, 2013, by and between Micron Technology, Inc. and U.S. Bank National
Association, as trustee (2)
Indenture, dated as of February 12, 2013, by and between Micron Technology, Inc. and U.S. Bank National
Association, as trustee (2)
110
4.15
4.16
10.1
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27
10.28
10.29
10.36*
10.38*
10.40*
10.41*
10.42*
10.43*
10.44*
10.45
10.46
10.47
10.48
Form of 2033E Note (included in Exhibit 4.11) (2)
Form of 2033F Note (included in Exhibit 4.12) (2)
Executive Officer Performance Incentive Plan, as Amended (13)
1994 Stock Option Plan, as Amended (13)
1994 Stock Option Plan Form of Agreement and Terms and Conditions (14)
1997 Nonstatutory Stock Option Plan, as Amended (4)
1998 Non-Employee Director Stock Incentive Plan, as Amended (13)
1998 Nonstatutory Stock Option Plan, as Amended (4)
2001 Stock Option Plan, as Amended (4)
2001 Stock Option Plan Form of Agreement (15)
2002 Employment Inducement Stock Option Plan, as Amended (13)
2004 Equity Incentive Plan, as Amended (16)
2004 Equity Incentive Plan Forms of Agreement and Terms and Conditions (17)
Nonstatutory Stock Option Plan, as Amended (4)
Nonstatutory Stock Option Plan Form of Agreement and Terms and Conditions (14)
Lexar Media, Inc. 2000 Equity Incentive Plan, as Amended (13)
Patent License Agreement dated September 15, 2006, by and among Toshiba Corporation, Acclaim
Innovations, LLC and Micron Technology, Inc. (18)
Omnibus Agreement dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation
(17)
Limited Liability Partnership Agreement dated as of February 27, 2007, between Micron Semiconductor Asia
Pte. Ltd. And Intel Technology Asia Pte. Ltd. (17)
Supply Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. And IM
Flash Singapore, LLP (17)
Amended and Restated Limited Liability Company Operating Agreement of IM Flash Technologies, LLC
dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation (17)
Supply Agreement dated as of February 27, 2007, between Intel Technology Asia Pte. Ltd. and IM Flash
Singapore, LLP (17)
Form of Indemnification Agreement between the Registrant and its officers and directors (19)
Form of Severance Agreement between the Company and its officers (20)
Form of Agreement and Amendment to Severance Agreement between the Company and its officers (21)
Master Agreement dated as of November 18, 2005, between Micron Technology, Inc. and Intel Corporation
(22)
Manufacturing Services Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM
Flash Technologies, LLC (22)
MTV Lease Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash
Technologies, LLC (22)
Product Designs Assignment Agreement dated January 6, 2006, between Intel Corporation and Micron
Technology, Inc. (22)
NAND Flash Supply Agreement, effective as of January 6, 2006, between Apple Computer, Inc. and Micron
Technology, Inc. (22)
Supply Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash
Technologies, LLC (22)
Supply Agreement dated as of January 6, 2006, between Intel Corporation and IM Flash Technologies, LLC
(22)
Capped Call Confirmation (Reference No. CEODL6) by and between Micron Technology, Inc. and Morgan
Stanley & Co. International plc (10)
Capped Call Confirmation (Reference No. 53228800) by and between Micron Technology, Inc. and Credit
Suisse International (10)
Capped Call confirmation (Reference No. 53228855) by and between Micron Technology, Inc. and Credit
Suisse International (10)
Amended and Restated 2007 Equity Incentive Plan
111
10.49
10.50
10.51*
10.52*
10.54*
10.55*
10.56*
10.58*
10.60
10.61
10.62
10.63
10.64
10.66*
10.67
10.69
10.70
10.71*
10.72*
10.73*
10.74*
10.75*
10.76*
10.77*
10.78*
10.81
10.82
10.83
2007 Equity Incentive Plan Forms of Agreement (23)
Severance Agreement dated April 9, 2008, between Micron Technology, Inc. and Ronald C. Foster (24)
Master Agreement dated as of April 21, 2008, by and between Nanya Technology Corporation and Micron
Technology, Inc. (25)
Joint Venture Agreement dated as of April 21, 2008, by and between Micron Semiconductor B.V. and Nanya
Technology Corporation (25)
Joint Development Program Agreement dated as of April 21, 2008, by and between Nanya Technology
Corporation and Micron Technology, Inc. (25)
Technology Transfer and License Agreement for 68-50nm Process Nodes, dated as of April 21, 2008, by and
between Micron Technology, Inc. and Nanya Technology Corporation (25)
Technology Transfer and License Agreement dated as of April 21, 2008, by and between Micron Technology,
Inc. and Nanya Technology Corporation (25)
Technology Transfer Agreement dated as of May 13, 2008, by and among Nanya Technology Corporation,
Micron Technology, Inc. and MeiYa Technology Corporation (25)
Micron Guaranty Agreement, dated April 21, 2008, by and between Nanya Technology Corporation and
Micron Semiconductor B.V. (25)
TECH Facility Agreement dated March 31, 2008, among TECH Semiconductor Singapore Pte. Ltd. And
ABN Amro Bank N.V., Citibank, N.A., Singapore Branch, Citigroup Global Markets Singapore Pte Ltd.,
DBS Bank Ltd and Oversea-Chinese Banking Corporation Limited, as Original Mandated Lead Arrangers
(25)
Guarantee dated March 31, 2008, by Micron Technology, Inc. as Guarantor in favor of ABN Amro Bank
N.V., Singapore Branch acting as Security Trustee (25)
Form of Severance Agreement (26)
Lexar Media, Inc. 1996 Stock Option Plan, as Amended (13)
Loan Agreement dated November 26, 2008, by and among Micron Semiconductor B.V., Micron Technology,
Inc., and Nan Ya Plastics Corporation (13)
Loan Agreement dated November 26, 2008, by and between Micron Technology, Inc. and Inotera Memories,
Inc. (13)
Micron Guaranty Agreement, dated November 26, 2008, by Micron Technology, Inc. in favor of Nanya
Technology Corporation (13)
Share Purchase Agreement by and among Micron Technology, Inc. as the Buyer Parent, Micron
Semiconductor B.V., as the Buyer, Qimonda Ag as the Seller Parent and Qimonda Holding B.V., as the Seller
Sub dated as of October 11, 2008 (13)
Master Agreement dated November 26, 2008, among Micron Technology, Inc., Micron Semiconductor B.V.,
Nanya Technology Corporation, MeiYa Technology Corporation and Inotera Memories, Inc. (13)
Joint Venture Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V. and Nanya
Technology Corporation (13)
Facilitation Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V., Nanya
Technology Corporation and Inotera Memories, Inc. (13)
Supply Agreement dated November 26, 2008, by and among Micron Technology, Inc., Nanya Technology
Corporation and Inotera Memories, Inc. (13)
Amended and Restated Joint Development Program Agreement dated November 26, 2008, by and between
Nanya Technology Corporation and Micron Technology, Inc. (13)
Amended and Restated Technology Transfer and License Agreement, dated November 26, 2008, by and
between Micron Technology, Inc. and Nanya Technology Corporation (13)
Technology Transfer Agreement dated November 26, 2008, by and among Nanya Technology Corporation,
Micron Technology, Inc. and Inotera Memories, Inc. (13)
Technology Transfer Agreement for 68-50nm Process Nodes, dated October 11, 2008, by and between
Micron Technology, Inc. and Inotera Memories, Inc. (13)
Capped Call Confirmation (Reference No. SDB 1630322480) dated as of April 8, 2009, by and between
Micron Technology, Inc. and Goldman, Sachs & Co. (27)
Capped Call Confirmation (Reference No. CGPWK6) dated as of April 8, 2009, by and between Micron
Technology, Inc. and Morgan Stanley & Co International plc (27)
Capped Call Confirmation (Reference No. 325758) dated as of April 8, 2009, by and between Micron
Technology, Inc. and Deutsche Bank AG, London Branch (27)
112
10.84
10.85
10.86
10.87*
10.88
10.89*
10.90
10.91*
10.92*
10.93
10.94*
10.99
10.100
10.101
10.102
10.103
10.104*
10.105*
10.107*
10.108*
10.109*
10.110*
10.111*
10.112*
10.113*
Amendment Agreement, dated September 25, 2009, to TECH Facility Agreement dated March 31, 2008,
among TECH Semiconductor Singapore Pte. Ltd. And ABN Amro Bank N.V., Citibank, N.A., Singapore
Branch, Citigroup Global Markets Singapore Pte Ltd, DBS Bank Ltd and Oversea-Chinese Banking
Corporation Limited, as Original Mandated Lead Arrangers (28)
Supplemental Deed dated September 25, 2009, to Guarantee, dated March 31, 2008, by Micron Technology,
Inc. as Guarantor in favor of ABN Amro Bank N.V., Singapore Branch acting as Security Trustee (28)
Loan Agreement dated as of November 25, 2009, by and among Micron Semiconductor B.V., Micron
Technology, Inc., and Mai Liao Power Corporation (29)
Amended and Restated Joint Venture Agreement between Micron Semiconductor, B.V. and Nanya
Technology Corporation dated January 11, 2010 (30)
Share Purchase Agreement among Micron Technology, Inc., Micron Semiconductor, B.V., Intel Corporation,
Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash, LLC dated
February 9, 2010 (30)
Framework Agreement among Micron Technology, Inc., STMicroelectronics N.V. and Numonyx B.V. dated
February 9, 2010 (30)
Stockholder Rights and Restrictions Agreement by and among Micron Technology, Inc., Intel Corporation,
Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash LLC, dated
as of May 7, 2010 (31)
Second Amended and Restated Technology Transfer and License Agreement between MTI and Nanya
Technology Corp. (NTC) dated July 2, 2010 (32)
Joint Development Program and Cost Sharing Agreement between MTI and Nanya Technology Corp. (NTC)
dated July 2, 2010 (32)
Equity Transfer Agreement between Numonyx B.V. and Hynix dated July 29, 2010 (32)
Guarantee, Charge and Deposit Document between Numonyx B.V. and DBS Bank Ltd. dated August 31,
2010 (32)
Numonyx Holdings B.V. Equity Incentive Plan (33)
Numonyx Holdings B.V. Equity Incentive Plan Forms of Agreement (33)
Purchase Agreement dated July 20, 2011, between Micron Technology, Inc. and Morgan Stanley & Co. LLC,
as representative of the initial purchasers (12)
Form of Capped Call Confirmation dated as of July 20, 2011, between the Company and Société Genérale
(34)
Form of Capped Call Confirmation dated as of July 22, 2011 (34)
2012 Master Agreement by and among Intel Corporation, Intel Technology Asia PTE LTD, Micron
Technology, Inc., Micron Semiconductor Asia PTE LTD, IM Flash Technologies, LLC and IM Flash
Singapore, LLP dated February 27, 2012 (35)
IMFS Business Sale Agreement by and among Intel Technology Asia PTE LTD, Micron Semiconductor Asia
PTE LTD and IM Flash Singapore, LLP dated February 27, 2012 (35)
MTV Asset Purchase and Sale Agreement dated April 6, 2012, among Micron Technology, Inc., Intel
Corporation and IM Flash Technologies, LLC (36)
Second Amended and Restated Limited Liability Company Operating Agreement of IM Flash Technologies,
LLC dated April 6, 2012, between Micron Technology, Inc. and Intel Corporation (37)
Amendment to the Master Agreement dated April 6, 2012, between Intel Corporation and Micron
Technology, Inc. (37)
Amended and Restated Supply Agreement dated April 6, 2012, between Intel Corporation and IM Flash
Technologies, LLC (37)
Amended and Restated Supply Agreement dated April 6, 2012, between Micron Technology, Inc. and IM
Flash Technologies, LLC (37)
Product Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and
Micron Semiconductor Asia PTE LTD (37)
Wafer Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and Micron
Singapore (37)
10.114*
Deposit Agreement dated April 6, 2012, between Micron Technology, Inc. and Intel Corporation (37)
10.115
First Amendment to the Limited Liability Partnership Agreement dated April 6, 2012, between Micron
Semiconductor Asia PTE LTD and Intel Technology PTE LTD (37)
10.116
Form of Capped Call Confirmation (1)
113
10.117
10.118
10.119
10.120
10.121
10.122*
10.123*
10.124*
10.125
10.126*
10.127*
10.128*
10.129*
10.130*
10.131
10.132
10.133
10.134
10.135
10.136
10.137
10.138
10.139*
10.140*
10.141*
Currency Exchange Confirmation (Ref. No. SBD3616575404-3537679183) dated July 3, 2012, by and
between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc. (4)
Currency Exchange Confirmation (Ref. No. SBD3616575406-3537683027) dated July 3, 2012, by and
between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc. (4)
Currency Exchange Confirmation (Ref. No. SBD3616575405-3537682647) dated July 3, 2012, by and
between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc. (4)
Currency Exchange Confirmation (Ref. No. 8000031078419 (LHFCZGIJ00)) dated July 2, 2012, by and
between Micron Technology, Inc. and JPMorgan Chase Bank, N.A. (4)
Currency Exchange Confirmation (Ref. No.8878658 / 578383) dated July 11, 2012, by and between Micron
Technology, Inc. and HSBC Bank USA, N.A. (4)
Supply Agreement, dated January 17, 2013, by and among Micron Technology, Inc., Micron Semiconductor
Asia Pte. Ltd. and Inotera Memories, Inc. (38)
Joint Venture Agreement, dated January 17, 2013, by and among Micron Semiconductor B.V., Numonyx
Holdings B.V., Micron Technology Asia Pacific, Inc. and Nanya Technology Corporation (38)
Facilitation Agreement, dated January 17, 2013, by and among Micron Semiconductor B.V., Numonyx
Holdings B.V., Micron Technology Asia Pacific, Inc., Nanya Technology Corporation and Inotera Memories,
Inc. (38)
Micron Guaranty Agreement, dated January 17, 2013, by Micron Technology, Inc. in favor of Nanya
Technology Corporation (38)
Technology Transfer and License Option Agreement for 20NM Process Node, dated January 17, 2013, by
and between Micron Technology, Inc. and Nanya Technology Corporation (39)
Omnibus IP Agreement, dated January 17, 2013, by and between Nanya Technology Corporation and Micron
Technology, Inc. (38)
Second Amended and Restated Technology Transfer and License Agreement for 68-50NM Process Nodes,
dated January 17, 2013, by and between Micron Technology, Inc. and Nanya Technology Corporation (39)
Third Amended and Restated Technology Transfer and License Agreement, dated January 17, 2013, by and
between Micron Technology, Inc. and Nanya Technology Corporation (38)
Omnibus IP Agreement, dated January 17, 2013, by and between Micron Technology, Inc. and Inotera
Currency Option Transaction 590297603-2 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (38)
Currency Option Transaction 590297603-2 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Currency Option Transaction 590297604-2 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Currency Option Transaction 590297605-2 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Currency Option Transaction 590332910-1 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Currency Option Transaction 590332913-1 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Currency Option Transaction 590332916-1 Trade Date March 26, 2013, by and between Micron Technology,
Inc. and Deutsche Bank AG, London Branch (36)
Foreign Exchange Forward and Currency Option Transactions (Ref. No. 5371036; 5371039) dated March 26,
2013, by and between Micron Technology, Inc. and Morgan Stanley Bank, N.A. (36)
Currency Exchange Confirmation (Ref. No. SDB2634749868-2634749919) dated March 26, 2013, by and
between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc.
(36)
English Translation of Front-End Manufacturing Supply Agreement, dated July 31, 2013, by and between
Micron Semiconductor Asia Pte. Ltd. and Elpida Memory, Inc. (40)
English Translation of Research and Development Engineering Services Agreement, dated July 31, 2013, by
and between Micron Technology, Inc. and Elpida Memory, Inc. (6)
English Translation of General Services Agreement, dated July 31, 2013, by and between Micron
Semiconductor Asia Pte. Ltd. and Elpida Memory, Inc. (40)
10.142
Form of Capped Call Confirmation (2)
21.1
23.1
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
114
23.2
31.1
31.2
32.1
32.2
99.1
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Chief Financial Officer
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
Financial Statements of Inotera Memories, Inc. as of December 31, 2011 and 2012 and for each of the years
in the three-year period ended December 31, 2012.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
_______________
115
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
Incorporated by reference to Current Report on Form 8-K dated April 12, 2012
Incorporated by reference to Current Report on Form 8-K dated February 6, 2013
Incorporated by reference to Current Report on Form 8-K/A dated July 2, 2012, and filed October 31, 2012
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 30, 2012
Incorporated by reference to Current Report on Form 8-K dated October 29, 2012
Incorporated by reference to Current Report on Form 8-K dated July 31, 2013
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2001
Incorporated by reference to Current Report on Form 8-K dated July 17, 2013
Incorporated by reference to Current Report on Form 8-K dated November 3, 2010
Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
Incorporated by reference to Current Report on Form 8-K dated April 15, 2009
Incorporated by reference to Current Report on Form 8-K dated July 26, 2011
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 2008
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 3, 2005
Incorporated by reference to Current Report on Form 8-K dated April 3, 2005
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-190010)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2007
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006
Incorporated by reference to Proxy Statement for the 1986 Annual Meeting of Shareholders
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 28, 2003
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1997
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 1, 2005
Incorporated by reference to Registration Statement on Form S-8 (Registration No. 333-148357)
Incorporated by reference to Current Report on Form 8-K dated April 9, 2008
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 29, 2008
Incorporated by reference to Current Report on Form 8-K dated October 26, 2007
Incorporated by reference to Current Report on Form 8-K dated April 8, 2009
Incorporated by reference to Current Report on Form 8-K dated September 25, 2009
Incorporated by reference to Current Report on Form 8-K dated November 25, 2009
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 4, 2010
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended June 3, 2010
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 2, 2010
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-167536)
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 1, 2011
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2012
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 30, 2013
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2012
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2013
Incorporated by reference to Quarterly Report on Form 10-Q/A Amendment 2 for the fiscal quarter ended
February 28, 2013
Incorporated by reference to Current Report on Form 8-K/A dated July 31, 2013, and filed October 2, 2013
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.
116
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Boise, State of Idaho, on the
28th day of October 2013.
Micron Technology, Inc.
By:
/s/ Ronald C. Foster
Ronald C. Foster
Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ D. Mark Durcan
(D. Mark Durcan)
/s/ Ronald C. Foster
(Ronald C. Foster)
/s/ Robert L. Bailey
(Robert L. Bailey)
/s/ Richard M. Beyer
(Richard M. Beyer)
/s/ Patrick J. Byrne
(Patrick J. Byrne)
/s/ Warren East
(Warren East)
/s/ Mercedes Johnson
(Mercedes Johnson)
Title
Date
Chief Executive Officer
(Principal Executive Officer)
October 28, 2013
October 28, 2013
Vice President of Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Director
October 28, 2013
Director
October 28, 2013
Director
October 28, 2013
Director
October 28, 2013
Director
October 28, 2013
/s/ Lawrence N. Mondry
(Lawrence N. Mondry)
Director
October 28, 2013
/s/ Robert E. Switz
(Robert E. Switz)
Chairman of the Board
Director
October 28, 2013
117
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
For the year ended
Net sales
Cost of goods sold
Gross margin
Selling, general and administrative
Research and development
Other operating (income) expense, net
Operating income (loss)
Gain on acquisition of Elpida
Interest income and (expense), net
Other non-operating income (expense), net
Income tax (provision) benefit
Equity in earnings (loss) of subsidiaries
Equity in net loss of equity method investees
Net income (loss) attributable to Micron
Other comprehensive income (loss)
Comprehensive income (loss) attributable to Micron
$
August 29,
2013
August 30,
2012
September 1,
2011
$
$
4,404
3,721
683
$
4,590
4,194
396
6,141
5,338
803
213
761
(376)
205
—
(92)
(97)
16
(48)
244
(45)
167
121
288
238
921
77
(553)
1,484
(189)
(248)
494
(1)
703
(6)
1,190
(17)
1,173
$
281
917
18
(820)
—
(160)
17
(963)
8
29
(106)
(1,032)
(52)
(1,084) $
See accompanying notes to condensed financial statements.
118
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED BALANCE SHEETS
(in millions except par value amounts)
As of
Assets
Cash and equivalents
Short-term investments
Receivables
Notes and accounts receivable from subsidiaries
Finished goods
Work in process
Raw materials and supplies
Other current assets
Total current assets
Investment in subsidiaries
Long-term marketable investments
Noncurrent notes receivable from and prepaid expenses to subsidiaries
Property, plant and equipment, net
Equity method investments
Other noncurrent assets
Total assets
Liabilities and equity
Accounts payable and accrued expenses
Short-term debt and accounts payable to subsidiaries
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Micron shareholders' equity:
Common stock, $0.10 par value, 3,000 shares authorized, 1,044.4 shares issued and
outstanding (1,017.7 as of August 30, 2012)
Other equity
Total Micron shareholders' equity
Total liabilities and equity
See accompanying notes to condensed financial statements.
119
August 29,
2013
August 30,
2012
$
$
$
$
$
$
$
1,202
221
159
826
88
332
43
30
2,901
7,465
499
573
1,613
12
472
13,535
650
416
646
44
1,756
2,438
199
4,393
2,012
100
210
1,278
96
333
65
31
4,125
4,722
374
738
1,876
20
444
12,299
721
557
154
83
1,515
2,781
303
4,599
104
9,038
9,142
13,535
$
102
7,598
7,700
12,299
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
For the year ended
Net cash (used in) provided by operating activities
August 29,
2013
August 30,
2012
September 1,
2011
$
(347) $
(48) $
123
Cash flows from investing activities
Purchases of available-for-sale securities
Cash paid for the acquisition of Elpida
Expenditures for property, plant, and equipment
Payments to settle hedging activities
Loan to equity method investee
Expenditures for intangible assets
Cash contributions to subsidiaries
Additions to equity method investments
Cash paid to terminate lease to IMFT
Acquisition of additional interest in subsidiaries
Proceeds from repayment of loans to subsidiaries, net
Proceeds from sales and maturities of available-for-sale securities
Cash distributions from subsidiaries
Proceeds from sales of property, plant and equipment
Proceeds from settlement hedging activities
Other
Net cash used for investing activities
Cash flows from financing activities
Proceeds from issuance of debt
Proceeds from issuance of common stock
Proceeds from equipment sale-leaseback transactions
Cash received for capped call transactions
Repayments of debt
Payments on equipment purchase contracts
Cash paid for capped call transactions
Payments of licensing obligations
Debt issuance costs, net
Cash paid to purchase common stock
Other
Net cash provided by (used for) financing activities
(924)
(596)
(281)
(256)
(45)
(34)
(23)
—
—
—
851
678
38
38
38
9
(507)
693
150
126
24
(777)
(73)
(48)
(31)
(17)
(5)
2
44
(559)
—
(682)
(51)
—
(40)
(84)
(17)
(107)
—
556
151
499
63
26
(28)
(273)
1,113
5
439
—
(117)
(41)
(103)
(18)
(21)
(6)
—
1,251
(29)
—
(421)
(30)
—
(45)
(767)
(31)
—
(159)
206
1
234
120
54
(10)
(877)
690
28
202
—
(557)
(51)
(57)
(29)
(20)
(163)
—
43
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of period
Cash and equivalents at end of period
(810)
2,012
1,202
$
930
1,082
2,012
$
(711)
1,793
1,082
$
See accompanying notes to condensed financial statements.
120
MICRON TECHNOLOGY, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
(All tabular amounts in millions)
Basis of Presentation
Micron Technology, Inc., ("Micron") a Delaware corporation, was incorporated in 1978. Micron is the parent company of
it's consolidated subsidiaries and, together with it's consolidated subsidiaries, is one of the world's leading providers of
advanced semiconductor solutions.
These condensed financial statements have been prepared on a parent-only basis. Under this parent-only presentation,
Micron's investments in its consolidated subsidiaries are presented under the equity method of accounting. In accordance with
Rule 12-04 of Regulation S-X, these parent-only financial statements do not include all of the information and footnotes
required by Generally Accepted Accounting Principles (GAAP) in the United States (U.S.) for annual financial statements.
Because these parent-only financial statements and notes do not include all of the information and footnotes required by GAAP
in the U.S. for annual financial statements, these parent-only financial statements and other information included should be
read in conjunction with Micron's audited Consolidated Financial Statements contained within Part II, Item 8 of this Form 10-K
for the year ended August 29, 2013.
Long-Term Debt
As of
Capital lease obligations
2014 convertible senior notes
2027 convertible senior notes
2031A convertible senior notes
2031B convertible senior notes
2032C convertible senior notes
2032D convertible senior notes
2033E convertible senior notes
2033F convertible senior notes
Intel senior note
Less current portion
2013
2012
553
465
147
277
253
463
369
272
260
25
3,084
646
2,438
$
$
556
860
141
265
243
451
361
—
—
58
2,935
154
2,781
$
$
Micron' senior notes are unsecured obligations ranking equally in right of payment with all of Micron's other existing and
future unsecured indebtedness, and are effectively subordinated to all of Micron's other existing and future secured
indebtedness, to the extent of the value of the assets securing such indebtedness. The convertible notes and the Intel note of
Micron are structurally subordinated to $1,863 million of other notes payable of its subsidiaries and capital lease obligations.
MTI guarantees certain debt obligations of its subsidiaries. MTI does not guarantee the Elpida creditor installment payments.
As of August 29, 2013, Micron had guaranteed $701 million of debt obligations of its subsidiaries. Micron's guarantees of its
subsidiary debt obligations are unsecured obligations ranking equally in right of payment with all of its other existing and
future unsecured indebtedness.
121
Capital Lease Obligations
We have various capital lease obligations due in periodic installments with a weighted-average remaining term of 2.9 years
and weighted-average effective interest rates of 4.7% as of August 29, 2013 and 4.8% as of August 30, 2012. In 2013, we
received $126 million in proceeds from equipment sale-leaseback transactions and as a result recorded capital lease obligations
aggregating $126 million at a weighted-average effective interest rate of 4.3%, payable in periodic installments through July,
2017. In 2012, we received $439 million in proceeds from equipment sale-leaseback transactions and as a result recorded
capital lease obligations aggregating $439 million at a weighted-average effective interest rate of 4.1%, payable in periodic
installments through August, 2016.
As of August 29, 2013 and August 30, 2012, production equipment with a carrying value of $458 million and $491 million,
respectively, was collateral for Micron's capital leases.
Convertible Senior Notes and Intel Senior Note
For further information, see "Item 8. Financial Statements and Supplementary Data – Debt" to Micron's consolidated
financial statements.
Maturities of Notes Payable and Future Minimum Lease Payments
As of August 29, 2013, maturities of notes payable and future minimum lease payments under capital lease obligations
were as follows:
As of August 29, 2013
2014
2015
2016
2017
2018
2019 and thereafter
Discounts and interest, respectively
Commitments
Notes
Payable
Capital Lease
Obligations
$
510
$
—
—
175
645
1,645
(444)
2,531
$
$
181
180
200
30
3
8
(49)
553
Micron has various financial guarantees which are issued in the normal course of business on behalf of its subsidiaries.
These contracts include debt guarantees and guarantees on certain banking facilities. Micron enters into these arrangements to
facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. Micron has
entered into agreements covering purchases or sales, as applicable, by Micron or any of its subsidiaries, and occasionally
Micron may be required to perform under such agreements on behalf of its subsidiaries.
As of August 29, 2013, the maximum potential amount of future payments Micron could have been required to make under
its debt guarantees was approximately $705 million. Substantially all of this amount relates to guarantees for debt of wholly-
owned entities whereby Micron would be obligated to perform under the guarantee if a subsidiary were to default on the terms
of their debt arrangements. In the event of performance under the guarantee, Micron would be permitted to seek
reimbursement from the subsidiary company(s) through liquidation of the assets collateralized by the various debt instruments.
At the time these contracts were entered into, the collateralized assets approximated the value of the outstanding guarantees.
The majority of these guarantees expire at various times between December, 2014 and January, 2018. Micron also guarantees
credit facilities that provide for up to $408 million of additional financing. As of August 29, 2013, no amounts had been drawn
under these credit facilities.
122
Micron guarantees certain banking facilities for its wholly-owned consolidated entities. Substantially all of these
guarantees relate to bank overdraft protections. The maximum potential amount of future payments Micron could be required
to make under these guarantees varies based on the extent of potential overdrafts. Micron's business processes substantially
mitigate the risk of wholly-owned subsidiaries over drafting their bank accounts. The majority of these guarantees have no
contractual expiration.
We have agreed, subject to certain conditions, to provide certain support to Elpida with respect to obtaining financing for
working capital purposes and capital expenditures. In addition, we agreed, subject to certain conditions, to use reasonable best
efforts to assist the Elpida Companies in financing up to 64 billion yen (or the equivalent of approximately $655 million) of
eligible capital expenditures incurred through June 30, 2014, which may include us providing payment guarantees of third party
financing under certain circumstances or direct financial support from Micron Technology, Inc. or one of its subsidiaries. For
further information, see "Item 8. Financial Statements and Supplementary Data – Acquisition of Elpida Memory, Inc." to
Micron's consolidated financial statements.
Contingencies
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 Micron and it's subsidiaries' products or manufacturing processes infringe their intellectual property
rights. Micron 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. We are currently a party to various litigation regarding
patent, antitrust, securities, commercial and other matters arising from the normal course of business, none of which is expected
to have a material adverse effect on Micron's business, results of operations or financial condition. Micron is a party to the
matters listed in the "Contingencies" note in the consolidated financial statements, with the exception of the patent infringement
case Tessera Inc. filed on December 7, 2007 against Elpida Memory, Inc., Elpida Memory (USA) Inc., and numerous other
defendants, and the complaint filed on July 12, 2013 by seven former shareholders of Elpida against the board of directors of
Elpida as of February 2013. For further information, see the Consolidated Financial Statements, "Contingencies" note.
Related Party Transaction
Transactions between Micron and its consolidated subsidiaries are eliminated in consolidation. Micron engages in various
transactions with its equity method investees and eliminates the profits or losses on those transactions to the extent of its
ownership interest until such time as the profits or losses are realized. As of August 29, 2013, Micron held a 31% ownership
interest in Aptina Imaging Corporation ("Aptina") and a 50% ownership interest in Transform Solar Pty Ltd. Net sales included
sales to consolidated subsidiaries of $4,190 million, $4,148 million and $5,718 million for 2013, 2012 and 2011, respectively.
Net sales for 2013, 2012 and 2011 also included $182 million, $372 million and $349 million, respectively, for sale of products
to Aptina. For further information regarding transactions between Micron and its equity method investees, see the
Consolidated Financial Statements, "Equity Method Investments – Other" note.
123
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
MICRON TECHNOLOGY, INC.
Allowance for Doubtful Accounts
Year ended August 29, 2013
Year ended August 30, 2012
Year ended September 1, 2011
Deferred Tax Asset Valuation Allowance
Year ended August 29, 2013
Year ended August 30, 2012
Year ended September 1, 2011
Balance at
Beginning of
Year
Business
Acquisitions
Charged
(Credited) to
Costs and
Expenses
Deductions/
Write-Offs
Balance at
End of
Year
$
$
$
$
5
3
4
1,522
1,207
1,263
— $
—
—
$
1,292
—
—
$
$
1
5
—
370
373
(103)
(1) $
(3)
(1)
5
5
3
$
31
(58)
47
3,215
1,522
1,207
Certain deferred tax assets and liabilities in prior years were corrected with corresponding changes in the valuation
allowance, resulting in no change to net deferred tax assets. The change in these items was not material for any period
presented.
124
MICRON TECHNOLOGY, INC.
AMENDED AND RESTATED 2007 EQUITY INCENTIVE PLAN
Exhibit 10.48
ARTICLE 1
PURPOSE
1.1.
GENERAL. The purpose of the Micron Technology, Inc. Amended and Restated 2007
Equity Incentive Plan (the "Plan") is to promote the success, and enhance the value, of Micron
Technology, Inc. (the "Company"), by linking the personal interests of employees, non-employee
directors and consultants of the Company or any Affiliate (as defined below) to those of Company
stockholders and by providing such persons with an incentive for outstanding performance. The Plan is
further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the
services of employees, non-employee directors and consultants upon whose judgment, interest, and
special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the
Plan permits the grant of incentive awards from time to time to selected employees, non-employee
directors and consultants of the Company and its Affiliates; provided, however, that no officer, including
without limitation the chief executive officer of the Company, is eligible to be a Participant in the Plan.
ARTICLE 2
DEFINITIONS
2.1.
DEFINITIONS. When a word or phrase appears in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be
given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is
required by the context. The following words and phrases shall have the following meanings:
(a) "Affiliate" means (i) any Subsidiary or Parent, or (ii) an entity that directly or through
one or more intermediaries controls, is controlled by or is under common control with, the
Company, as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award,
Restricted Stock Unit Award, Deferred Stock Unit Award, Performance Share, Dividend
Equivalent Award, Other
cash, granted to a Participant under the Plan.
Award, or any other right or interest relating to Stock or
(c) "Award Certificate" means a written document, in such form as the Committee prescribes
from time to time, setting forth the terms and conditions of an Award. Award Certificates may be
in the form of individual award agreements or certificates or a program document describing the
terms and provisions of an Awards or series of Awards under the Plan. The Committee may
provide for the use of electronic, internet or other non-paper Award Certificates, and the use of
electronic, internet or other non-paper means for the acceptance thereof and actions thereunder by
a Participant.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means and includes the occurrence of any one of the following
events:
(i)
individuals who, on the Effective Date, constitute the Board of Directors of the
Company (the "Incumbent Directors") cease for any reason to constitute at least a majority of
1
such Board, provided that any person becoming a director after the Effective Date and whose
election or nomination for election was approved by a vote of at least a majority of the Incumbent
Directors then on the Board shall be an Incumbent Director; provided, however, that no individual
initially elected or nominated as a director of the Company as a result of an actual or threatened
election contest with respect to the election or removal of directors ("Election Contest") or other
actual or threatened solicitation of proxies or consents by or on behalf of any Person other than
the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or
(ii) any person is or becomes a "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act), directly or indirectly, of either (A) 35% or more of the then-outstanding shares of
common stock of the Company ("Company Common Stock") or (B) securities of the Company
representing 35% or more of the combined voting power of the Company's then outstanding
securities eligible to vote for the election of directors (the "Company Voting Securities");
provided, however, that for purposes of this subsection (ii), the following acquisitions shall not
constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition
by the Company or a Subsidiary of the Company, (y) an acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, or
(z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below);
or
(iii) the consummation of a reorganization, merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company or a Subsidiary (a
"Reorganization"), or the sale or other disposition of all or substantially all of the Company's
assets (a "Sale") or the acquisition of assets or stock of another corporation (an "Acquisition"),
unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially
all of the individuals and entities who were the beneficial owners, respectively, of the outstanding
Company Common Stock and outstanding Company Voting Securities immediately prior to such
Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Reorganization, Sale or Acquisition (including,
without limitation, a corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets or stock either directly or through one or more
subsidiaries, the "Surviving Corporation") in substantially the same proportions as their
ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding
Company Common Stock and the outstanding Company Voting Securities, as the case may be,
and (B) no person (other than (x) the Company or any Subsidiary of the Company, (y) the
Surviving Corporation or its ultimate parent corporation, or (z) any employee benefit plan or
related trust) sponsored or maintained by any of the foregoing is the beneficial owner, directly or
indirectly, of 35% or more of the total common stock or 35% or more of the total voting power of
the outstanding voting securities eligible to elect directors of the Surviving Corporation, and
(C) at least a majority of the members of the board of directors of the Surviving Corporation were
Incumbent Directors at the time of the Board's approval of the execution of the initial agreement
providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition
which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a
"Non-Qualifying Transaction"); or
(iv) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
2
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to time.
Reference to a specific Section of the Code or regulation thereunder shall include such Section or
regulation, any valid regulation promulgated under such Section, and any comparable provision
of any future law, legislation or regulation amending, supplementing or superseding such Section
or regulation.
(g) "Committee" means the committee of the Board described in Article 4.
(h) "Company" means Micron Technology, Inc., a Delaware corporation, or any successor
corporation.
(i) "Continuous Status as a Participant" means the absence of any interruption or termination
of service as an employee, officer, consultant or non-employee director of the Company or any
Affiliate, as applicable; provided, however, that for purposes of an Incentive Stock Option, or a
Stock Appreciation Right issued in tandem with an Incentive Stock Option, "Continuous Status as
a Participant" means the absence of any interruption or termination of service as an employee of
the Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations.
Continuous Status as a Participant shall not be considered interrupted in the case of any leave of
absence authorized in writing by the Company prior to its commencement; provided, however,
that for purposes of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st
day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "Covered Employee" means a covered employee as defined in Code Section 162(m)(3).
(k) "Disability" or "Disabled" has the same meaning as provided in the long-term disability
plan or policy maintained by the Company or if applicable, most recently maintained, by the
Company or if applicable, an Affiliate, for the Participant, whether or not such Participant
actually receives disability benefits under such plan or policy. If no long-term disability plan or
policy was ever maintained on behalf of Participant or if the determination of Disability relates to
an Incentive Stock Option, or a Stock Appreciation Right issued in tandem with an Incentive
Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of
the Code. Notwithstanding the foregoing, for any Awards that constitute a nonqualified deferred
compensation plan within the meaning of Section 409A(d) of the Code, Disability has the
meaning given such term in Section 409A of the Code. In the event of a dispute, the
determination whether a Participant is Disabled will be made by the Committee and may be
supported by the advice of a physician competent in the area to which such Disability relates.
(l) "Deferred Stock Unit" means a right granted to a Participant under Article 11.
(m) "Dividend Equivalent" means a right granted to a Participant under Article 12.
(n) "Effective Date" has the meaning assigned such term in Section 3.1.
(o) "Eligible Participant" means an employee, consultant or non-employee director of the
Company or any Affiliate; provided, however, that no officer, including without limitation the
chief executive officer of the Company, is eligible to be a Participant in the Plan.
3
(p) "Exchange" means the New York Stock Exchange or any other national securities
exchange or national market system on which the Stock may from time to time be listed or traded.
(q) "Fair Market Value" of the Stock, on any date, means: (i) if the Stock is listed or traded
on any Exchange, the closing sales price for such Stock (or the closing bid, if no sales were
reported) as quoted on such Exchange (or, if more than one Exchange, the Exchange with the
greatest volume of trading in the Stock) for such date, or if no sales or bids were reported for such
date, on the last market trading day prior to the day of determination, as reported by Market
Sweep, a service from Interactive Data Services, Inc., or such other source as the Committee
deems reliable; (ii) if the Stock is quoted on the over-the-counter market or is regularly quoted by
a recognized securities dealer, but selling prices are not reported, the Fair Market Value of the
Stock shall be the mean between the high bid and low asked prices for the Stock on such date, or
if no sales or bids were reported for such date, on the last market trading day prior to the day of
determination, as reported by Market Sweep, a service from Interactive Data Services, Inc. or
such other source as the Committee deems reliable, or (iii) in the absence of an established
market for the Stock, the Fair Market Value shall be determined by such other method as the
Committee determines in good faith to be reasonable and in compliance with Code Section 409A.
(r) "Full Value Award" means an Award other than in the form of an Option or SAR, and
which is settled by the issuance of Stock (or at the discretion of the Committee, settled in cash
valued by reference to Stock value).
(s) "Grant Date" of an Award means the first date on which all necessary corporate action
has been taken to approve the grant of the Award as provided in the Plan, or such later date as is
determined and specified as part of that authorization process. Notice of the grant shall be
provided to the grantee within a reasonable time after the Grant Date.
(t) "Incentive Stock Option" means an Option that is intended to be an incentive stock option
and meets the requirements of Section 422 of the Code or any successor provision thereto.
(u) "Non-Employee Director" means a director of the Company who is not a common law
employee of the Company or an Affiliate.
(v) "Nonstatutory Stock Option" means an Option that is not an Incentive Stock Option.
(w) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase
Stock at a specified price during specified time periods. An Option may be either an Incentive
Stock Option or a Nonstatutory Stock Option.
(x) "Other
Award" means a right, granted to a Participant under Article 13 that
relates to or is valued by reference to Stock or other Awards relating to Stock.
(y) "Parent" means a corporation, limited liability company, partnership or other entity which
owns or beneficially owns a majority of the outstanding voting stock or voting power of the
Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall
have the meaning set forth in Section 424(e) of the Code.
(z) "Participant" means a person who, as an employee, non-employee director or consultant
of the Company or any Affiliate, has been granted an Award under the Plan; provided that in the
case of the death of a Participant, the term "Participant" refers to a beneficiary designated
4
pursuant to Section 14.5 or the legal guardian or other legal representative acting in a fiduciary
capacity on behalf of the Participant under applicable state law and court supervision.
Notwithstanding the foregoing, a Participant shall not include the chief executive officer or any
other officers of the Company.
(aa)
"Performance Share" means any right granted to a Participant under Article 9 to a
unit to be valued by reference to a designated number of Shares to be paid upon achievement of
such performance goals as the Committee establishes with regard to such Performance Share.
(bb)
"Person" means any individual, entity or group, within the meaning of Section 3(a)
(9) of the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.
(cc)
"Plan" means the Micron Technology, Inc. Amended and Restated 2007 Equity Incentive
Plan, as amended from time to time.
(dd)
"Qualified
Award" means an Award that is either (i) intended to
qualify for the Section 162(m) Exemption and is made subject to performance goals based on
Qualified Business Criteria as set forth in Section 14.10(b), or (ii) an Option or SAR.
(ee)
"Qualified Business Criteria" means one or more of the Business Criteria listed in
Section 14.10(b) upon which performance goals for certain Qualified
may be established by the Committee.
Awards
(ff)
"Restricted Stock Award" means Stock granted to a Participant under Article 10 that
is subject to certain restrictions and to risk of forfeiture.
(gg)
"Restricted Stock Unit Award" means the right granted to a Participant under
Article 10 to receive shares of Stock (or the equivalent value in cash or other property if the
Committee so provides) in the future, which right is subject to certain restrictions and to risk of
forfeiture.
(hh)
"Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of
the Code or any successor provision thereto.
(ii)
"Shares" means shares of the Company's Stock. If there has been an adjustment or
substitution pursuant to Section 15.1, the term "Shares" shall also include any shares of stock or
other securities that are substituted for Shares or into which Shares are adjusted pursuant to
Section 15.1.
(jj)
"Stock" means the $.10 par value common stock of the Company and such other
securities of the Company as may be substituted for Stock pursuant to Article 15.
(kk)
"Stock Appreciation Right" or "SAR" means a right granted to a Participant under
Article 8 to receive a payment equal to the difference between the Fair Market Value of a Share as
of the date of exercise of the SAR over the base price of the SAR, all as determined pursuant to
Article 8.
(ll)
"Subsidiary" means any corporation, limited liability company, partnership or other
entity of which a majority of the outstanding voting stock or voting power is beneficially owned
5
directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive
Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.
(mm)
"1933 Act" means the Securities Act of 1933, as amended from time to time.
(nn)
"1934 Act" means the Securities Exchange Act of 1934, as amended from time to
time.
ARTICLE 3
EFFECTIVE TERM OF PLAN
3.1.
EFFECTIVE DATE. The Plan shall be effective as of the date it is approved by both the
Board and the stockholders of the Company (the "Effective Date").
3.2.
TERMINATION OF PLAN. The Plan shall terminate on the tenth anniversary of the
Effective Date unless earlier terminated as provided herein. The termination of the Plan on such date shall
not affect the validity of any Award outstanding on the date of termination, which shall continue to be
governed by the applicable terms and conditions of the Plan. No Incentive Stock Options may be granted
more than ten years after the earlier of (a) adoption of this Plan by the Board, or (b) the Effective Date.
ARTICLE 4
ADMINISTRATION
4.1.
COMMITTEE. The Plan shall be administered by a Committee appointed by the Board
(which Committee shall consist of at least two directors) or, at the discretion of the Board from time to
time, the Plan may be administered by the Board. It is intended that at least two of the directors appointed
to serve on the Committee shall be "non-employee directors" (within the meaning of Rule 16b-3
promulgated under the 1934 Act) and "outside directors" (within the meaning of Code Section 162(m))
and that any such members of the Committee who do not so qualify shall abstain from participating in
any decision to make or administer Awards that are made to Eligible Participants who at the time of
consideration for such Award (i) are persons subject to the
1934 Act, or (ii) are reasonably anticipated to become Covered Employees during the term of the Award.
However, the mere fact that a Committee member shall fail to qualify under either of the foregoing
requirements or shall fail to abstain from such action shall not invalidate any Award made by the
Committee which Award is otherwise validly made under the Plan. The members of the Committee shall
be appointed by, and may be changed at any time and from time to time in the discretion of, the Board.
Unless and until changed by the Board, the Compensation Committee of the Board is designated as the
Committee to administer the Plan. The Board may reserve to itself any or all of the authority and
responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all
purposes. To the extent the Board has reserved any authority and responsibility or during any time that the
Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and
any reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the
extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions
of the Board shall control.
profit rules of Section 16 of the
4.2.
ACTION AND INTERPRETATIONS BY THE COMMITTEE. For purposes of
administering the Plan, the Committee may from time to time adopt rules, regulations, guidelines and
procedures for carrying out the provisions and purposes of the Plan and make such other determinations,
not inconsistent with the Plan, as the Committee may deem appropriate. The Committee's interpretation of
the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and determinations
6
by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member
of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to
that member by any officer or other employee of the Company or any Affiliate, the Company's or an
Affiliate's independent certified public accountants, Company counsel or any executive compensation
consultant or other professional retained by the Company to assist in the administration of the Plan.
4.3.
AUTHORITY OF COMMITTEE. Except as provided below, the Committee has the
exclusive power, authority and discretion to:
(a) Grant Awards;
(b) Designate Participants;
(c) Determine the type or types of Awards to be granted to each Participant;
(d) Determine the number of Awards to be granted and the number of Shares or dollar
amount to which an Award will relate;
(e) Determine the terms and conditions of any Award granted under the Plan, including but
not limited to, the exercise price, base price, or purchase price, any restrictions or limitations on
the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of
an Award, and accelerations or waivers thereof, based in each case on such considerations as the
Committee in its sole discretion determines;
(f) Accelerate the vesting, exercisability or lapse of restrictions of any outstanding Award, in
accordance with Article 14, based in each case on such considerations as the Committee in its
sole discretion determines;
(g) Determine whether, to what extent, and under what circumstances an Award may be
settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other
property, or an Award may be canceled, forfeited, or surrendered;
(h) Prescribe the form of each Award Certificate, which need not be identical for each
Participant;
(i) Decide all other matters that must be determined in connection with an Award;
(j) Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem
necessary or advisable to administer the Plan;
(k) Make all other decisions and determinations that may be required under the Plan or as the
Committee deems necessary or advisable to administer the Plan;
(l) Amend the Plan or any Award Certificate as provided herein; and
(m) Adopt such modifications, procedures, and subplans as may be necessary or desirable to
comply with provisions of the laws of the United States or any non-U.S. jurisdictions in which
the Company or any Affiliate may operate, in order to assure the viability of the benefits of
Awards granted to participants located in such other jurisdictions and to meet the objectives of the
Plan.
7
Notwithstanding the foregoing, grants of Awards to Non-Employee Directors hereunder shall be
made only in accordance with the terms, conditions and parameters of a plan, program or policy for the
compensation of Non-Employee Directors as in effect from time to time, and the Committee may not
make discretionary grants hereunder to Non-Employee Directors.
Notwithstanding the above, the Board may, by resolution, expressly delegate to a special
committee, consisting of one or more directors who may but need not be officers of the Company, the
authority, within specified parameters as to the number and terms of Awards, to (i) designate officers,
employees and/or consultants of the Company or any of its Affiliates to be recipients of Awards under the
Plan, and (ii) to determine the number of such Awards to be received by any such Participants; provided,
however, that such delegation of duties and responsibilities to an officer of the Company may not be made
with respect to the grant of Awards to eligible participants (a) who are subject to Section 16(a) of the 1934
Act at the Grant Date, or (b) who as of the Grant Date are reasonably anticipated to be become Covered
Employees during the term of the Award. The acts of such delegates shall be treated hereunder as acts of
the Board and such delegates shall report regularly to the Board and the Committee regarding the
delegated duties and responsibilities and any Awards so granted.
4.4.
AWARD CERTIFICATES. Each Award shall be evidenced by an Award Certificate. Each
Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the
Committee.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1.
NUMBER OF SHARES. Subject to adjustment as provided in Sections 5.2 and 15.1, the
aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the
Plan shall be 60,000,000; provided, however, that each Share issued under the Plan pursuant to a Full
Value Award shall reduce the number of available Shares by two (2) shares. The maximum number of
Shares that may be issued upon exercise of Incentive Stock Options granted under the Plan shall be
2,000,000.
5.2.
SHARE COUNTING. Shares covered by an Award shall be subtracted from the Plan
share reserve as of the date of grant, but shall be added back to the Plan share reserve in accordance with
this Section 5.2.
(a) To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for any
reason, any unissued or forfeited Shares originally subject to the Award will be added back to the
Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.
(b) Shares subject to Awards settled in cash will be added back to the Plan share reserve and
again be available for issuance pursuant to Awards granted under the Plan.
(c) Substitute Awards granted pursuant to Section 14.14 of the Plan shall not count against
the Shares otherwise available for issuance under the Plan under Section 5.1.
5.3.
STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in
whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.
5.4.
LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the contrary
(but subject to adjustment as provided in Section 15.1), the maximum number of Shares with respect to
8
one or more Options and/or SARs that may be granted during any one calendar year under the Plan to any
one Participant shall be 2,000,000. The maximum aggregate grant with respect to Awards of Restricted
Stock, Restricted Stock Units, Deferred Stock Units, Performance Shares or other
Awards
(other than Options or SARs) granted in any one calendar year to any one Participant shall be 2,000,000.
5.5 MINIMUM VESTING REQUIREMENTS. Except in the case of substitute Awards granted
pursuant to Section 14.14, Full-Value Awards granted under the Plan to an Eligible Participant shall either
(i) be subject to a minimum vesting period of three years (which may include graduated vesting within
such three-year period), or one year if the vesting is based on performance criteria other than continued
service, or (ii) be granted solely in exchange for foregone cash compensation. Notwithstanding the
foregoing, (i) the Committee may at its discretion permit and authorize acceleration of vesting of such
Full-Value Awards in the event of the Participant’s death, Disability, or retirement, or the occurrence of a
Change in Control (subject to the requirements of Article 11 in the case of Qualified Performance-Based
Awards), and (ii) the Committee may grant Full-Value Awards without the above-described minimum
vesting requirements, or may permit and authorize acceleration of vesting of Full-Value Awards otherwise
subject to the above-described minimum vesting requirements, with respect to Awards covering five
percent (5%) or fewer of the total number of Shares authorized under the Plan.
ARTICLE 6
ELIGIBILITY
6.1.
GENERAL. Awards may be granted only to Eligible Participants; except that Incentive
Stock Options may be granted to only to Eligible Participants who are employees of the Company or a
Parent or Subsidiary as defined in Section 424(e) and (f) of the Code. Eligible Participants who are
service providers to an Affiliate may be granted Options or SARs under this Plan only if the Affiliate
qualifies as an "eligible issuer of service recipient stock" within the meaning of §1.409A-1(b)(5)(iii)(E) of
the final regulations under Code Section 409A.
ARTICLE 7
STOCK OPTIONS
7.1.
GENERAL. The Committee is authorized to grant Options to Participants on the
following terms and conditions:
(a)
EXERCISE PRICE. The exercise price per Share under an Option shall be
determined by the Committee; provided that the exercise price for any Option (other than an
Option issued as a substitute Award pursuant to Section 14.14) shall not be less than the Fair
Market Value as of the Grant Date.
(b)
PROHIBITION ON REPRICING. Except as otherwise provided in Article 15,
the exercise price of an Option may not be reduced, directly or indirectly by cancellation and
exchange for cash or another award or otherwise, without the prior approval of the
stockholders of the Company, and the Company may not, without the prior approval of
stockholders of the Company, repurchase an Option for value from a Participant if the current
Fair Market Value of the Shares underlying the Option is lower than the exercise price or base
price per share of the Option..
(c)
TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, subject to Section 7.
(e). The Committee shall also determine the performance or other conditions, if any, that must
be satisfied before all or part of an Option may be exercised or vested.
9
(d)
PAYMENT. The Committee shall determine the methods by which the exercise
price of an Option may be paid, the form of payment and the methods by which Shares shall
be delivered or deemed to be delivered to Participants. As determined by the Committee at or
after the Grant Date, payment of the exercise price of an Option may be made, in whole or in
part, in the form of (i) cash or cash equivalents, (ii) delivery (by either actual delivery or
attestation) of previously-acquired Shares based on the Fair Market Value of the Shares on
the date the Option is exercised, (iii) withholding of Shares from the Option based on the Fair
Market Value of the Shares on the date the Option is exercised, (iv) broker-assisted market
sales, or (v) any other “cashless exercise” arrangement.
(e)
EXERCISE TERM. No option granted under the Plan shall be exercisable for
more than six years from the Grant Date.
(f)
NO DEFERRAL FEATURE. No Option shall provide for any feature for the
deferral of compensation other than the deferral of recognition of income until the exercise or
disposition of the Option.
(g)
Equivalents.
NO DIVIDEND EQUIVALENTS. No Option shall provide for Dividend
(h)
SUSPENSION. Any Participant who is also a participant in the Retirement at
Micron (“RAM”) Section 401(k) Plan and who requests and receives a hardship distribution
from the RAM Plan, is prohibited from making, and must suspend, his or her employee
elective contributions to the Plan.
7.2.
INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under
the Plan must comply with the requirements of Section 422 of the Code. If all of the requirements of
Section 422 of the Code are not met, the Option shall automatically become a Nonstatutory Stock Option.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1.
GRANT OF STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
Stock Appreciation Rights to Participants on the following terms and conditions:
(a)
RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the
Participant to whom it is granted has the right to receive, for each Share with respect to which
the Stock Appreciation Right is being exercised, the excess, if any, of:
(1) The Fair Market Value of one Share on the date of exercise; over
(2) The base price of the Stock Appreciation Right as determined by the Committee,
which shall not be less than the Fair Market Value of one Share on the Grant Date.
(b)
PROHIBITION ON REPRICING. Except as otherwise provided in Article 15,
the base price of a SAR may not be reduced, directly or indirectly by cancellation and
exchange for cash or another award or otherwise, without the prior approval of the
stockholders of the Company, and the Company may not, without the prior approval of
stockholders of the Company, repurchase a SAR for value from a Participant if the current
Fair Market Value of the Shares underlying the SAR is lower than the base price per share of
the SAR.
10
(c)
TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the
time or times at which a SAR may be exercised in whole or in part. No SAR granted under
the Plan shall be exercisable for more than six years from the Grant Date.
(d)
NO DEFERRAL FEATURE. No SAR shall provide for any feature for the
deferral of compensation other than the deferral of recognition of income until the exercise or
disposition of the SAR.
(e)
NO DIVIDEND EQUIVALENTS. No SAR shall provide for Dividend Equivalents.
(f)
OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by
an Award Certificate. Subject to the limitations of this Article 8, the terms, methods of
exercise, methods of settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by the Committee
at the time of the grant of the Award and shall be reflected in the Award Certificate.
ARTICLE 9
PERFORMANCE SHARES
9.1.
GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be selected by the Committee.
The Committee shall have the complete discretion to determine the number of Performance Shares
granted to each Participant, subject to Section 5.4, and to designate the provisions of such Performance
Shares as provided in Section 4.3. All Performance Shares shall be evidenced by an Award Certificate or a
written program established by the Committee, pursuant to which Performance Shares are awarded under
the Plan under uniform terms, conditions and restrictions set forth in such written program.
9.2.
PERFORMANCE GOALS. The Committee may establish performance goals for
Performance Shares which may be based on any criteria selected by the Committee. Such performance
goals may be described in terms of Company-wide objectives or in terms of objectives that relate to the
performance of the Participant, an Affiliate or a division, region, department or function within the
Company or an Affiliate. If the Committee determines that a change in the business, operations, corporate
structure or capital structure of the Company or the manner in which the Company or an Affiliate
conducts its business, or other events or circumstances render performance goals to be unsuitable, the
Committee may modify such performance goals in whole or in part, as the Committee deems appropriate.
If a Participant is promoted, demoted or transferred to a different business unit or function during a
performance period, the Committee may determine that the performance goals or performance period are
no longer appropriate and may (i) adjust, change or eliminate the performance goals or the applicable
performance period as it deems appropriate to make such goals and period comparable to the initial goals
and period, or (ii) make a cash payment to the participant in amount determined by the Committee. The
foregoing two sentences shall not apply with respect to an Award of Performance Shares that is intended
to be a Qualified
Award if the recipient of such award (a) was a Covered Employee
on the date of the modification, adjustment, change or elimination of the performance goals or
performance period, or (b) in the reasonable judgment of the Committee, may be a Covered Employee on
the date the Performance Award is expected to be paid.
9.3.
RIGHT TO PAYMENT. The grant of a Performance Share to a Participant will entitle the
Participant to receive at a specified later time a specified number of Shares, or the equivalent value in
cash or other property, if the performance goals established by the Committee are achieved and the other
terms and conditions thereof are satisfied. The Committee shall set performance goals and other terms or
11
conditions to payment of the Performance Shares in its discretion which, depending on the extent to
which they are met, will determine the number of the Performance Shares that will be earned by the
Participant.
9.4.
OTHER TERMS. Performance Shares may be payable in cash, Stock, or other property,
and have such other terms and conditions as determined by the Committee and reflected in the Award
Certificate.
ARTICLE 10
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS
10.1. GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to the
terms and conditions of this Article 10, the Committee is authorized to make Awards of Restricted Stock
or Restricted Stock Units to Participants in such amounts and subject to such terms and conditions as may
be selected by the Committee. An Award of Restricted Stock or Restricted Stock Units shall be evidenced
by an Award Certificate setting forth the terms, conditions, and restrictions applicable to the Award.
10.2.
ISSUANCE AND RESTRICTIONS. Restricted Stock or Restricted Stock Units shall be
subject to such restrictions on transferability and other restrictions as the Committee may impose
(including, without limitation, limitations on the right to vote Restricted Stock or the right to receive
dividends on the Restricted Stock). Subject to the terms and conditions of the Plan, these restrictions may
lapse separately or in combination at such times, under such circumstances, in such installments, upon the
satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter. Except as otherwise provided in an Award Certificate or any special Plan document
governing an Award, the Participant shall have all of the rights of a stockholder with respect to the
Restricted Stock, and the Participant shall have none of the rights of a stockholder with respect to
Restricted Stock Units until such time as Shares of Stock are paid in settlement of the Restricted Stock
Units.
10.3. FORFEITURE. Except as otherwise determined by the Committee at the time of the
grant of the Award or thereafter, upon termination of Continuous Status as a Participant during the
applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction
period, Restricted Stock or Restricted Stock Units that are at that time subject to restrictions shall be
forfeited; provided, however, that the Committee may provide in any Award Certificate, subject to the
terms and conditions of the Plan, that restrictions or forfeiture conditions relating to Restricted Stock or
Restricted Stock Units will be waived in whole or in part in the event of terminations resulting from
specified causes, including, but not limited to, death, Disability, or for the convenience or in the best
interests of the Company.
10.4. DELIVERY OF RESTRICTED STOCK. Shares of Restricted Stock shall be delivered to
the Participant at the time of grant either by book-entry registration or by delivering to the Participant, or
a custodian or escrow agent (including, without limitation, the Company or one or more of its employees)
designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If
physical certificates representing shares of Restricted Stock are registered in the name of the Participant,
such certificates must bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
10.5. DIVIDENDS ON RESTRICTED STOCK. In the case of Restricted Stock, the Committee
may provide that ordinary cash dividends declared on the Shares before they are vested (i) will be
forfeited, (ii) will be deemed to have been reinvested in additional Shares or otherwise reinvested (subject
to Share availability under Section 5.1 hereof), or (iii) in the case of Restricted Stock that is not subject to
12
performance-based vesting, will be paid or distributed to the Participant as accrued (in which case, such
dividends must be paid or distributed no later than the 15th day of the 3rd month following the later of
(A) the calendar year in which the corresponding dividends were paid to stockholders, or (B) the first
calendar year in which the Participant’s right to such dividends is no longer subject to a substantial risk of
forfeiture). Unless otherwise provided by the Committee, dividends accrued on Shares of Restricted
Stock before they are vested shall, as provided in the Award Certificate, either (i) be reinvested in the
form of additional Shares, which shall be subject to the same vesting provisions as provided for the host
Award, or (ii) be credited by the Company to an account for the Participant and accumulated without
interest until the date upon which the host Award becomes vested, and any dividends accrued with respect
to forfeited Restricted Stock will be reconveyed to the Company without further consideration or any act
or action by the Participant.
ARTICLE 11
DEFERRED STOCK UNITS
11.1. GRANT OF DEFERRED STOCK UNITS. The Committee is authorized to grant Deferred
Stock Units to Participants subject to such terms and conditions as may be selected by the Committee.
Deferred Stock Units shall entitle the Participant to receive Shares of Stock (or the equivalent value in
cash or other property if so determined by the Committee) at a future time as determined by the
Committee, or as determined by the Participant within guidelines established by the Committee in the
case of voluntary deferral elections. An Award of Deferred Stock Units shall be evidenced by an Award
Certificate setting forth the terms and conditions applicable to the Award.
ARTICLE 12
DIVIDEND EQUIVALENTS
12.1. GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents with respect to Full-Value Awards granted hereunder to Participants subject to such
terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to ordinary cash dividends or distributions with respect to all or a
portion of the number of Shares subject to a Full-Value Award, as determined by the Committee. The
Committee may provide that Dividend Equivalents (i) will be deemed to have been reinvested in
additional Shares or otherwise reinvested, or (ii) except in the case of Performance Shares, will be paid or
distributed as accrued (in which case, such Dividend Equivalents must be paid or distributed no later than
the 15th day of the 3rd month following the later of (i) the calendar year in which the corresponding
dividends were paid to stockholders, or (ii) the first calendar year in which the Participant's right to such
Dividends Equivalents is no longer subject to a substantial risk of forfeiture. Unless otherwise provided
by the Committee, Dividend Equivalents accruing on unvested Full-Value Awards shall, as provided in
the Award Certificate, either (i) be reinvested in the form of additional Shares, which shall be subject to
the same vesting provisions as provided for the host Award, or (ii) be credited by the Company to an
account for the Participant and accumulated without interest until the date upon which the host Award
becomes vested, and any Dividend Equivalents accrued with respect to forfeited Awards will be
reconveyed to the Company without further consideration or any act or action by the Participant.
STOCK OR OTHER ST
AWARDS
ARTICLE 13
13.1. GRANT OF STOCK OR OTHER ST
AWARDS. The Committee is
authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares, as
deemed by the Committee to be consistent with the purposes of the Plan, including without limitation (but
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subject to Section 10.2) Shares awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into
Shares, and Awards valued by reference to book value of Shares or the value of securities of or the
performance of specified Parents or Subsidiaries. The Committee shall determine the terms and
conditions of such Awards.
ARTICLE 14
PROVISIONS APPLICABLE TO AWARDS
ST
14.1.
AND TANDEM AWARDS. Awards granted under the Plan may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with, any other Award
granted under the Plan. Subject to Section 16.2, awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the grant of such other
Awards.
14.2. TERM OF AWARD. The term of each Award shall be for the period as determined by the
Committee, provided that in no event shall the term of any Incentive Stock Option or a Stock
Appreciation Right granted in tandem with the Incentive Stock Option exceed a period of ten years from
its Grant Date.
14.3. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Certificate, payments or transfers to be made by the Company or an Affiliate on
the grant or exercise of an Award may be made in such form as the Committee determines at or after the
Grant Date, including without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments, or (except with respect to
Options or SARs) on a deferred basis, in each case determined in accordance with rules adopted by, and at
the discretion of, the Committee.
14.4. LIMITS ON TRANSFER. No right or interest of a Participant in any unexercised or
restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the
Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any
other party other than the Company or an Affiliate. No unexercised or restricted Award shall be assignable
or transferable by a Participant other than by will or the laws of descent and distribution or, except in the
case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414
(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers (other than transfers for value) where the Committee
concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any
Option intended to be an Incentive Stock Option to fail to so qualify, and (iii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without limitation, state or federal
tax or securities laws applicable to transferable Awards.
14.5. BENEFICIARIES. Notwithstanding Section 14.4, a Participant may, in the manner
determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to
receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal
guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms
and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the
Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or
appropriate by the Committee. If no beneficiary has been designated or survives the Participant, any
payment due to the Participant shall be made to the Participant's estate. Subject to the foregoing, a
beneficiary designation may be changed or revoked by a Participant, in the manner provided by the
Company, at any time provided the change or revocation is filed with the Committee.
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14.6.
STOCK TRADING RESTRICTIONS. All Stock issuable under the Plan is subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with
federal or state securities laws, rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place
legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions
applicable to the Stock.
14.7. ACCELERATION UPON A CHANGE IN CONTROL. Except as otherwise provided in
the Award Certificate or any special Plan document governing an Award, upon the occurrence of a
Change in Control, all outstanding Options, SARs, and other Awards in the nature of rights that may be
exercised shall become fully exercisable, and all time-based vesting restrictions on outstanding Awards
shall lapse. Except as otherwise provided in the Award Certificate or any special Plan document
governing an Award, upon the occurrence of a Change in Control, the target payout opportunities
attainable under all outstanding
of the effective date of the Change in Control based upon an assumed achievement of all relevant
performance goals at the "target" level and there shall be prorata payout to Participants within thirty
(30) days following the effective date of the Change in Control (or any later date required by Section 17.3
of the Plan) based upon the length of time within the performance period that has elapsed prior to the
Change in Control.
Awards shall be deemed to have been fully earned as
14.8. ACCELERATION UPON DEATH OR DISABILITY. Except as otherwise provided in the
Award Certificate or any special Plan document governing an Award, upon the Participant's death or
Disability during his or her Continuous Status as a Participant, (i) all of such Participant's outstanding
Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully
exercisable, (ii) all time-based vesting restrictions on the Participant's outstanding Awards shall lapse, and
(iii) the target payout opportunities attainable under all of such Participant's outstanding
Awards shall be deemed to have been fully earned as of the date of termination based
upon an assumed achievement of all relevant performance goals at the "target" level and there shall be a
prorata payout to the Participant or his or her estate within thirty (30) days following the date of
termination (or any later date required by Section 17.3 of the Plan) based upon the length of time within
the performance period that has elapsed prior to the date of termination. Any Awards shall thereafter
continue or lapse in accordance with the other provisions of the Plan and the Awards Certificate. To the
extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code
Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.
14.9. ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event has
occurred as described in Section 14.7 or 14.8 above, and subject to Section 5.5 as to Full-Value Awards
and Section 14.11 as to Qualified
any time determine that all or a portion of a Participant's Options, SARs, and other Awards in the nature
of rights that may be exercised shall become fully or partially exercisable, that all or a part of the time-
based vesting restrictions on all or a portion of the outstanding Awards shall lapse, and/or that any
Awards, the Committee may in its sole discretion at
criteria with respect to any Awards shall be deemed to be wholly or partially satisfied,
in each case, as of such date as the Committee may, in its sole discretion, declare. The Committee may
discriminate among Participants and among Awards granted to a Participant in exercising its discretion
pursuant to this Section 14.9.
14.10. EFFECT OF ACCELERATION. If an Award is accelerated under Section 14.7,
Section 14.8 or Section 14.9, the Committee may, in its sole discretion, provide (i) that the Award will
expire after a designated period of time after such acceleration to the extent not then exercised, (ii) that
the Award will be settled in cash rather than Stock, (iii) that the Award will be assumed by another party
15
to a transaction giving rise to the acceleration or otherwise be equitably converted or substituted in
connection with such transaction, (iv) that the Award may be settled by payment in cash or cash
equivalents equal to the excess of the Fair Market Value of the underlying Stock, as of a specified date
associated with the transaction, over the exercise price of the Award, or (v) any combination of the
foregoing. The Committee's determination need not be uniform and may be different for different
Participants whether or not such Participants are similarly situated. To the extent that such acceleration
causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess
Options shall be deemed to be Nonstatutory Stock Options.
14.11. QUALIFIED
AWARDS.
(a) The provisions of the Plan are intended to ensure that all Options and Stock Appreciation
Rights granted hereunder to any Covered Employee shall qualify for the Section 162(m)
Exemption; provided that the exercise or base price of such Award is not less than the Fair Market
Value of the Shares on the Grant Date.
(b) When granting any other Award, the Committee may designate such Award as a Qualified
Award, based upon a determination that the recipient is or may be a Covered
Employee with respect to such Award, and the Committee wishes such Award to qualify for the
Section 162(m) Exemption. If an Award is so designated, the Committee shall establish
performance goals for such Award within the time period prescribed by Section 162(m) of the
Code based on one or more of the following Qualified Business Criteria, which may be expressed
in terms of Company-wide objectives or in terms of objectives that relate to the performance of
an Affiliate or a unit, division, region, department or function within the Company or an Affiliate:
• Gross and/or net revenue (including whether in the aggregate or attributable to specific
products)
• Cost of Goods Sold and Gross Margin
• Costs and expenses, including Research & Development and Selling, General &
Administrative
•
Income (gross, operating, net, etc.)
• Earnings, including before interest, taxes, depreciation and amortization (whether in the
aggregate or on a per share basis
• Cash flows and share price
• Return on investment, capital, equity
• Manufacturing efficiency (including yield enhancement and cycle time reductions),
quality improvements and customer satisfaction
• Product life cycle management (including product and technology design, development,
transfer, manufacturing introduction, and sales price optimization and management)
• Economic profit or loss
• Market share
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• Employee retention, compensation, training and development, including succession
planning
• Objective goals consistent with the Participant's specific duties and responsibilities,
designed to further the financial, operational and other business interests of the Company,
including goals and objectives with respect to regulatory compliance matters.
Performance goals with respect to the foregoing Qualified Business Criteria may be
specified in absolute terms (including completion of pre-established projects, such as the
introduction of specified products), in percentages, or in terms of growth from period to period or
growth rates over time as well as measured relative to an established or
performance index of Company competitors, peers or other members of high tech industries. Any
member of an index that disappears during a measurement period shall be disregarded for the
entire measurement period. Performance Goals need not be based upon an increase or positive
result under a business criterion and could include, for example, the maintenance of the status quo
or the limitation of economic losses (measured, in each case, by reference to a specific business
criterion).
(c) Each Qualified
Award (other than an Option or SAR) shall be
earned, vested and payable (as applicable) only upon the achievement of performance goals
established by the Committee based upon one or more of the Qualified Business Criteria, together
with the satisfaction of any other conditions, including the condition as to continued employment
as set forth in subsection (g) below, as the Committee may determine to be appropriate; provided,
however, that the Committee may provide, in its sole and absolute discretion, either in connection
with the grant thereof or by amendment thereafter, that achievement of such performance goals
will be waived upon the death or Disability of the Participant, or upon a Change in Control. In
addition, the Committee has the right, in connection with the grant of a Qualified
Award, to exercise negative discretion to determine that the portion of such
Award actually earned, vested and /or payable (as applicable) shall be less than the portion that
would be earned, vested and/or payable based solely upon application of the applicable
performance goals. Performance periods established by the Committee for any such Qualified
Award may be as short as ninety (90) days and may be any longer period. In
addition, the Committee has the right, in connection with the grant of a Qualified Performance-
Based Award, to exercise negative discretion to determine that the portion of such Award actually
earned, vested and/or payable (as applicable) shall be less than the portion that would be earned,
vested and/or payable based solely upon application of the applicable performance goals.
(d) The Committee may provide in any Qualified
Award, at the time the
performance goals are established, that any evaluation of performance shall include, exclude or
otherwise equitably adjust for any event that occurs during a performance period, including by
way of example but without limitation the following: (a) asset
charges; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws,
accounting principles or other laws or provisions affecting reported results; (d) accruals for
reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in
then-current accounting principles and /or in management's discussion and analysis of financial
condition and results of operations appearing in the Company's annual report to stockholders for
the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To
the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be
prescribed in a form and at a time that meets the requirements of Code Section 162(m) for
deductibility.
or impairment
17
(e) Any payment of a Qualified
Award granted with performance goals
pursuant to subsection (c) above shall be conditioned on the written certification of the
Committee in each case that the performance goals and any other material conditions were
satisfied. Written certification may take the form of a Committee resolution passed by a majority
of the Committee at a properly convened meeting or through unanimous action by the Committee
via action by written consent. The certification requirement also may be satisfied by a separate
writing executed by the Chairman of the Committee, acting in his capacity as such, following the
foregoing Committee action or by the Chairman executing approved minutes of the Committee in
which such determinations were made. Except as specifically provided in subsection (c), no
Qualified
reasonable judgment of the Committee may be a Covered Employee on the date of payment, may
be amended, nor may the Committee exercise any discretionary authority it may otherwise have
under the Plan with respect to a Qualified
manner to waive the achievement of the applicable performance goal based on Qualified Business
Criteria or to increase the amount payable pursuant thereto or the value thereof, or otherwise in a
manner that would cause the Qualified
Section 162(m) Exemption.
Award held by a Covered Employee or an employee who in the
Award to cease to qualify for the
Award under the Plan, in any
(f) Section 5.4 sets forth the maximum number of Shares that may be granted in any one-
year period to a Participant in designated forms of
Awards.
(g) With respect to a Participant who is an officer of the Company, any payment of a
Qualified
Award granted with performance goals pursuant to subsection
(c) above shall be conditioned on the officer having remained continuously employed by the
Company or an Affiliate for the entire performance or measurement period, including, as well,
through the date of determination and certification of the payment of any such Award pursuant to
subsection (e) above (the "Certification Date"). For purposes of the Plan, with respect to any
given performance or measurement period, an officer of the Company (i) who terminates
employment (regardless of cause) or who otherwise ceases to be an officer, prior to the
Certification Date, and (ii) who, pursuant to a separate contractual arrangement with the
Company is entitled to receive payments from the Company thereunder extending to or beyond
such Certification Date as a result of such termination or cessation in officer status, shall be
deemed to have been employed by the Company as an officer through the Certification Date for
purposes of payment eligibility.
14.12. TERMINATION OF EMPLOYMENT. Whether military, government or other service or
other leave of absence shall constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A
Participant's Continuous Status as a Participant shall not be deemed to terminate (i) in a circumstance in
which a Participant transfers from the Company to an Affiliate, transfers from an Affiliate to the
Company, or transfers from one Affiliate to another Affiliate, or (ii) in the discretion of the Committee as
specified at or prior to such occurrence, in the case of a spin-off, sale or disposition of the Participant's
employer from the Company or any Affiliate. To the extent that this provision causes Incentive Stock
Options to extend beyond three months from the date a Participant is deemed to be an employee of the
Company, a Parent or Subsidiary for purposes of Sections 424(e) and 424(f) of the Code, the Options held
by such Participant shall be deemed to be Nonstatutory Stock Options.
14.13. FORFEITURE EVENTS. Awards under the Plan shall be subject to any compensation
recoupment policy that the Company may adopt from time to time that is applicable by its terms to the
Participant. In addition, the Committee may specify in an Award Certificate that the Participant's rights,
18
payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or
recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable
vesting or performance conditions of an Award. Such events shall include, but shall not be limited to,
termination of employment for cause, violation of material Company or Affiliate policies, breach of
noncompetition, confidentiality or other restrictive covenants that may apply to the Participant, or other
conduct by the Participant that is detrimental to the business or reputation of the Company or any
Affiliate, or a later determination that the vesting of, or amount realized from, a Performance Award was
based on materially inaccurate financial statements or any other materially inaccurate performance metric
criteria, whether or not the Participant caused or contributed to such material inaccuracy.
14.14. SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and
awards held by employees of another entity who become
employees of the Company or an Affiliate as a result of a merger or consolidation of the former
employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate of
property or stock of the former employing corporation. The Committee may direct that the substitute
awards be granted on such terms and conditions as the Committee considers appropriate in the
circumstances.
ARTICLE 15
CHANGES IN CAPITAL STRUCTURE
15.1. MANDATORY ADJUSTMENTS. In the event of a nonreciprocal transaction between the
Company and its stockholders that causes the per-share value of the Stock to change (including, without
limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend),
the authorization limits under Section 5.1 and 5.4 shall be adjusted proportionately, and the Committee
shall make such adjustments to the Plan and Awards as it deems necessary, in its sole discretion, to
prevent dilution or enlargement of rights immediately resulting from such transaction. Action by the
Committee may include: (i) adjustment of the number and kind of shares that may be delivered under the
Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of
the exercise price of outstanding Awards or the measure to be used to determine the amount of the benefit
payable on an Award; and (iv) any other adjustments that the Committee determines to be equitable.
Notwithstanding the foregoing, the Committee shall not make any adjustments to outstanding Options or
SARs that would constitute a modification or substitution of the stock right under Treas. Reg. Sections
1.409A-1(b)(5)(v) that would be treated as the grant of a new stock right or change in the form of
payment for purposes of Code Section 409A. Without limiting the foregoing, in the event of a
subdivision of the outstanding Stock
combination or consolidation of the outstanding Stock into a lesser number of Shares, the authorization
limits under Section 5.1 and 5.4 shall automatically be adjusted proportionately, and the Shares then
subject to each Award shall automatically, without the necessity for any additional action by the
Committee, be adjusted proportionately without any change in the aggregate purchase price therefor.
a declaration of a dividend payable in Shares, or a
15.2. DISCRETIONARY ADJUSTMENTS. Upon the occurrence or in anticipation of any
corporate event or transaction involving the Company (including, without limitation, any merger,
reorganization, recapitalization, combination or exchange of shares, or any transaction described in
Section 15.1), the Committee may, in its sole discretion, provide (i) that Awards will be settled in cash
rather than Stock, (ii) that Awards will become immediately vested and non-forfeitable and exercisable (in
whole or in part) and will expire after a designated period of time to the extent not then exercised,
(iii) that Awards will be assumed by another party to a transaction or otherwise be equitably converted or
substituted in connection with such transaction, (iv) that outstanding Awards may be settled by payment
in cash or cash equivalents equal to the excess of the Fair Market Value of the underlying Stock, as of a
specified date associated with the transaction (or the per-share transaction price), over the exercise or base
19
price of the Award, (v) that performance targets and performance periods for Performance Shares will be
modified, consistent with Code Section 162(m) where applicable, or (vi) any combination of the
foregoing. The Committee's determination need not be uniform and may be different for different
Participants whether or not such Participants are similarly situated.
15.3. GENERAL. Any discretionary adjustments made pursuant to this Article 15 shall be
subject to the provisions of Section 16.2. To the extent that any adjustments made pursuant to this
Article 15 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options
shall be deemed to be Nonstatutory Stock Options.
ARTICLE 16
AMENDMENT, MODIFICATION AND TERMINATION
16.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the Committee
may, at any time and from time to time, amend, modify or terminate the Plan without stockholder
approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the
Board or the Committee, either (i) materially increase the number of Shares available under the Plan,
(ii) expand the types of awards under the Plan, (iii) materially expand the class of participants eligible to
participate in the Plan, (iv) materially extend the term of the Plan, or (v) otherwise constitute a material
change requiring stockholder approval under applicable laws, policies or regulations or the applicable
listing or other requirements of an Exchange, then such amendment shall be subject to stockholder
approval; and provided, further, that the Board or Committee may condition any other amendment or
modification on the approval of stockholders of the Company for any reason, including by reason of such
approval being necessary or deemed advisable to (i) to comply with the listing or other requirements of an
Exchange, or (ii) to satisfy any other tax, securities or other applicable laws, policies or regulations.
16.2. AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the Committee
may amend, modify or terminate any outstanding Award without approval of the Participant; provided,
however:
(a) Subject to the terms of the applicable Award Certificate, such amendment, modification
or termination shall not, without the Participant's consent, reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on
the date of such amendment or termination (with the per-share value of an Option or Stock
Appreciation Right for this purpose being calculated as the excess, if any, of the Fair Market
Value as of the date of such amendment or termination over the exercise or base price of such
Award);
(b) The original term of an Option or Stock Appreciation Right may not be extended without
the prior approval of the stockholders of the Company;
(c) Except as otherwise provided in Article 15, the exercise price of an Option or SAR may
not be reduced, directly or indirectly by cancellation and exchange for cash or another award or
otherwise, without the prior approval of the stockholders of the Company, and the Company may
not, without the prior approval of stockholders of the Company, repurchase an Option or SAR for
value from a Participant if the current Fair Market Value of the Shares underlying the Option or
SAR is lower than the exercise price or base price per share of the Option or SAR; and
(d) No termination, amendment, or modification of the Plan shall adversely affect any Award
previously granted under the Plan, without the written consent of the Participant affected thereby.
An outstanding Award shall not be deemed to be "adversely affected" by a Plan amendment if
20
such amendment would not reduce or diminish the value of such Award determined as if the
Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment
(with the per-share value of an Option or Stock Appreciation Right for this purpose being
calculated as the excess, if any, of the Fair Market Value as of the date of such amendment over
the exercise or base price of such Award).
16.3. COMPLIANCE AMENDMENTS. Notwithstanding anything in the Plan or in any Award
Certificate to the contrary, the Committee may amend the Plan or an Award Certificate, to take effect
retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or
Award Certificate to any present or future law relating to plans of this or similar nature (including, but not
limited to, Section 409A of the Code), and to the administrative regulations and rulings promulgated
thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant
to this Section 16.3 to any Award granted under the Plan without further consideration or action.
ARTICLE 17
GENERAL PROVISIONS
17.1. NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS. No Participant or any
Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company,
its Affiliates nor the Committee is obligated to treat Participants or Eligible Participants uniformly, and
determinations made under the Plan may be made by the Committee selectively among Eligible
Participants who receive, or are eligible to receive, Awards (whether or not such Eligible Participants are
similarly situated).
17.2. NO STOCKHOLDER RIGHTS. No Award gives a Participant any of the rights of a
stockholder of the Company unless and until Shares are in fact issued to such person in connection with
such Award.
17.3.
SPECIAL PROVISIONS RELATED TO SECTION 409A OF THE CODE.
(a) It is intended that the payments and benefits provided under the Plan and any Award shall
either be exempt from the application of, or comply with, the requirements of Section 409A of the
Code. The Plan and all Award Certificates shall be construed in a manner that effects such intent.
Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not
warranted or guaranteed. Neither the Company, its Affiliates nor their respective directors,
officers, employees or advisers (other than in his or her capacity as a Participant) shall be held
liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or
other taxpayer as a result of the Plan or any Award.
(b) Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the
extent that any amount or benefit that would constitute non-exempt "deferred compensation" for
purposes of Section 409A of the Code (“Non-Exempt Deferred Compensation”) would otherwise
be payable or distributable, or a different form of payment (e.g., lump sum or installment) would
be effected, under the Plan or any Award Certificate by reason of the occurrence of a Change in
Control, or the Participant's Disability or separation from service, such Non-Exempt Deferred
Compensation will not be payable or distributable to the Participant, and/or such different form of
payment will not be effected, by reason of such circumstance unless the circumstances giving rise
to such Change in Control, Disability or separation from service meet any description or
definition of "change in control event", "disability" or "separation from service", as the case may
be, in Section 409A of the Code and applicable regulations (without giving effect to any elective
provisions that may be available under such definition). This provision does not prohibit the
21
vesting of any Award upon a Change in Control, Disability or separation from service, however
defined. If this provision prevents the payment or distribution of any amount or benefit, or the
application of a different form of payment of any amount or benefit, such payment or distribution
shall be made at the time and in the form that would have applied absent the Change in Control,
Disability or separation from service, as applicable.
(c) If any one or more Awards granted under the Plan to a Participant could qualify for any
separation pay exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in
the aggregate exceed the dollar limit permitted for the separation pay exemptions, the Company
(acting through the Committee or the Company's President) shall determine which Awards or
portions thereof will be subject to such exemptions.
(d) Notwithstanding anything in the Plan or in any Award Certificate to the contrary, if any
amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be
payable or distributable under this Plan or any Award Certificate by reason of a Participant's
separation from service during a period in which the Participant is a Specified Employee (as
defined below), then, subject to any permissible acceleration of payment by the Committee under
Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest),
or (j)(4)(vi) (payment of employment taxes):
(i)
if the payment or distribution is payable in a lump sum, the Participant's right to
receive payment or distribution of such Non-Exempt Deferred Compensation will be delayed
until the earlier of the Participant's death or the first day of the seventh month following the
Participant's separation from service; and
(ii)
if the payment or distribution is payable over time, the amount of such Non-
Exempt Deferred Compensation that would otherwise be payable during the six-month period
immediately following the Participant's separation from service will be accumulated and the
Participant's right to receive payment or distribution of such accumulated amount will be
delayed until the earlier of the Participant's death or the first day of the seventh month
following the Participant's separation from service, whereupon the accumulated amount will
be paid or distributed to the Participant and the normal payment or distribution schedule for
any remaining payments or distributions will resume.
For purposes of this Plan, the term "Specified Employee" has the meaning given such term in
Code Section 409A and the final regulations thereunder, provided, however, that, as permitted in such
final regulations, the Company's Specified Employees and its application of the six-month delay rule of
Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or any
committee of the Board, which shall be applied consistently with respect to all nonqualified deferred
compensation arrangements of the Company, including this Plan.
(e) If, pursuant to an Award, a Participant is entitled to a series of installment payments, such
Participant’s right to the series of installment payments shall be treated as a right to a series of separate
payments and not to a single payment. For purposes of the preceding sentence, the term “series of
installment payments” has the meaning provided in Treas. Reg. Section 1.409A-2(b)(2)(iii) (or any
successor thereto).
(f) The Company shall have the sole authority to make any accelerated distribution permissible
under Treas. Reg. section 1.409A-3(j)(4) to Participants of deferred amounts, provided that such
distribution(s) meets the requirements of Treas. Reg. section 1.409A-3(j)(4).
22
(g) Whenever an Award conditions a payment or benefit on the Participant’s execution and non-
revocation of a release of claims, such release must be executed and all revocation periods shall have
expired within 60 days after the date of termination of the Participant’s employment; failing which such
payment or benefit shall be forfeited. If such payment or benefit is exempt from Section 409A of the
Code, the Company may elect to make or commence payment at any time during such 60-day period. If
such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection (d)
above, (i) if such 60-day period begins and ends in a single calendar year, the Company may make or
commence payment at any time during such period at its discretion, and (ii) if such 60-day period begins
in one calendar year and ends in the next calendar year, the payment shall be made or commence during
the second such calendar year (or any later date specified for such payment under the applicable Award),
even if such signing and non-revocation of the release occur during the first such calendar year included
within such 60-day period.
17.4. WITHHOLDING. The Company or any Affiliate shall have the authority and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld
with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the Committee may, at the time
the Award is granted or thereafter, require or permit that any such withholding requirement be satisfied, in
whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of
withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax
purposes, all in accordance with such procedures as the Committee establishes. All such elections shall be
subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
17.5. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan, any Award Certificate or
any other document or statement made with respect to the Plan, shall interfere with or limit in any way the
right of the Company or any Affiliate to terminate any Participant's employment or status as an officer,
director or consultant at any time, nor confer upon any Participant any right to continue as an employee,
officer, director or consultant of the Company or any Affiliate, whether for the duration of a Participant's
Award or otherwise. Neither an Award nor any benefits arising under this Plan shall constitute an
employment contract with the Company or any Affiliate and, accordingly, subject to Article 16, this Plan
and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board
of Directors without giving rise to any liability on the part of the Company or an of its Affiliates.
17.6. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant
to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights
that are greater than those of a general creditor of the Company or any Affiliate. This Plan is not intended
to be subject to ERISA.
17.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into
account in determining any benefits under any pension, retirement, savings, profit sharing, group
insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such
other plan.
17.8. EXPENSES. The expenses of administering the Plan shall be borne by the Company and
its Affiliates.
17.9. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for
convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles
or headings, shall control.
23
17.10. GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall include the singular and the
singular shall include the plural.
17.11. FRACTIONAL SHARES. No fractional Shares shall be issued and the Committee shall
determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such
fractional Shares shall be eliminated by rounding up or down.
17.12. GOVERNMENT AND OTHER REGULATIONS.
(a) Notwithstanding any other provision of the Plan, no Participant who acquires Shares
pursuant to the Plan may, during any period of time that such Participant is an affiliate of the
Company (within the meaning of the rules and regulations of the Securities and Exchange
Commission under the 1933 Act), sell such Shares, unless such offer and sale is made (i) pursuant
to an effective registration statement under the 1933 Act, which is current and includes the Shares
to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the
1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act.
(b) Notwithstanding any other provision of the Plan, if at any time the Committee shall
determine that the registration, listing or qualification of the Shares covered by an Award upon
any Exchange or under any foreign, federal, state or local law or practice, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no
Shares may be purchased, delivered or received pursuant to such Award unless and until such
registration, listing, qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares
pursuant to an Award shall make such representations and agreements and furnish such
information as the Committee may request to assure compliance with the foregoing or any other
applicable legal requirements. The Company shall not be required to issue or deliver any
certificate or certificates for Shares under the Plan prior to the Committee's determination that all
related requirements have been fulfilled. The Company shall in no event be obligated to register
any securities pursuant to the 1933 Act or applicable state or foreign law or to take any other
action in order to cause the issuance and delivery of such certificates to comply with any such
law, regulation or requirement.
17.13. GOVERNING LAW. To the extent not governed by federal law, the Plan and all Award
Certificates shall be construed in accordance with and governed by the laws of the State of Delaware.
17.14. ADDITIONAL PROVISIONS. Each Award Certificate may contain such other terms and
conditions as the Committee may determine; provided that such other terms and conditions are not
inconsistent with the provisions of the Plan.
17.15. NO LIMITATIONS ON RIGHTS OF COMPANY. The grant of any Award shall not in any
way affect the right or power of the Company to make adjustments, reclassification or changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of
its business or assets. The Plan shall not restrict the authority of the Company, for proper corporate
purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the
Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful
consideration as the Committee may specify, upon the condition or understanding that the Affiliate will
24
transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant
and specified by the Committee pursuant to the provisions of the Plan.
17.16. INDEMNIFICATION. Each person who is or shall have been a member of the
Committee, or of the Board, or an officer of the Company to whom authority was delegated in accordance
with Article 4 shall be indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by
him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her,
provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the
same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost,
liability, or expense is a result of his or her own willful misconduct or except as expressly provided by
statute. The foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's Certificate of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
17.17. SEVERABILITY. In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or unenforceability will not be
construed as rendering any other provisions contained herein as invalid or unenforceable, and all such
other provisions will be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
25
MICRON TECHNOLOGY, INC.
SUBSIDIARIES OF THE REGISTRANT
Name
Elpida Memory, Inc.
Elpida Memory, (Taiwan) Co., Ltd.
Elpida Memory (USA) Inc.
IM Flash Technologies, LLC
Micron Consumer Products Group, Inc.
Micron Europe Limited(1)
Micron Japan, Ltd.(1)
Micron Semiconductor Asia Pte. Ltd.(1)
Micron Semiconductor B.V.
Micron Semiconductor Israel Ltd.
Micron Semiconductor Italia S.r.l.
Micron Semiconductor Malaysia Sdn. Bhd.
Micron Semiconductor Products, Inc.(1)
Micron Semiconductor (Xi’an) Co., Ltd.
Micron Technology (Shanghai) Co, Ltd.
Micron Technology Italia S.r.l.
Micron Technology Puerto Rico, Inc.
Micron Technology Services, Inc.
Numonyx Holdings B.V.
Rexchip Electronics Corporation
(1) Also does business as Micron Consumer Products Group
EXHIBIT 21.1
State (or Jurisdiction) in
which Organized
Japan
Taiwan
Delaware
Delaware
Delaware
United Kingdom
Japan
Singapore
Netherlands
Israel
Italy
Malaysia
Idaho
China
China
Italy
Puerto Rico
Idaho
Netherlands
Taiwan
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File Nos. 333-143026,
333-158473) and S-8 (File Nos. 333-17073, 333-50353, 333-71249, 333-102545, 333-103341, 333-111170, 333-120620,
333-133667, 333-135459, 333-140091, 333-148357, 333-159711, 333-167536, 333-167536a, 333-171717, 333-179592,
333-190010) of Micron Technology, Inc. of our report dated October 28, 2013 relating to the financial statements, financial
statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
San Jose, CA
October 28, 2013
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 333-143026, 333-158473) and
S-8 (File Nos. 333-17073, 333-50353, 333-71249, 333-102545, 333-103341, 333-111170, 333-120620, 333-133667, 333-135459,
333-140091, 333-148357, 333-159711, 333-167536, 333-167536a, 333-171717, 333-179592, 333-190010) of Micron Technology,
Inc. of our audit report dated October 4, 2013, with respect to the balance sheets of Inotera Memories Inc. as of December 31,
2011 and 2012, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 2012, which report appears in the August 29, 2013 annual report on Form 10-K of
Micron Technology, Inc.
Our report contains an explanatory paragraph that states that as further described in Notes 13 and 26(g) to the financial statements,
Inotera Memories Inc. did not maintain a minimum current ratio of 1:1 and a maximum debt to equity ratio of 1.5:1 at December
31, 2012, as part of the financial covenants originally required of Inotera Memories Inc. under its syndicated bank loan agreements.
On July 2, 2013, the syndicate banks formally agreed to waive the requirement of the Company to comply with its financial loan
covenants for the financial statement year ended December 31, 2012. However, the Company was unable to maintain the same
ratios as of June 30, 2013 and has until November 30, 2013 to cure the breach. The Company will submit a request for a waiver
from complying with these financial covenants, so that the managing bank can convene a meeting of the Banks to consider whether
to grant such waiver. The potential consequences to the Company of a violation of any of its financial covenants pursuant to its
syndicated bank loan agreements are also described in Notes 18(b)(iii) and 26(g) to the financial statements.
/s/KPMG
October 24, 2013
Taipei, Taiwan (the Republic of China)
EXHIBIT 31.1
RULE 13a-14(a) CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
I, D. Mark Durcan, certify that:
1.
I have reviewed this annual report on Form 10-K of Micron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: October 28, 2013
/s/ D. Mark Durcan
D. Mark Durcan
Chief Executive Officer
EXHIBIT 31.2
RULE 13a-14(a) CERTIFICATION OF
CHIEF FINANCIAL OFFICER
I, Ronald C. Foster, certify that:
1.
I have reviewed this annual report on Form 10-K of Micron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: October 28, 2013
/s/ Ronald C. Foster
Ronald C. Foster
Vice President of Finance and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. 1350
I, D. Mark Durcan, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Annual Report of Micron Technology, Inc. on Form 10-K for the period ended August 29, 2013, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the
Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Micron
Technology, Inc.
Date: October 28, 2013
/s/ D. Mark Durcan
D. Mark Durcan
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350
I, Ronald C. Foster, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Annual Report of Micron Technology, Inc. on Form 10-K for the period ended August 29, 2013, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the
Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Micron
Technology, Inc.
EXHIBIT 32.2
Date: October 28, 2013
/s/ Ronald C. Foster
Ronald C. Foster
Vice President of Finance and Chief Financial Officer
Exhibit 99.1
INOTERA MEMORIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2010, 2011 AND 2012
(With Independent Auditors Report)
Independent Auditors Report
The Board of Directors
Inotera Memories, Inc.
Report on the Financial Statements
We have audited the accompanying balance sheets of Inotera Memories, Inc. (the “Company”) as of December 31,
2011 and 2012, and the related statements of operations, changes in stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 31, 2012, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance the
accounting principles generally accepted in the Republic of China; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits in accordance with auditing standards generally accepted in the United States of America and in accordance
with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Inotera Memories, Inc. as of December 31, 2011 and 2012, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2012, in conformity with the accounting principles
generally accepted in the Republic of China.
Emphasis of Matters
As further described in Notes 13 and 26(g) to the financial statements, the Company did not maintain a minimum
current ratio of 1:1 and a maximum debt to equity ratio of 1.5:1 at December 31, 2012, as part of the financial
covenants originally required of the Company under its syndicated bank loan agreement. On July 2, 2013, the
syndicate banks formally agreed to waive the Company’s compliance with its financial loan covenants for the year
ended December 31, 2012. However, the Company was unable to maintain the same ratios as of June 30, 2013 and
has until November 30, 2013 to cure the breach. The Company will submit a request for a waiver from complying
with these financial covenants, so that the managing bank can convene a meeting of the banks to consider whether
to grant such waiver. The potential consequences to the Company of a violation of any of its financial covenants
pursuant to its syndicated bank loan agreement are also described in Notes 18(b)(iii) and 26(g) to the financial
statements. Our opinion is not modified with respect to this matter.
Accounting principles generally accepted in the Republic of China vary in certain significant respects from
accounting principles generally accepted in the United States of America. Information relating to the nature of such
differences is presented in Note 26 to the financial statements.
/s/KPMG
Taipei, Taiwan (the Republic of China)
October 4, 2013
INOTERA MEMORIES, INC.
BALANCE SHEETS
DECEMBER 31, 2011 and 2012
(Expressed in thousands of New Taiwan Dollars)
December 31,
2011
2012
Current assets:
Assets
Liabilities and Stockholders’ Equity
Current liabilities:
Cash and cash equivalents (notes 3 and 18)
$
5,463,640
2,928,065
Short-term loans (notes 11 and 18)
$
Current portion of lease receivables (notes 6 and 19)
Accounts receivable-related parties (notes 18 and 19)
Other receivables (note 19)
Other receivables-related parties (notes 6 and 19)
Inventories, net (note 5)
Prepayments
Total current assets
6,586
7,459,495
273,456
—
3,142,990
2,112,458
6,984
3,859,830
304,345
13,408
4,262,094
1,336,481
Notes and accounts payable (note 18)
Accounts payable-related parties (notes 18 and 19)
Accrued expenses (note 14)
Financial liabilities reported at fair value through profit or loss
(notes 4 and 18)
Other payables-related parties (notes 18 and 19)
18,458,625
12,711,207
Current portion of bonds payable (notes 12 and 18)
Current portion of long-term loans (notes 13 and 18)
Unearned receipts and other current liabilities
Current portion of lease payables (notes 8 and 19)
December 31,
2011
2012
1,874,600
3,050,762
213,752
1,357,219
27,054
22,161,459
13,998,754
16,495,166
69,677
165,728
6,147,400
3,323,866
9,998
1,142,438
—
28,063,572
—
11,650,400
30,769
183,935
Total current liabilities
59,414,171
50,552,378
Property, plant and equipment (notes 6, 7, 8, 13, 19 and 20):
Land
Buildings
Machinery and equipment
Vehicles
Leased assets
Miscellaneous equipment
Less: accumulated depreciation
Construction in progress
Net property, plant and equipment
2,830,117
5,755,543
2,830,117
5,756,324
Long-term liabilities:
Long-term loans (notes 13 and 18)
217,402,758
218,332,921
Lease payables-long-term (notes 8 and 19)
5,416
2,656,223
19,955,312
5,416
2,656,223
20,337,698
Total long-term liabilities
Other liabilities:
248,605,369
249,918,699
Accrued pension liabilities (note 14)
(152,335,171)
(179,608,353)
Guarantee deposits
3,919,469
100,189,667
4,455,353
74,765,699
Total other liabilities
Total liabilities
Other assets:
Idle assets (notes 7 and 13)
Refundable deposits
Deferred charges
Lease receivables-long-term (notes 6 and 19)
Deferred income tax assets-non-current, net (note 15)
Total other assets
Total Assets
See accompanying notes to financial statements.
1,686,190
1,686,190
14,582
13,375
304,491
322,460
12,985
8,375
297,508
322,460
2,341,098
120,989,390
$
2,327,518
89,804,424
Stockholders’ equity (note 16):
Common stock
Capital surplus
Legal reserve
Special reserve
Accumulated deficit (note15)
Total stockholders’ equity
Commitments and contingencies (note 21)
Subsequent events (note 23)
26,620,000
14,970,600
2,498,455
2,314,520
29,118,455
17,285,120
8,313
2,731
11,044
348
2,495
2,843
88,543,670
67,840,341
46,416,950
41,761,490
2,364,141
542,605
(58,639,466)
32,445,720
54,050,540
39,184,799
2,364,141
542,605
(74,178,002)
21,964,083
Total Liabilities and Stockholders’ Equity
$
120,989,390
89,804,424
INOTERA MEMORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 and 2012
(Expressed in thousands of New Taiwan Dollars, except for loss per share)
Operating revenues
Sales revenue
Sales returns
Sales allowances
Net operating revenues (note 19)
Cost of goods sold (notes 5, 8, 14, 16 and 19)
Gross loss
Operating expenses (note 16):
Administrative and general expenses
Research and development expenses (note 9)
Total operating expenses
Operating loss
Non-operating income and gains:
Interest income (notes 6 and 19)
Gain on disposal of fixed assets (note 19)
Foreign exchange gain, net
Gain on valuation of financial assets (note 4)
Others (notes 6, and 19)
Total non-operating income and gains
Non-operating expenses and losses:
Interest expenses (notes 7, 8 and 19)
Foreign exchange loss, net
Impairment loss (note 7)
Loss on valuation of financial liabilities (note 4)
Others
Total non-operating expenses and losses
Loss before income tax
Income tax expense (note 15)
Net loss
Basic loss per share (note 17)
Before tax
After tax
See accompanying notes to financial statements.
For the years ended December 31,
2010
2011
2012
$
41,455,431
(1,410)
(2)
41,454,019
(48,856,906)
(7,402,887)
(333,070)
(1,477,893)
(1,810,963)
(9,213,850)
32,232
30,771
111,990
2,713
38,413
216,119
(1,305,063)
—
(236,763)
(91,439)
(30,316)
(1,663,581)
(10,661,312)
—
37,392,381
(7,148)
(92)
37,385,141
(55,547,973)
(18,162,832)
(306,191)
(1,400,804)
(1,706,995)
(19,869,827)
44,329
90,726
384,454
—
24,372
543,881
35,357,863
(1,976)
(59,900)
35,295,987
(48,846,438)
(13,550,451)
(259,871)
(528,806)
(788,677)
(14,339,128)
19,999
371,289
—
—
16,232
407,520
(1,644,361)
—
—
(5,975)
(26,886)
(1,677,222)
(21,003,168)
—
(1,428,968)
(36,891)
—
(100,937)
(40,132)
(1,606,928)
(15,538,536)
—
$
(10,661,312)
(21,003,168)
(15,538,536)
$
$
(2.34)
(2.34)
(4.53)
(4.53)
(2.95)
(2.95)
INOTERA MEMORIES, INC.
Statements of Changes in Stockholders’ Equity
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 and 2012
(Expressed in thousands of New Taiwan Dollars)
Common
stock
Capital
collected in
advance
Capital
surplus
Legal reserve
Special reserve
Accumulated
deficit
Total
Retained earnings
Balance as of January 1, 2010
Capital increase in cash
$
39,775,120
6,400,000
33,121,318
7,995,000
2,364,141
—
542,605
—
(26,974,986)
—
48,828,198
14,395,000
Shares issued from exercise of employee stock
options
Recognition of compensation costs from
exercise of employee stock options
Net loss for the year ended December 31, 2010
Balance as of December 31, 2010
Shares issued from exercise of employee stock
options
Recognized compensation costs on employee
stock options
Net loss for the year ended December 31, 2011
Balance as of December 31, 2011
Capital increase in cash
Recognized compensation costs on employee
stock options
203,870
—
—
46,378,990
—
—
46,416,950
7,633,590
—
Net loss for the year ended December 31, 2012
Balance as of December 31, 2012
—
54,050,540
$
See accompanying notes to financial statements.
37,960
(3,940)
—
—
—
3,940
—
—
3,940
—
499,585
—
41,615,903
—
—
—
—
—
—
—
2,364,141
—
542,605
(10,661,312)
(37,636,298)
—
—
—
—
—
—
—
145,587
—
41,761,490
(2,633,588)
56,897
—
39,184,799
—
—
—
—
—
—
—
2,364,141
—
542,605
(21,003,168)
(58,639,466)
—
—
—
—
—
—
—
2,364,141
—
542,605
(15,538,536)
(74,178,002)
207,810
499,585
(10,661,312)
53,269,281
34,020
145,587
(21,003,168)
32,445,720
5,000,002
56,897
(15,538,536)
21,964,083
INOTERA MEMORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 2010, 2011 and 2012
(Expressed in thousands of New Taiwan Dollars)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation
Amortization of deferred charges
Compensation costs arising from share-based payments
Loss (gain from price recovery) on obsolescence of inventories
Gain on disposal of fixed and idle assets
Loss on impairment of fixed assets and idle assets
Unrealized foreign currency exchange (gain) loss, net
Interest income from capital lease
Interest expense from capital lease
Change in operating assets and liabilities:
Increase in financial liabilities reported at fair value through profit or loss, net
Decrease (increase) in accounts receivable-related parties
(Increase) decrease in other receivables
Decrease (Increase) in other receivables-related parties
(Increase) decrease in inventories
(Increase) decrease in prepayments
Increase (decrease) in notes and accounts payable
(Decrease) increase in accounts payable-related parties
Increase (decrease) in accrued expenses
(Decrease) increase in other payables-related parties
(Decrease) increase in unearned receipts and other current liabilities
Decrease in accrued pension liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from disposal of fixed and idle assets
(Increase) decrease in refundable deposits
Increase in deferred charges and intangible assets
Decrease in lease receivables
Net cash used in investing activities
Cash flows from financing activities:
(Decrease) increase in short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Repayment of bonds payable
Increase (decrease) in guarantee deposits
Increase in lending from related parties
Decrease in lease payables
Capital collected in advance
Proceeds from capital increase in cash
Net cash provided by (used in) financing activities
Effect of foreign currency exchange translation
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Interest paid
Less : capitalized interest
Interest paid excluding capitalized interest
Income tax paid
Non-cash investing and financing activities:
Current portion of long-term loans
Current portion of lease payables
Current portion of lease receivable
Current portion of bonds payable
Investing activities affecting both cash and non-cash items:
Acquisition of property, plant and equipment
(Increase) decrease in payables to equipment suppliers
Cash paid for acquisition of property, plant and equipment
See accompanying notes to financial statements.
For the years ended December 31,
2011
2012
2010
$
(10,661,312)
(21,003,168)
(15,538,536)
31,137,115
776,469
499,585
797,068
(30,771)
236,763
(510,742)
(18,841)
294,788
(344,340)
3,538,254
(713,608)
3,310
(1,846,692)
(1,256,031)
570,300
(3,786)
333,325
(25,244)
(4,167)
(8,380)
22,763,063
(49,180,961)
267,047
(78,434)
—
24,698
(48,967,650)
(5,930,000)
31,395,000
(13,222,688)
(1,980,000)
1,273
1,618,300
(429,329)
3,940
14,598,870
26,055,366
(118,337)
(267,558)
5,376,225
5,108,667
1,405,454
(107,009)
1,298,445
1,329
12,866,141
149,323
6,211
2,039,083
55,188,822
(6,007,861)
49,180,961
$
$
$
$
$
$
$
$
$
$
31,896,756
782,041
145,587
557,238
(90,726)
—
215,365
(18,487)
280,007
(196,248)
(1,714,603)
485,237
14,106
805,436
(363,510)
(348,690)
109,238
(302,993)
105,243
50,011
(8,651)
11,399,189
(20,978,052)
906,819
66,323
(11,000)
24,698
(19,991,212)
1,874,600
3,500,000
(12,995,620)
(2,040,000)
(916)
19,028,570
(429,330)
—
34,020
8,971,324
(24,328)
354,973
5,108,667
5,463,640
1,779,627
(82,993)
1,696,634
2,183
16,495,166
165,728
6,586
13,998,754
11,639,010
9,339,042
20,978,052
29,670,132
30,863
56,897
(473,854)
(371,289)
—
(29,983)
(18,112)
263,602
(27,054)
3,608,836
(30,889)
(13,408)
(645,250)
775,977
33,119
(172,895)
(214,762)
(69,317)
(38,908)
(7,965)
16,787,204
(4,076,964)
437,270
1,597
—
24,698
(3,613,399)
4,272,800
—
(16,518,783)
(14,000,000)
(236)
5,971,430
(429,330)
—
5,000,002
(15,704,117)
(5,263)
(2,535,575)
5,463,640
2,928,065
1,589,291
(18,829)
1,570,462
321
11,650,400
183,935
6,984
—
4,312,146
(235,182)
4,076,964
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2010, 2011 and 2012
(All amounts are expressed in thousands of New Taiwan Dollars,
except for per share information or unless otherwise specified)
(1) Organization and Principal Activities
Inotera Memories, Inc. (the “Company”) was legally established with the approval by the Ministry of Economic
Affairs on January 23, 2003. The Company’s main operating activities are manufacturing and selling
semiconductor products. In January 2006, the Company was granted approval of its application to list its shares
on the Taiwan Stock Exchange (TSE). The Company’s shares were initially listed on the TSE on March 17,
2006. On May 16, 2006 and August 4, 2009, the Company offered its equity shares in the form of global
depositary shares (GDSs) for trading in the Multilateral Trading Facility (MTF) market on the Luxembourg
Stock Exchange (LSE).
As of December 31, 2011 and 2012, the Company had 3,560 and 3,608 employees, respectively.
(2) Summary of Significant Accounting Policies
The accompanying financial statements are prepared in conformity with the Guidelines Governing the
Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the
Republic of China (ROC).
The significant accounting policies followed by the Company are as follows:
(a) Foreign currency transactions and translation
The Company records its transactions in New Taiwan Dollar. Foreign currency transactions are translated
at the exchange rates on the transaction dates. Foreign currency-denominated assets and liabilities are
translated into New Taiwan Dollars at the exchange rate prevailing on the balance sheet date. The resulting
translation gains or losses are recognized as non-operating income or expenses.
(b) Use of estimates
The preparation of the accompanying financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
2
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(c) Basis for classifying assets and liabilities as current or non-current
Cash and assets that are held primarily for the purpose of being traded or are expected to be realized within
12 months after the balance sheet date are classified as current assets; all other assets are classified as non-
current assets.
Liabilities that are held primarily for the purpose of being traded or are expected to be settled within 12
months after the balance sheet date are classified as current liabilities; all other liabilities are classified as
non-current liabilities.
(d) Financial instruments
The Company has adopted the following policies for financial instruments.
1. Financial assets/liabilities reported at fair value through profit or loss
Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with
transaction costs expensed as incurred. These derivatives are remeasured at fair value subsequently with
changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted
for using settlement date accounting.
Fair value is estimated using valuation techniques which incorporate estimates and assumptions that are
consistent with prevailing market conditions. When the net effect of the fair valuation of derivatives is
positive, the derivative is recognized as a financial asset; but when the net effect is negative, the derivative
is recognized as a financial liability.
2. Accounts receivable
Accounts receivable are assessed to identify whether objective evidence of impairment loss exists on
individual accounts receivable at each balance sheet date. When the result of the assessment indicates
that impairment loss on accounts receivable exists, an impairment loss is recognized. An impairment
loss is recognized in profit or loss in the period when impairment is incurred based on the excess of the
carrying value over the present value of estimated future cash flows at initial effective interest rate. The
carrying value of accounts receivable is reduced through the use of an allowance account.
If the impairment loss decreases in the subsequent period due to the improvement in debtor’s credit
rating, an impairment loss recognized in prior periods is reversed by adjusting the allowance account.
The carrying value after the reversal should not exceed the balance of accounts receivable assuming no
impairment loss was recognized in prior periods. The reversal of impairment loss is recognized as a gain
in the period when impairment loss decreases.
(Continued)
3
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(e) Impairment of non-financial assets
At each balance sheet date, an assessment is made whether there is any indication that an asset (individual
asset or cash-generating unit) may have been impaired. If any such indication exists, the recoverable amount
of the asset is estimated. An impairment loss is recognized for an asset whose carrying value is higher than
the recoverable amount.
An impairment loss recognized in prior periods for assets is reversed if there is any indication that the
impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should
not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no
impairment loss was recognized in prior periods.
(f) Inventories
Inventory costs include the expenditures required until the inventories are ready for sale or production. The
fixed production overheads are allocated to finished goods and work in process based on the normal capacity
of the production facilities. The variable production overheads are allocated based on actual output.
Inventories are measured at the lower of cost and net realizable value. Net realizable value is based on the
estimated selling price of the inventories in the ordinary course of business, less the estimated costs of
completion and selling expenses.
(g) Property, plant and equipment / Depreciation
Property, plant and equipment are stated at cost less accumulated depreciation. Interest costs related to the
construction of property, plant and equipment are capitalized and included in the cost of the related assets.
Regular maintenance and repairs are expensed when incurred; major addition, improvement and replacement
expenditures are capitalized.
Depreciation of property, plant and equipment is provided over their estimated useful lives by using the
straight-line method. In accordance with the Interpretation Rule (97) 340 issued by the Accounting Research
and Development Foundation (ARDF), on November 12, 2008, the estimated useful lives, depreciation
method and residual value of these assets are reviewed at least at each financial year-end. Any change in
the estimated useful lives, depreciation method and residual value of these assets is treated as a change in
an accounting estimate. The estimated economic useful lives of the assets are as follows:
(i)
Buildings: 8 to 50 years.
(ii)
Vehicles: 5 years.
(iii) Machinery and equipment: 3 to 5 years.
(iv)
Leased assets: over the lease term
(v)
Miscellaneous equipment: 3 to 15 years.
(Continued)
4
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Gains or losses on disposal of property, plant and equipment are recorded as non-operating income or
expenses.
(h) Intangible asset-Technical know-how
An intangible asset is measured initially at cost. Subsequent to initial recognition, an intangible asset is
measured at its cost less any accumulated amortization and any accumulated impairment losses.
The amortizable amount of the Company’s intangible asset is determined based on its initial cost.
Amortization is recognized as an expense using the straight-line amortization method over the estimated
useful life of an intangible asset of 27 months from the date that it is made available for use. The amortization
period and method for an intangible asset with a finite useful life are reviewed at least at each financial
year-end and any change thereon is accounted for as a change in accounting estimate.
(i) Deferred charges
Power line installation costs are deferred and amortized over the estimated useful lives or the agreement
terms.
(j) Employee retirement plan
The Company has established an employee noncontributory defined benefit retirement plan (the “Plan”)
covering full-time employees in the Republic of China. In accordance with the Plan, employees are eligible
for retirement or are required to retire after meeting certain age or service requirements. Payments of
retirement benefits are based on years of service and the average salary for the last six months before the
employee’s retirement. Each employee gets 2 months’ salary for each service year for the first 15 years,
and 1 month salary for each service year thereafter. A lump-sum retirement benefit is paid through the
retirement fund.
Starting from July 1, 2005, the enforcement rules of the newly enacted Labor Pension Act (the “New Act”)
stipulate those employees covered by the defined contribution plan as follows:
(i) Employees who were covered by the Plan and opt to be subject to the pension mechanism under the
New Act;
(ii) Employees who are employed after the enforcement date of the New Act.
(Continued)
5
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
In accordance with the New Act, an employer is required to contribute monthly an amount to an individual
labor pension fund account at a rate of not less than 6% of the worker’s monthly wages. The Plan has not
been modified to conform to the New Act. For those provisions of the New Act not currently included in
the Plan, the Company follows the New Act. The Company contributes monthly to the individual labor
pension fund at the rate of 6% of paid salaries and wages and recognizes it as an expense on accrual basis.
This fund is deposited with Bureau of Labor Insurance.
The Company adopts the guidance in Statement of Financial Accounting Standards (SFAS) No. 18
“Accounting for Pensions” for its defined benefit retirement plan. SFAS No. 18 requires an actuarial
calculation of the Company’s pension obligation at the end of each year. Based on the actuarial calculation,
the Company recognizes a minimum pension liability and net periodic pension costs. The Company provides
monthly contributions to the retirement fund at the rate of 2% of paid salaries and wages. This fund is
deposited with Bank of Taiwan.
(k) Income tax
The Company has adopted SFAS No. 22 “Income Taxes”, under which, income taxes are accounted for
using the asset and liability method. Deferred income tax is determined based on differences between the
financial statements and tax basis of assets and liabilities using enacted tax rates in effect during the years
in which the differences are expected to reverse. The income tax effects of taxable temporary differences
are recognized as deferred income tax liabilities. The income tax effects resulting from deductible temporary
differences, net operating loss carryforwards, and income tax credits are recognized as deferred income tax
assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than
not that the asset will not be realized, a valuation allowance is recognized accordingly.
Deferred income tax assets and liabilities are classified as current or non-current based on the classification
of the related asset or liability. If the deferred income tax asset or liability is not directly related to a specific
asset or liability, then the classification is based on the expected realization date of the asset or liability.
Any tax credits arising from purchases of machinery and equipment, research and development expenditures,
and personnel training expenditures are recognized using the flow-through method.
According to the ROC Income Tax Law, undistributed earnings calculated on tax basis, if any, is subject to
an additional 10% retained earnings tax. The 10% surtax on undistributed earnings is charged to current
income tax expense in the year when the shareholders decided during their meeting not to distribute the
earnings.
(Continued)
6
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(l) Share-based payments
Share-based payments, including those under the employee stock option plans, are accounted for under
SFAS No. 39 “Share-Based Payment”, which is effective from January 1, 2008. The Interpretation Rules
(92) 070, 071, and 072 issued by the ARDF are applied for those share-based payments under the employee
stock option plans with grant dates before January 1, 2008. Under SFAS No. 39, share-based payments are
accounted for as follows:
(i) The share-based awards are measured at fair value on grant date. The grant-date fair value of equity-
settled awards is expensed over the vesting period with the corresponding increase in equity. Also, the
vesting period is estimated based on the vesting conditions of the share-based option plan that must be
satisfied. These vesting conditions include service conditions and performance conditions. In
determining the grant-date fair value of equity-settled awards, vesting conditions other than market
conditions are not taken into account.
(ii) Fair value is measured using the Black-Scholes option pricing model, which considers management’s
best estimate of the exercise price, expected term, underlying shares price, expected volatility, expected
dividends, and risk-free interest rate to the model.
(iii) The Company is not required to apply SFAS No. 39 retroactively to share-based payment transactions
that occurred before January 1, 2008; however, the disclosure of pro forma net income and earnings
per share thereon is still required.
(m) Bonus to employees and remuneration to directors and supervisors
Under the Interpretation Rule (96) 052 issued by the ARDF, which is effective from January 1, 2008, the
appropriations of bonus to employees and remuneration to directors and supervisors from current year’s
earnings are accrued under operating expense or cost of goods sold in the year when earnings are incurred
based on the estimated amounts. The differences between the amounts approved in the shareholders meeting
in the following year and those accrued in the current year, if any, are treated as a change in accounting
estimate and are charged to profit or loss in the following year.
(n) Revenue recognition
Revenue is generally recognized when it is realized or realizable and earned when all of the following
criteria are met:
(i)
persuasive evidence of an arrangement exists,
(ii)
shipment has occurred or services have been rendered,
(iii)
the seller’s price to the buyer is fixed or determinable, and
(iv)
collectibility is reasonably assured.
(Continued)
7
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Rental income is recognized when services are provided.
The related costs of goods sold are recognized as the revenue is recognized. Expenses are recognized on
accrual basis as incurred.
(o) Capital leases
A lease is deemed to be a capital lease if it conforms to any one of the following classification criteria:
(i) the lease transfers ownership of the leased assets to the lessee by the end of the lease term;
(ii) the lease contains a bargain purchase option;
(iii) the lease term is equal to 75% of or more of the total estimated economic life of the leased assets; this
criterion should not be applied to leases in which the leased asset has been used for more than 75% of
its estimated economic life before the lease begins;
(iv) the present value of the rental plus the bargain purchase price or the guaranteed residual value is at least
90% of the fair market value of the leased assets at the inception date of the lease.
For the lessor, a capital lease must also conform to any one of the four classification criteria specified above
and both of the following two further criteria:
(i) collectibility of the lease payments is reasonably predictable; and
(ii) no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor
under the lease.
Under a capital lease, the Company, as the lessee, capitalizes the leased assets based on (a) the present value
of all future installment rental payments (minus executory cost born by lessor) plus bargain purchase price
or lessee’s guaranteed residual value or (b) the fair market value of leased assets at the lease inception date,
whichever is lower. The depreciation period is restricted to the lease term, rather than the estimated useful
life of the assets, unless the lease provides for transfer of title or includes a bargain purchase option.
Under a capital lease, the Company, as the lessor, records all installments plus bargain purchase price or
guaranteed residual value as the lease receivables. The implicit interest rate is used to calculate the present
value of lease receivables as the cost of leased assets transferred. The difference between the total amount
of lease receivables and the cost of leased assets transferred is recognized as unrealized interest income and
is then recognized as realized interest income using the interest method over the lease term.
(Continued)
8
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(p) Loss per share
Loss per common share is computed by dividing net loss by weighted-average number of outstanding shares
during the year.
Stock options and stock bonus to employees accrued in current year’s earnings and awaiting approval by
the shareholders in the following year, are potential common shares. Both basic and diluted loss per share
are disclosed if those potential common shares are dilutive, otherwise, only basic earnings (loss) per share
is disclosed. Diluted loss per share is computed by taking basic loss per share into consideration, plus the
additional common shares that would have been outstanding if the potentially dilutive shares are issued.
The number of outstanding shares is retroactively adjusted for common stock issued through the distribution
of stock dividends out of unappropriated earnings and capital surplus.
(q) Operating segment disclosure
The Company identifies operating segments on the basis of internal reports about the components of the
Company that is regularly reviewed by the chief operating decision maker, the Chief Executive Officer, for
the purpose of allocating resources to the segment and to assess its performance. The Company operates
and internally manages a single operating segment, DRAM.
(3) Cash
Cash on hand-petty cash
Cash in bank-checking account
Cash in bank-demand deposit account
Cash in bank-foreign currency account
Certificate of deposit-foreign currency account
December 31,
2011
2012
$
$
30
41,124
547
1,393,369
4,028,570
5,463,640
30
1,809
2,014
1,176,052
1,748,160
2,928,065
(4) Financial Liabilities Reported at Fair Value through Profit or Loss-Current
Financial liabilities reported at fair value with changes in fair value recorded through profit or loss as of December
31, 2011 and 2012, consisted of the following:
Financial liabilities
Interest rate swaps
December 31,
2011
2012
$
27,054
—
(a) The Company entered into several interest rate swaps agreements (IRS) with banks to manage the risk
from fluctuations of interest rates for long-term loans.
(Continued)
9
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) As of December 31, 2011, derivative financial instruments that did not qualify for hedge accounting were
accounted for as financial liabilities reported at fair value through profit or loss, details of which were as
follows:
(i) Interest rate swaps:
Notional amount
(in thousands) Maturity Date
December 31, 2011
Range of
Interest Rates Paid
Range of
Interest Rates Received
NTD 7,500,000
2012.2.21
2.24%~2.432%
NTD 90-day commercial paper in
secondary market average rate
(c) For the years ended December 31, 2010, 2011 and 2012, the Company recognized net gain (loss) on
valuation of financial instruments as follows:
For the years ended December31,
2010
2011
2012
Realized
Unrealized
Realized
Unrealized
Realized
Unrealized
Foreign exchange swaps
Interest rate swaps
Cross-currency swaps
$
$
2,713
(348,610)
—
(345,897)
—
257,171
—
257,171
—
(117,533)
—
(117,533)
—
111,558
—
111,558
—
115
(101,052)
(100,937)
—
—
—
—
(5) Inventories, net
Work in process
Less: allowance for inventory
Sub-total
Raw materials
Less: allowance for inventory
Sub-total
Total
December 31,
2011
2012
$
$
4,144,234
(1,481,918)
2,662,316
486,161
(5,487)
480,674
3,142,990
4,825,537
(1,010,466)
3,815,071
450,108
(3,085)
447,023
4,262,094
(Continued)
10
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
The Company recognized a loss from devaluation of inventories of $797,068 and $557,238, for the years ended
December 31, 2010 and 2011, respectively,which was debited to cost of goods sold as the carrying value of
inventories exceeded the net realizable value thereof as of December 31, 2010 and 2011. Also, as the net
realizable value of inventories has increased because the circumstance that caused the inventory devaluation
in prior period has improved, the Company recognized gain from recovery in the value of inventories of $473,854
for the year ended December 31, 2012, which was credited to cost of goods sold.
(6) Lease Receivables
(a) The Company signed a long-term lease agreement with Nanya Technology Corp. (NTC) to lease out a
portion of the building and land (including supplemental equipment) located at No. 667, Fuhsing 3rd Road,
Hwa-Ya Technology Park, Kueishan Valley, Taoyuan County. The lease term covers a total lease period of
354 months commencing from July 1, 2005, and will expire on December 31, 2034 (including the period
when the lease is automatically extended). The lease of the building is treated as a capital lease because the
present value of the periodic rental payments since the inception date is at least 90% of the market value
of the leased assets. However, the lease of the land is treated as an operating lease because the fair value
of the land is 25 percent or more of the total fair value of the leased property at the inception of the lease.
The monthly rentals for the lease of building and land were $2,058 and $310, respectively.
(b) The initial total amount of lease receivables for the capital lease of the building was $728,587, with implicit
interest rate of 5.88%. The net carrying value of leased assets was $345,637 (consisting of the net book
value of the building and miscellaneous equipment of $277,372 and $68,265, respectively). The difference
of $382,950 between the total amount of lease receivables and the net carrying value of leased assets was
recognized as unrealized interest income and is amortized over the lease period. Interest income recognized
for the years ended December 31, 2011 and 2012 amounted to $18,487 and $18,112, respectively, which
was classified under non-operating income and gains-interest income.
(c) The details of lease receivables as of December 31, 2011 and 2012, were as follows:
December 31,
2011
2012
Current
Non-current
Current
Non-current
Gross lease receivables
Less: unrealized interest income
Net lease receivables
$
$
24,698
(18,112)
6,586
543,353
(238,862)
304,491
24,698
(17,714)
6,984
518,655
(221,147)
297,508
(d) For the years ended December 31, 2010, 2011 and 2012, the rent revenues (classified under non-operating
income and gains-others) from the operating lease of the land were the same for each of these years at
$3,719.
(Continued)
11
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(e) Future gross lease receivables for leases classified as capital lease or operating lease as of December 31,
2012, were as follows:
Duration
2013.1.1~2013.12.31
2014.1.1~2014.12.31
2015.1.1~2015.12.31
2016.1.1~2016.12.31
On and after 2017.1.1
Total
December 31, 2012
Capital
lease
Operating
lease
$
$
24,698
24,698
24,698
24,698
444,561
543,353
3,719
3,719
3,719
3,719
66,932
81,808
(7) Property, Plant and Equipment and Idle Assets
(a) In March 2007, the Company has secured the approval to purchase two parcels of land numbered 21 and
33 located in Taoyuan Hi-Tech Industrial Park Tang Wei District, for $1,686,190 from the Taoyuan County
Government. Asia Pacific Development Co. was engaged by the Taoyuan County Government to handle
the sale of the land in this industrial park. As the land is not being used in operation, it was classified as an
idle asset.
(b) Fixed and intangible assets are normally assessed for any impairment each year. Also, idle assets-machinery
and equipment based on book value were provided with a 100% impairment loss provision.
(c) Idle assets as of December 31, 2011 and 2012 consisted of the following:
Land
Original cost of machinery and equipment
Less: accumulated depreciation
impairment loss
December 31,
2011
2012
$
$
1,686,190
3,244
(1,352)
(1,892)
1,686,190
1,686,190
—
—
—
1,686,190
(Continued)
12
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(d) The bases for the capitalization of interests for the years ended December 31, 2010, 2011 and 2012, were
as follows:
For the years ended December31,
2011
2012
2010
Total interest expenses
Capitalized interest (charged to construction in progress)
Capitalized interest rates
$
1,412,072
107,009
1,447,797
18,829
1.8815%~2.1342% 1.7786%~1.9398% 1.8248%~2.0069%
1,727,354
82,993
(e) The property, plant and equipment pledged to secure bank loans were described in note 13.
(8) Leased Assets and Lease Payables
(a) On June 18, 2009, the Company signed an amended long-term lease agreement with NTC and MeiYa
Technology Corp. (MTC) on the lease of building, facilities and land located on the land numbered 348,
348-1 and 348-3, Hwa-Ya Section, Kueishan Valley, Taoyuan County, which were originally leased by NTC
to MTC. This amended lease agreement, which took effect retroactively from January 1, 2009, includes the
renewal term. Initial lease term is from January 1, 2009 to December 31, 2018 but the Company is entitled
to renew this amended lease agreement for an unlimited number of consecutive additional terms of five
years each by formally notifying NTC of the Company’s intention to renew the lease term commencing
from January 1, 2019. In addition, the Company has an exclusive option to purchase the leased assets for
a total purchase price of US$50,000 thousand on and after January 1, 2024. Also, the rental due for the
entire year of 2009 has been waived. Initial yearly rentals for the leased building including facilities and
land are US$13,010 thousand and US$1,990 thousand, respectively from January 1, 2010 to December 31,
2018; the first yearly renewal rentals for the leased building including facilities and land are US$8,010
thousand and US$1,990 thousand, respectively from January 1, 2019 to December 31, 2023; the subsequent
yearly renewal rentals for the leased building including facilities and land are US$10 thousand and US
$1,990 thousand commencing from January 1, 2024. The amended lease agreement for the building
including facilities is treated as a capital lease because (a) the present value of the periodic rental payments
made since the inception date is at least 90% of the market value of the leased assets and (b) the lease term
is equal to 75% or more of the total estimated economic life of the leased assets. However, the lease of land
is treated as an operating lease because the fair value of the land is 25 percent or more of the total fair value
of the leased property at the inception of the lease. The total present value of lease payables from the capital
lease of the building including facilities was $2,656,223; the implicit interest rate was 10.56%. The fair
value of the leased assets at the beginning of the lease period was $2,656,223. The Company recognized
interest expenses from lease payables of $294,788, $280,007 and $263,602, for the years ended December
31, 2010, 2011 and 2012, respectively.
(Continued)
13
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) As of December 31, 2011 and 2012, the details of these lease payables were as follows:
Lease payables
Less: current portion of lease payables
Lease payables-long-term
December 31,
2011
2012
$
$
2,664,183
(165,728)
2,498,455
2,498,455
(183,935)
2,314,520
(c) For the years ended December 31, 2010, 2011 and 2012, the lease expenses for the operating lease of the
land (classified under manufacturing overhead) were $63,351, $59,289 and $59,273, respectively.
(d) Future lease payments (excluding interest component) for leases classified as capital lease or operating
lease as of December 31, 2012, were as follows:
Duration
2013.1.1~2013.12.31
2014.1.1~2014.12.31
2015.1.1~2015.12.31
2016.1.1~2016.12.31
On and after 2017.1.1
Total
December 31, 2012
Capital lease
$
$
183,935
204,143
226,571
251,463
1,632,343
2,498,455
Operating
lease
(in thousands
of US Dollars)
1,990
1,990
1,990
1,990
15,920
23,880
(9)
Intangible Asset-Technical know-how
For the years ended December 31, 2010, 2011 and 2012, the amortization expenses (classified under operating
expenses-research and development expenses) were $723,422, $723,422, and $0 respectively.
(10) Overdue Receivables
On January 23, 2009, Qimonda AG filed an application with the local court in Germany to open insolvency
proceedings. Consequently, full allowance for doubtful accounts was provided on all outstanding accounts
receivable from Qimonda AG totaling $3,345,946, which was originally classified under accounts receivable.
Such receivable was reclassified to other assets-overdue receivables and was fully written off against the
allowance for doubtful accounts as of December 31, 2012.
(Continued)
14
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(11) Short-term Loans
December 31,
2011
2012
Short-term borrowing from credit facility
Annual interest rate
$
1,874,600
6,147,400
0.9%-1.5% 1.00%-2.80%
(12) Bonds Payable
Bonds payable as of December 31, 2011 and 2012, consisted of the following:
Domestic unsecured corporate bonds
Less: current portion of bonds payable
Total
December 31,
2011
2012
$
$
13,998,754
(13,998,754)
—
—
—
—
The details of bonds payable, which do not include any financial covenants, were as follows:
The second domestic
unsecured corporate bond
in 2006
The first domestic
unsecured corporate bond
in 2007
The second domestic
unsecured corporate
bond in 2007
Principal
Current portion as of December
31, 2011
Par value
Duration
Coupon rate and
interest payment
Repayment term
4,000,000
5,000,000
5,000,000
4,000,000
1,000
2007.01.05 - 2012.01.05
Interest payable
annually at 2.23%
Repayable on maturity date
4,999,587
1,000
2007.03.30 - 2012.03.30
Interest payable
annually at 2.17%
Repayable on maturity date
4,999,167
1,000
2007.05.09 - 2012.05.09
Interest payable
annually at 2.20%
Repayable on maturity date
(Continued)
15
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(13) Long-term Loans
Long-term loans as of December 31, 2011 and 2012, consisted of the following:
Bank
Duration
Nature
Interest rate
December 31, 2011
Mega International Commercial
Bank (the managing bank)
Mega International Commercial
Bank (the managing bank)
Mega International Commercial
Bank (the managing bank)
Taichung Bank
Taichung Bank
(1) March 30, 2007~
March 30, 2012
(1) March 30, 2007~
March 30, 2012
(2) May 27, 2010~
May 27, 2015
(3) December 24, 2010~
December 24, 2013
(3) December 24, 2010~
December 24, 2013
Machinery loan
1.6327%~1.6842% $
4,498,313
Machinery loan
1.6148%~1.6279%
2,016,853
Machinery loan
1.6505%~1.7484%
34,930,000
Operating use
1.7550%~1.8610%
1,070,000
Operating use
1.8550%~1.9610%
600,000
Less: current portion of long-term loans
43,115,166
(16,495,166)
26,620,000
$
Bank
Duration
Nature
Interest rate
December 31, 2012
Mega International Commercial
Bank (the managing bank)
Taichung Bank
Taichung Bank
(2) May 27, 2010~
May 27, 2015
(3) December 24, 2010~
December 24, 2013
(3) December 24, 2010~
December 24, 2013
Machinery loan
1.7484%~1.7758% $
24,951,000
Operating use
1.8610%~1.9020%
1,070,000
Operating use
1.9610%~2.0020%
600,000
Less: current portion of long-term loans
26,621,000
(11,650,400)
14,970,600
$
(1) On March 5, 2007, the Company signed a syndicated loan agreement with Mega International Commercial
Bank, the managing bank of the syndicated loan, and 24 other banks (the actual number of banks had
increased to 27 in total). The Company’s actual drawings of the syndicated loan amounted to US$400,000
thousand and $26,997,000. The details of this loan are as follows:
(a) Credit line: US$400,000 thousand and $27,000,000.
(b) Interest rate for Tranche A: USD 3-month or 6-month London Inter-bank Offered Rate (“LIBOR”)
plus margin.
(c) Interest rate for Tranche B: 90-day or 180-day commercial paper rate in the secondary market which
appears on Moneyline Telerate, plus margin.
(d) The interest rates under items 1(b) and 1(c) above shall not be lower than the minimum limit of 1.6%
(e) Duration: 5 years.
(Continued)
16
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(f) Repayment: The principal is payable in 6 semi-annual installments starting from 30 months after the
first drawing date.
(g) The Company has issued a promissory note for this syndicated loan.
(h) As of December 31, 2012, the Company has fully repaid the syndicated loan.
(i) The long-term loan is secured by machinery and equipment. As of December 31, 2011, the net book
value of these pledged assets amounted to $18,988,417.
(2) The Company signed another syndicated loan agreement with Mega International Commercial Bank, the
managing bank of the syndicated loan, and 24 other banks on May 10, 2010. As of December 31, 2012,
the Company applied for drawings of $35,000,000. The details of this loan are as follows:
(a) Credit line: $35,000,000.
(b) Interest rate: 90-day or 180-day commercial paper rate in the secondary market which appears on
Moneyline Telerate, plus margin.
(c) The interest rates above shall not be lower than the minimum limit of 1.6%.
(d) Duration: 5 years.
(e) Repayment: The principal is payable in 7 semi-annual installments starting from 24 months after the
first drawing date.
(f) The Company has issued a promissory note for this syndicated loan.
(g) As of December 31, 2012, the Company’s repayments amounted to $10,000,000.
(h) The long-term loan is secured by machinery and equipment. As of December 31, 2011 and 2012, the
net book value of these pledged assets amounted to $30,638,378 and $21,362,494, respectively.
According to the above two long-term loan agreements, the Company was required to comply with certain
financial covenants by maintaining certain financial ratios. If the Company breaches these financial
covenants, the syndicated banks may determine to declare unpaid principal, interest, fees and other sums
payable by the Company under the Loan Agreement to be immediately due and payable. These financial
ratios are as follows:
(a) Current Ratio (total current assets to total current liabilities): not less than one (1) to one (1) (under
the syndicated loan agreement on May 27, 2010, compliance with the current ratio will commence
from calendar year of 2012).
(Continued)
17
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) Leverage Ratio (total liabilities plus contingent liabilities to tangible net worth): not higher than one
and a half (1.5) to one (1).
(c) Interest Coverage Ratio (EBITDA to interest expenses): shall not be less than four (4) to one (1).
In addition, the long-term loan agreement require that (i) no material adverse change shall be made to the
supply agreement signed by the Company, Nanya Technology Corporation (NTC), and Micron Technology
Inc., and (ii) NTC and Micron Technology Inc. and their affiliates, taken as a whole, directly or indirectly,
shall remain the largest shareholders of the Company and retain control over the Company.
In the event that any of the above financial covenants is breached, the Company is required to cure the
breach, no later than the end of November in the relevant calendar year, for a breach in respect of any
semi-annual financial statements, and for a breach in respect of any annual financial statements, no later
than the end of June of the following calendar year, or to submit a formal letter to the managing bank at
least two months prior to the expiration of the Remedial Period, so that the managing bank can convene
a meeting of the Banks to discuss the aforesaid breach and to resolve before the expiration of the Remedial
Period on whether a waiver of the breach will be granted.
On November 10, 2011, the syndicate banks formally agreed further to waive the Company’s obligation
to comply with its financial loan covenants under its first syndicate loan of US$400,000 thousand and
$27,000,000 and second syndicate loan of $35,000,000 in connection with their review of the financial
statements for the six-month period ended June 30, 2011. Also, on June 8 and November 5, 2012 and July
2, 2013, the syndicate banks formally agreed further to waive the Company’s obligation to comply with
its financial loan covenants under its second syndicate loan of $35,000,000 in connection with their review
of the Company’s financial statements for the year ended December 31, 2011 and for the six-month period
ended June 30, 2012 and for the year ended December 31, 2012, respectively.
(3) On April 24, 2009, the Company contracted with Taichung Bank, under which, Taichung Bank granted
mortgage loan and unsecured loan facility to the Company totaling $1,670,000. The mortgage loan is
secured by a land with carrying value of $1,686,190 (accounted for as idle asset) that is intended for the
construction of the third Fab. Each of these loans, with a term of two years and which bears interest rate
based on two-year time deposit floating rate, is payable in lump sum on maturity date. On December 24,
2010, the Company renewed the loan agreement with Taichung Bank, under which, Taichung Bank agreed
to prolong the term of mortgage loan and unsecured loan facility granted to the Company to a term of
three years. These mortgage loan and unsecured loan facility, which bear interest rate based on 90-day or
180-day commercial paper rate in the secondary market appearing on Moneyline Telerate plus margin,
are payable in lump sum on maturity date and do not involve any financial covenants.
(Continued)
18
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(14) Accrued Pension Liabilities
(a) The pension costs and related accounts as of and for the years ended December 31, 2010, 2011 and 2012,
were as follows:
For the years ended December 31,
2011
2012
2010
Periodic pension costs
Defined benefit plan cost
Defined contribution plan cost
$
2,571
102,823
1,762
115,418
2,029
117,356
December 31,
2011
2012
Balance of the retirement fund
Accrued pension liabilities-defined benefit plan
Accrued expenses-defined contribution plan
$
106,548
8,313
31,421
117,500
348
30,525
(b) The funded status was reconciled to accrued pension liability as of December 31, 2011 and 2012 as follows:
Benefit obligation:
Vested benefit obligation
Non-vested benefit obligation
Accumulated benefit obligation
Projected compensation increase
Projected benefit obligation
Fair value of plan assets
Funded status
Unamortized pension gain or losses
Accrued pension liability
December 31,
2011
2012
$
$
(6,672)
(58,102)
(64,774)
(45,447)
(110,221)
108,300
(1,921)
(6,392)
(8,313)
(7,040)
(61,748)
(68,788)
(44,936)
(113,724)
119,381
5,657
(6,005)
(348)
(c) As of December 31, 2011 and 2012, the actuarial present value of the vested benefits for the Company’s
employees in accordance with the retirement benefit plan was approximately $7,329 and $7,672,
respectively.
(Continued)
19
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(d) Major assumptions used to determine the pension plan funded status for the years ended December 31,
2010, 2011, and 2012, were as follows:
For the years ended December 31,
2011
2012
2010
Discount rate
Rate of increase in compensation
Expected long-term rate of return on plan
assets
2.75%
3.00%
2.75%
2.00%
2.50%
2.00%
2.00%
2.50%
2.00%
(15) Income Tax
(a) The Company is subject to income tax at a statutory rate of 17%, and is also subject to the requirements of
the “Income Basic Tax Act” in calculating the basic tax. For the years ended December 31, 2010, 2011 and
2012, the components of income tax expense were as follows:
For the years ended December 31,
2011
2012
2010
Income tax expense-current
Income tax benefit-deferred
Income tax expense
$
$
—
—
—
—
—
—
—
—
—
The components of deferred income tax expense for the years ended December 31, 2010, 2011 and 2012,
were as follows:
For years ended December 31,
2011
2012
2010
(Increase in) expired unused investment tax credit
Unused loss carry forward
Realized (loss) gain from price recovery on obsolete inventories
Allowance for doubtful accounts
Valuation gain on financial instruments
Change in depreciation of idle and fixed assets
Realized (unrealized) depreciation for tax filing
Realized interest expenses
Allowance for valuation of deferred tax assets
Decrease (increase) in unrealized foreign exchange gain or loss
(Unrealized) realized unallocated overhead and labor costs
Deferred income tax effect of change in income tax rate
Realized pension expense
Deferred income tax expense
$
$
(272,860)
(2,008,726)
(131,509)
90,066
75,567
(38,966)
190,663
58,365
1,035,022
148,655
(48,177)
900,476
1,424
—
3,349,420
(3,397,027)
(94,730)
2,942
33,362
—
(41,505)
—
221,001
(22,532)
(52,402)
—
1,471
—
1,991,108
(3,371,616)
80,555
550,442
4,599
—
54,816
—
650,013
7,680
31,049
—
1,354
—
(Continued)
20
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) The income tax calculated at a statutory income tax rate on loss before income tax was reconciled with the
income tax expense as reported in the accompanying financial statements for the years ended December
31, 2010, 2011 and 2012, as follows:
For years ended December31,
2011
2012
2010
Income tax calculated based on pretax financial loss
Decrease in income tax credit on purchase of machinery
and equipment
Increase in valuation allowance for deferred income tax
assets
Effect of changes in income tax rate
Prior year income tax adjustment
Others
Income tax expense
$
(1,812,423)
(3,570,538)
(2,641,551)
(272,860)
3,349,420
1,991,108
1,035,022
1,046,077
4,064
120
—
$
221,001
—
—
117
—
650,013
—
—
430
—
(c) As of December 31, 2011 and 2012, the components of deferred income tax assets or (liabilities) were as
follows:
Current deferred income tax assets:
Unused investment tax credit
Allowance for inventory devaluation and obsolescence
Allowance for uncollectible accounts
Unrealized valuation loss on financial instruments
Unrealized foreign exchange loss
Unrealized unallocated overhead and labor
Valuation allowance for deferred income tax assets
Current deferred income tax assets, net
Current deferred income tax liabilities:
Unrealized foreign exchange gain
Net current deferred income tax assets
Non-current deferred income tax assets
Unused investment tax credit
Loss carry forward
Allowance for impairment loss on fixed and idle assets
Unrealized depreciation for tax filing
Unrealized pension expense
Valuation allowance for deferred income tax assets
Non-current deferred income tax assets, net
December 31,
2011
2012
$
$
$
$
1,610,489
252,859
550,442
4,599
2,583
100,579
(2,521,551)
—
—
—
2,785,069
10,322,970
14,227
56,755
1,413
(12,857,974)
322,460
405,964
172,304
—
—
—
69,530
(642,701)
5,097
(5,097)
—
1,998,486
13,694,586
3,565
12,601
59
(15,386,837)
322,460
Full valuation allowance was provided for most of the components of deferred tax assets as management
believes that they are not expected to be realized in future years.
(Continued)
21
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(d) Under the ROC Statute for Upgrading Industries, the Company’s unused investment tax credits as of
December 31, 2012, were as follows:
Purchase of
machinery and
equipment
Personnel training and research
and development expenditures
Expiry
Year
376,714
1,998,486
2,375,200
29,250
—
29,250
2013
2014
Year
2009
2010
$
$
ROC Income Tax Law provides an investment tax credit to companies that purchase certain types of
equipment and machinery. Such tax credit can be used to reduce by up to 50% of income tax liability for
each of the four years commencing from the year of equipment purchase, and can be used further to reduce
by up to 100% of such income tax liability in the fifth year.
(e) As of December 31, 2012, unused loss carry forward tax credits available to the Company were as follows:
Year
Unused loss carry forward tax credits
Expiry Year
2008
2009
2010
2011
2012
$
$
16,011,859
12,234,762
12,294,482
19,781,284
20,234,000
80,556,387
2018
2019
2020
2021
2022
(f) The Company’s income tax returns have been examined by the ROC tax authority through 2010.
(g) Undistributed earnings, imputation credit account (ICA) and creditable ratio
Accumulated deficit after 1997
Imputation credit account
Creditable ratio
December 31,
2011
2012
$ (58,639,466)
181,287
$
(74,178,002)
181,287
2011
2012
—%
—%
(Continued)
22
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(h) The stockholders approved a resolution during their meetings on June 29, 2007, and June 8, 2011, allowing
the Company to avail of the Income Tax Holiday, specifically an exemption from paying corporate income
tax for its qualifying investment projects under Article 9 of the Statute for Upgrading Industries. On June
23, 2010, the Company was approved by Ministry of Finance, R.O.C. to avail of this tax holiday for five
years commencing from January 1, 2011, from its Fab1-Phase 4 and Fab- 2. As of December 31, 2012, the
Company had so far filed with the Industrial Development Bureau an application for the registration of its
investment project of migrating to 50nm technology.
Inotera Fab-1-Phase 4 and Fab-2
January 2011 to December 2015
Duration of Income Tax Holiday
(16) Stockholders’ Equity
(a) Common stock
As of December 31, 2011 and 2012, the Company’s government registered total authorized capital both
amounted to $60,000,000, and total issued common stock amounted to $46,416,950 and $54,050,540,
respectively, with $10 par value per share.
On February 22, 2012, the board of directors approved to carry out a private placement of common shares
of stock through the issuance of 763,359 thousand common shares of stock at a discounted issuance price
of $6.55 per share. This capital increase was approved by the Securities and Futures Bureau (SFB). The
effective date for the capital increase was March 7, 2012. Also, the process for the registration thereof was
completed. According to the Securities and Exchange Act, the transfer of such privately placed common
shares of stock within three years from the delivery date is forbidden, except for the transferees conforming
to Article 43-8 of the Securities and Exchange Act.
On June 8 and March 1, 2011, the board of directors approved to increase the Company’s common stock
arising from the exercise by employees of the stock options granted to them under the Employee Stock
Option Plan (ESOP). Accordingly, the Company issued 512 and 3,284 thousand shares, at an issuance price
of $10 per share, with total value amounting to $5,120 and $32,840, respectively. Also, the process for the
registration thereof was completed.
On May 16, 2006 and August 4, 2009, the Company issued 40 million and 64 million GDSs, respectively,
representing 1,040 million common shares of the Company and these GDSs were offered for trading in the
MTF market of the LSE. Each GDS offers the holder the right to receive 10 shares of stock of the Company.
(Continued)
23
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) Capital surplus
As of December 31, 2011 and 2012, the capital surplus consisted of the following:
Paid-in capital in excess of par value
Premium from exercise of employee stock options
Employee stock option plans
Expired employee share purchase option
Total
December 31,
2011
2012
$
$
41,017,382
236,870
294,667
212,571
41,761,490
38,383,794
236,870
351,564
212,571
39,184,799
According to the amended ROC Company Law on January 1, 2012, realized capital surplus can be transferred
to common stock or distributed as cash dividends after deducting the accumulated deficit, if any. Realized
capital surplus includes the additional paid-in capital from issuance of common stock in excess of the
common stock’s par value and donation from others. The Company’s paid-in capital in excess of par value
is transferrable to common stock annually but shall not exceed 10% of total issued and outstanding common
stock according to Regulations Governing the Offering and Issuance of Securities by Securities Issuers.
(c) Legal reserve
According to the amended ROC Company Law which is effective on January 1, 2012, the Company’s
annual net profit, after providing for income tax is appropriated for legal reserve at the rate of 10% thereof
until the accumulated balance of legal reserve equals the total issued capital. If the shareholders resolved
during their meeting to distribute dividend in the form of new shares of stock or cash, legal reserve in excess
of 25% of common stock may be transferred to capital or distributed in cash if the Company incurs no
accumulated deficit.
(d) Earnings appropriation and distribution
The Company’s annual net profit, after providing for income tax and covering the losses of previous years,
is first set aside for legal reserve at the rate of 10% thereof until the accumulated balance of legal reserve
equals the total issued capital. Thereafter, 1% to 15% of the remaining profit, if any, after providing for any
special reserves pursuant to relevant laws and regulations, if necessary, is appropriated as bonus to
employees, and such bonus to employees is estimated and recognized as the Company’s expenses in the
year earnings are incurred commencing from the year 2008. The remainder plus the undistributed earnings
of the previous years are distributed or left undistributed for business purposes according to the resolution
of the stockholders’ dividend distribution plan, which are initially proposed by the Board of Directors and
adopted by the shareholders in the Annual Stockholders’ Meeting.
(Continued)
24
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
As it belongs to a highly capital-intensive industry, the Company adopts a dividend distribution policy
which is in line with its capital budget and long-term financial plans. This policy requires that the distribution
of cash dividends shall be equal to at least fifty percent (50%) of the Company’s total dividend distribution
every year.
Based on the resolution approved by the stockholders during their meetings on June 8, 2011 and May 31,
2012, no appropriations were made of earnings in 2010 and 2011 as the Company had no earnings available
for appropriations but an accumulated deficit both as of December 31, 2010 and 2011.
(e) Share-based payment transactions
The Company has issued the employee stock option plan (ESOP) as follows:
According to the employee stock option plan rules to adjust the exercise price
Grant date
Grant unit
Number of common
shares per unit of
option
2010.10.15
2009.04.30
2008.09.30
2007.08.29
2007.12.13
56,182
14,500
80,000
98,000
2,000
1,000
1,000
1,000
1,000
1,000
Original
exercise
price
August 4, 2009
issued a GDSs
15.40
17.40
10.00
31.05
26.50
15.40
17.20
10.00
28.60
24.80
February 6, 2010
issued additional shares
from capital increase in cash
March 7, 2012
issued additional shares
from a private placement
15.40
17.20
10.00
27.80
24.50
14.20
15.70
10.00
24.80
22.00
These stock options granted to qualified full-time employees of the Company are valid for 8 years and
exercisable at certain percentages after the second anniversary year from grant date. 50%, 75% and 100%
of these stock options are vested after the second, third and fourth anniversary dates, respectively. According
to the employee stock option plan rules, the vesting period of the stock options will be postponed for a year
if the production volume target qualified for an incentive is not achieved. As the 2011 actual production
volume did not reach such production volume target, the stock options that can be vested in 2012 were
postponed to 2013.
Options granted were priced using the Black-Scholes pricing model and the inputs to the model were as
follows:
Employee Stock Option Plan
The first batch
for the year ended
December 31, 2007
The second batch
for the year ended
December 31, 2007
The first batch
for the year ended
December 31, 2008
The first batch
for the year ending
December 31, 2009
The first batch
for the year ending
December 31, 2010
Assumptions
Expected dividend yield
Grant-date share price
Expected volatility
Risk-free interest rate
Expected term
Estimated percentage of
forfeiture
—%
31.05
40.23%
2.5317%
—%
26.50
38.41%
2.482%
—%
10.00
40.76%
2.014%
—%
17.40
47.01%
1.1089%
5.375 years
5.375 years
5.375 years
5.375 years
—%
15.40
50.93%~53.53%
0.8674%
5~6 years
16.06%
16.06%
16.88%
14.51%
16.88%
(Continued)
25
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
The details of these employee stock option plans for the years ended December 31, 2010, 2011 and 2012,
were as follows:
For years ended December 31,
2010
2011
2012
Number of
options
(Units)
Weighted-
average
exercise price
Number of
options
(Units)
Weighted-
average
exercise price
Number of
options
(Units)
Weighted-
average
exercise price
Outstanding at January 1, 2010, 2011 and 2012
Options granted
Option exercised
Options forfeited
Outstanding at December 31, 2010, 2011 and 2012
Options exercisable, end of year
Weighted-average fair value of options granted
$
$
150,989
56,182
(20,781)
(13,542)
172,848
79,450
7.24
19.31
15.40
10.00
17.79
18.95
172,848
—
(3,402)
(18,240)
151,206
82,681
—
18.95
—
10.00
19.58
19.08
22.92
151,206
—
—
(9,273)
141,933
79,198
—
19.08
—
17.41
17.43
20.55
As of December 31, 2011 and 2012, the details of the Company’s outstanding stock options, which were
treated as a compensatory plan, were as a follows:
Options outstanding
December 31, 2011
Range of exercise
price
Number of
options
Remaining
periods
Exercise price
Options exercisable
Number of
options
Exercise
price
$
$
$
$
$
27.80
24.50
10.00
17.20
15.40
56,789
1,375
33,211
10,324
49,507
3.66
3.95
4.75
5.33
6.79
$
$
$
$
$
27.80
24.50
10.00
17.20
15.40
56,789
1,375
19,279
5,238
—
27.80
24.50
10.00
17.20
—
Options outstanding
December 31, 2012
Range of exercise
price
Number of
options
Remaining
periods
Exercise price
Options exercisable
Number of
options
Exercise
price
$
$
$
$
$
24.80
22.00
10.00
15.70
14.20
53,448
1,233
31,576
10,241
45,435
2.66
2.95
3.75
4.33
5.79
$
$
$
$
$
24.80
22.00
10.00
15.70
14.20
53,448
1,233
19,279
5,238
—
24.80
22.00
10.00
15.70
—
Compensation costs for share-based-employee stock option plan payments of $134,785, $145,587 and
$56,897 were recognized for the years ended December 31, 2010, 2011 and 2012, respectively. Also,
compensation costs for share-based-capital increase in cash allocated for employees payments of $364,800,
$0 and $0 were recognized for the years ended December 31, 2010, 2011 and 2012, respectively.
(Continued)
26
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Pro forma results of the Company for the years ended December 31, 2010 and 2011, assuming employee
stock options granted before January 1, 2008 were accounted for under SFAS No. 39, were as follows:
Net loss
As reported
Pro forma
Basic after income tax loss per share
As reported
Pro forma
For the years ended December 31,
2010
2011
$
$
$
$
(10,661,312)
(10,799,818)
(21,003,168)
(21,043,754)
(2.34)
(2.37)
(4.53)
(4.53)
The employee stock options granted before January 1, 2008 were all vested in 2011 so that the Company
did not disclose the pro forma net loss and per share for the year ended December 31, 2012.
(17) Loss Per Share
For the years ended December 31, 2010, 2011 and 2012, the weighted-average number of outstanding common
shares and the common stock equivalents for calculating the basic loss per share consisted of the following:
For the year ended December 31, 2010
Amount
Loss per share
Loss before
income tax
Loss after
income tax
Total weighted-average
outstanding shares
Before
income tax
After
income tax
Basic loss per share
$ (10,661,312)
(10,661,312)
4,555,673
(2.34)
(2.34)
For the year ended December 31, 2011
Amount
Loss per share
Loss before
income tax
Loss after
income tax
Total weighted-average
outstanding shares
Before
income tax
After
income tax
Basic loss per share
$ (21,003,168)
(21,003,168)
4,640,943
(4.53)
(4.53)
For the year ended December 31, 2012
Amount
Loss per share
Loss before
income tax
Loss after
income tax
Total weighted-average
outstanding shares
Before
income tax
After
income tax
Basic loss per share
$ (15,538,536)
(15,538,536)
5,267,399
(2.95)
(2.95)
The Company has issued employee stock options, which are potential common shares. Only basic loss per share
is disclosed because these potential common shares are not dilutive for the years ended December 31, 2010,
2011 and 2012.
(Continued)
27
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(18) Financial Instrument Information
(a) Fair value of financial instruments
The book value of short-term financial instruments including cash and cash equivalents, accounts receivable/
payable (including related parties), financing from related parties and short-term loans, is believed to be
not materially different from the fair value because the maturity dates of these short-term financial
instruments are within one year from the balance sheet date.
As of December 31, 2011 and 2012, the fair value of Company’s financial assets and liabilities were as
follows:
December 31,
2011
Fair value
2012
Fair value
Book
value
Market value
in active
market
Value determined
by using broker
quote/carrying
value
Book
value
Market value
in active
market
Value determined
by using broker
quote/carrying
value
Non-derivative financial instruments:
Financial assets:
Cash and cash equivalents
$ 5,463,640
5,463,640
Accounts receivable-related parties
7,459,495
Financial liabilities:
Short-term loans
Notes and accounts payable
(including accounts payable-
related parties)
Current portion of bonds payable
Long-tern loans (including current
portion of long-term loans)
Other payables-related parties
(lending from related parties)
Derivative financial instruments:
Financial liabilities:
Interest rate swaps
1,874,600
3,264,514
13,998,754
43,115,166
22,028,570
27,054
—
—
—
—
—
—
—
—
7,459,495
2,928,065
3,859,830
1,874,600
6,147,400
3,264,514
3,333,864
14,019,608
—
43,115,166
26,621,000
22,028,570
28,000,000
27,054
—
2,928,065
—
—
—
—
—
—
—
—
3,859,830
6,147,400
3,333,864
—
26,621,000
28,000,000
—
The methods and assumptions used to estimate the fair value of each class of financial instruments were as
follows:
(i) The fair value of financial instruments traded in active markets is based on quoted market prices. If the
financial instruments are not traded in an active market, then the fair value is determined by certain
valuation techniques, using assumptions under existing market conditions.
(ii) The discounted present value of anticipated cash flows is adopted as the fair value of long-term debt.
The discounting rates used in calculating the present value are similar to those of the Company’s existing
long-term loans (including current portion of long-term loans), whose interest rates fluctuates depending
on the current market rates.
(Continued)
28
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) Financial risk information
(i) Market risk
All derivative financial instruments are intended to manage fluctuations in foreign exchange rates and
interest rates. Gains or losses from these managing instruments are likely to be offset by gains or losses
from the hedged items. Thus, these market risks are believed to be low.
(ii) Credit risk
The Company signed a “Supply Agreement” with NTC and Micron. Under these agreements, the
Company commits to supply its production mostly to NTC and Micron. As sales are made to these two
major customers, credit risk is therefore concentrated on these major customers. Based on the results
of the Company’s assessment of this risk and the good credits of these two major customers, its exposure
to credit risk is low.
Credit risks of financial instrument transactions represent the positive net settlement amount of those
contracts with positive fair values at the balance sheet date. The positive net settlement amount
represents the loss to the Company if the counter-parties breached the contracts. The banks, which are
the counter-parties to the foregoing derivative financial instruments, are reputable financial institutions.
Management believes its exposure related to the potential default by those counter-parties is low.
(iii) Liquidity risk
The Company currently has a working capital deficit might not have sufficient cash on hand to meet
its financial commitments. However, the Company has unused credit facilities for short-term loans from
banks and related parties as described in note 24(c) concerning the Company’s future financial plans.
For these reasons, management believes that these credit facilities can provide sufficient sources of
liquidity to meet the Company’s obligations as they become due and to fund its operating and capital
expenditure needs.
(iv) Interest rate risk
Interest rate risk arises from short-term and long-term loans. Loans obtained at variable rates expose
the Company to cash flow interest rate risk. If the market interest rate increases by 1%, the cash outflow
of the Company would increase by $607,684.
(Continued)
29
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(19) Related-party Transactions
(a) Names and relationship of related parties
Name
Relationship with the Company
Nan Ya Plastics Corp. (NPC)
Nanya Technology Corp. (NTC)
Formosa Chemicals and Fiber Corp. (FCFC)
Formosa Heavy Industries Corp. (FHI)
Formosa Petrochemical Corp. (FPCC)
Micron Technology, Inc. (Micron)
Micron Semiconductor Asia Pte. Ltd. (MSA)
Numonyx Holdings B.V. (Numonyx)
Common director
One of the major stockholders
Corporate director of NPC
One of the investees of NPC
One of the investees of NPC
One of the major stockholders
Subsidiary of Micron
Subsidiary of Micron
(b) Significant related-party transactions
(i) Sales revenue and accounts receivable
Significant sales to related parties for the years ended December 31, 2010, 2011 and 2012, were as
follows:
2010
For the years ended December 31,
2011
2012
Amount
% of
net sales
Amount
% of
net sales
Amount
% of
net sales
NTC
Micron
MSA
$ 20,718,863
6,155,918
14,579,238
$ 41,454,019
49.98
14.85
35.17
100.00
18,349,030
12,964,946
6,071,165
37,385,141
49.08
34.68
16.24
100.00
13,000,892
48,561
22,246,534
35,295,987
36.83
0.14
63.03
100.00
The balances of accounts receivable resulting from the above transactions as of December 31, 2011
and 2012, consisted of the following:
NTC
MSA
December 31,
2011
% of accounts
receivable -related
parties
59.34
40.66
100.00
Amount
$
$
4,426,401
3,033,094
7,459,495
Amount
938,603
2,921,227
3,859,830
2012
% of accounts
receivable -related
parties
24.32
75.68
100.00
(Continued)
30
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
The normal credit term with the related parties above is 60 days after the end of each delivery month.
Selling price is calculated using the transfer pricing formula in accordance with the “Supply
Agreement”.
(ii) Purchases and accounts payable
Significant purchases from related parties for the years ended December 31, 2010, 2011 and 2012,
were as follows:
2010
For the years ended December 31,
2011
2012
Amount
% of net
purchases
Amount
% of net
purchases
Amount
% of net
purchases
NPC
NTC
FCFC
Micron
MSA
$
$
163,406
14,289
—
139,361
—
317,056
1.81
0.16
—
1.54
—
3.51
101,344
24,659
6
329,406
—
455,415
0.97
0.24
—
3.17
—
4.38
65,589
66,397
—
26,173
1,535
159,694
0.73
0.74
—
0.29
0.02
1.78
The balances of accounts payable arising from the above transactions as of December 31, 2011 and
2012, were as follows:
December 31,
2011
2012
Amount
$
$
40,631
268
172,853
213,752
% of
accounts
payable
% of
accounts
payable
Amount
1.25
—
5.30
6.55
8,491
1,483
24
9,998
0.25
0.04
—
0.29
NPC
NTC
Micron
The Company pays NPC and NTC on the 15th of the month following the month of purchase and pays
Micron within 30 days of the shipping date or acceptance date. Purchases from NPC included
miscellaneous equipment. Purchase prices and payment terms of purchases from related parties are not
materially different from those of non-related general suppliers.
(Continued)
31
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(iii) Financing from related parties
Financing from related parties was as follows:
Lending from related parties (classified under other payables-related parties):
Maximum
balance
Balance as of
December 31, 2011
Interest rate
Interest
expenses
Accrued interest payable
as of December 31, 2011
For the year ended December 31, 2011
NPC
FCFC
FHI
Numonyx
$ 14,000,000
4,000,000
2,000
4,028,570
14,000,000
4,000,000
—
4,028,570
22,028,570
$
1.16547%~1.610727%
1.16547%~1.610727%
1.16547%
2.000%
170,217
51,036
—
3,979
225,232
19,152
5,472
—
3,979
28,603
Maximum
balance
Balance as of
December 31, 2012
Interest rate
Interest
expenses
Accrued interest payable
as of December 31, 2012
For the year ended December 31, 2012
NPC
FCFC
FHI
FPCC
Numonyx
$ 21,000,000
8,200,000
8,00,000
7,800,000
4,028,570
$
1.60947%~1.64557%
1.60947%~1.64557%
— 1.61348%~1.61775%
1.62114%~1.64557%
2.000%
12,000,000
8,200,000
7,800,000
—
28,000,000
281,792
77,804
384
39,685
15,489
415,154
16,771
11,461
—
10,901
—
39,133
Borrowings from NPC are repayable in one year and the maturity dates of the balances as of December
31, 2012 were as follows:
Principal
Maturity date
$5,000,000
$7,000,000
February 15, 2013
May 8, 2013
Borrowings from FCFC are repayable in one year and the maturity dates of the balances as of December
31, 2012 were as follows:
Principal
Maturity date
$3,000,000
$5,200,000
October 16, 2013
November 22, 2013
Borrowings from FPCC are repayable in one year and the maturity dates of the balances as of December
31, 2012 were as follows:
Principal
Maturity date
$3,000,000
$4,800,000
May 15, 2013
November 22, 2013
(Continued)
32
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(iv) Transactions of property, plant and equipment
(1) In January, 2011, the Company sold a vehicle for $32 (exclusive of value added tax) to NPC. The
gain on disposal thereof amounted to $32, which was classified under gain on disposal of fixed
assets. The Company has collected all the receivable in second quarter of 2011.
(2) In March, 2011, the Company sold an equipment to NTC at book value of $3,365. The receivable
arising from such sale was fully collected in the second quarter of 2011.
(3) In August, 2012, the Company sold an equipment for $63,168 to MSA. Such sale resulted in a gain
on disposal of $48,293, which was classified under gain on disposal of fixed assets. The receivable
arising from such sale was fully collected as of December 31, 2012.
(4) In December 2012, the Company sold an equipment for $52,497 to Micron. Such sale resulted in
a gain on disposal of $35,654, which was classified under gain on disposal of fixed assets. The
receivable arising from such sale was fully collected as of December 31, 2012.
(v) Lease contracts
The Company signed lease contracts with NTC with effective dates commencing from July 1, 2005
and January 1, 2009. Refer to notes 6 and 8 for details.
(vi) Other significant transactions
Other receivables-related parties arising from other transactions were as follows:
NTC (sales of materials)
Micron (sales of materials)
December 31,
2011
2012
$
$
—
—
—
12,474
934
13,408
Other payables-related parties arising from other transactions were as follows:
NTC (examination expenses, rental expenses, utility
expenses, general administrative expenses, etc.)
NPC (dormitory expenses, etc.)
Micron (technical service fee, etc)
(vii) Contracts with related parties
December 31,
2011
2012
$
$
14,310
2,981
86,995
104,286
19,227
5,132
80
24,439
(Continued)
33
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
The Company signed a “Supply Agreement” with NTC and Micron. Under this agreement, these entities
are each entitled to a contracted percentage of the Company’s production capacity. Likewise, the
Company has committed to sell its production to these entities at a transfer price calculated in accordance
with the formula stated in the agreement. Also, NTC and Micron have committed to buy all of the
Company’s DRAM production. This agreement took effect on November 26, 2008, and will continue
to be in effect until terminated by either party with cause or when the Joint Venture Agreement between
NTC and Micron is terminated.
The Company signed a “Technology Transfer Agreement” with NTC and Micron. Under this agreement,
these entities allowed the Company to utilize their technology in the semiconductor manufacturing
process. This contract took effect on November 26, 2008 and it will continue to be in effect until
terminated by either party with cause or when the Joint Venture Agreement between NTC and Micron
is terminated.
The Company signed a service contract with NTC. Under this contract, NTC provides transaction
support in the following areas: human resources, finance, engineering and construction, raw material,
inventory, etc. The service fee is charged based on the actual type of service rendered. The contract
took effect on July 15, 2003, and will continue to be in effect until terminated mutually by both parties.
The Company signed a “Technology Transfer Agreement for 68-50 nm Process Nodes” with Micron.
This agreement took effect on October 11, 2008, and will continue to be in effect until terminated
mutually by both parties.
(c) Compensation of board of directors, supervisors and management personnel:
For the years ended December 31, 2010, 2011 and 2012, the compensation of board of directors, supervisors,
president and vice presidents, key management, were as follows:
For years ended December 31,
2011
2012
2010
Salaries
$
24,121
38,204
28,531
(20) Pledged Properties
Refer to note 13 for information on the Company’s assets pledged to secure loans.
(Continued)
34
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(21) Commitments and Contingencies
As of December 31, 2011 and 2012, the balances of outstanding letters of credit were as follows:
Currency
2011
December 31,
2011
USD
JPY
$
$
— thousand
241,645 thousand
12,557 thousand
— thousand
(22) Significant Disaster Loss: None.
(23) Subsequent Events:
(a) On January 10, 2013, the Company signed a syndicated loan agreement with Bank of Taiwan, the managing
bank of the syndicated loan, and 11 other banks to apply for a loan of $10,000,000 with a term of three
years. This syndicated loan is intended for use as a mid-term working capital and to finance the repayment
of bank loans.
(b) In order to align with the operating strategy adjustment made by NTC, the Company signed agreements on
January 17, 2013 with NTC and Micron for purposes of regulating future arrangements regarding joint
venture, supply and financing. The main adjustments under a new Supply Agreement are as follows (1)
From February to December, 2013, NTC is allowed to purchase from the Company certain percentage of
its production capacity, and Micron is committed to purchase the remaining balance of such production
capacity. (2) The selling price to Micron of such production capacity shall be adjusted according to this
new Supply Agreement.
(24) Others
(a) The Company’s personnel, depreciation, and amortization expenses, categorized by function, were as
follows:
Cost of goods sold
For the year ended December 31, 2010
Operating
expenses
Total
Personnel expenses
Salaries
Labor and health insurance
Pension expenses
Other personnel expenses
Depreciation expenses
Amortization expenses
2,695,004
156,707
94,210
63,113
31,077,056
8,059
366,468
16,085
11,184
5,224
60,059
723,422
3,061,472
172,792
105,394
68,337
31,137,115
731,481
(Continued)
35
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Cost of goods sold
For the year ended December 31, 2011
Operating
expenses
Total
Personnel expenses
Salaries
Labor and health insurance
Pension expenses
Other personnel expenses
Depreciation expenses
Amortization expenses
2,527,623
176,365
102,114
66,587
31,845,387
8,025
342,365
23,443
15,066
6,004
51,369
723,422
2,869,988
199,808
117,180
72,591
31,896,756
731,447
Cost of goods sold
For the year ended December 31, 2012
Operating
expenses
Total
Personnel expenses
Salaries
Labor and health insurance
Pension expenses
Other personnel expenses
Depreciation expenses
Amortization expenses
2,340,360
187,685
106,091
66,245
29,617,320
5,000
327,707
20,539
13,294
6,069
52,812
—
2,668,067
208,224
119,385
72,314
29,670,132
5,000
(b) As discussed in note 19(b) (vii) to the financial statements, the Company signed a service contract with
NTC, under which, the General Administrative Office of the Formosa Group is entrusted to provide certain
administrative services. For the years ended December 31, 2010, 2011 and 2012, service fees due to the
General Administrative Office of the Formosa Group (sundry debtors by Formosa Plastics Corp. and NPC)
amounted to $35,838, $34,023 and $23,560, respectively.
(c) Liquidity and management’s plans
The Company’s operations have been adversely affected by the recent market conditions particularly for
the DRAM industry. As of December 31, 2012, the Company’s current liabilities of $50,552,378 exceed
its current assets of $12,711,207. The current ratio is significantly lower than 100%. Considering these
circumstances, management plans to adopt the following strategies in order to improve the Company’s
operations and financial situation.
(i) Draw down loans and capital increase in cash to strengthen liquidity.
(ii) Improve the DRAM production technology and diversity product mix to enhance cash flow.
Management believes that the Company’s future operating results and financial condition will be improved
by executing the above plans.
(Continued)
36
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(d) The Company’s significant foreign currency financial assets and liabilities were as follows:
December 31,
2011
2012
Foreign
currency
(thousand)
Exchange
rate
Foreign
currency
(thousand)
Exchange
rate
Foreign currency denominated
financial assets:
USD
EUR
JPY
Foreign currency denominated
financial liabilities:
USD
CHF
EUR
JPY
$
423,633
34
1,535
235,795
—
612
897,032
30.290
39.218
0.3894
30.290
—
39.218
0.3894
232,763
14
7,869
59,161
832
251
701,371
29.136
38.479
0.3358
29.136
31.835
38.479
0.3358
(e) The Company will adopt International Financial Reporting Standards, International Accounting Standards,
IFRIC Interpretations and SIC Interpretations as endorsed by Financial Supervisory Commission, ROC
(hereinafter referred to IFRS as endorsed by the FSC) commencing from 2013 in compliance with the
requirements of Regulations Governing the Preparation of Financial Reports by Securities Issuers.
Consequently, the comparative financial information for 2012 prepared in accordance with IFRSs and
reported in 2012 may be substantially different than the amounts reported in these December 31, 2012
financial statements. Also, in order to reflect the more realistic future economic benefits of the machinery
and equipment, management re-assessed the useful lives of the Company’s machinery and equipment.
Effective on January 1, 2013, the useful life of machinery and equipment is prolonged from 5 years to 8
years. Such change in useful life will be treated as a change in accounting estimate and is expected to result
in a decrease in depreciation expense by approximately $8,300,000 in 2013.
(25)
Product and Geographic Information
(a) Information about products
No separate disclosure was made as to revenues from external customers for each product as the entire sales
of the Company were made to external customers and covered only one product, DRAM.
(Continued)
37
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(b) Geographic information
Sale revenues
Taiwan
U.S.A.
Singapore
(c) Major customers
For the years ended December 31,
2011
2012
2010
$
$
20,718,863
6,155,918
14,579,238
41,454,019
18,349,030
12,964,946
6,071,165
37,385,141
13,000,892
48,561
22,246,534
35,295,987
The major customers of the Company, which accounted for 10% or more of the total revenue for the years
ended December 31, 2010, 2011 and 2012, were as follows:
2010
For the years ended December 31,
2011
2012
Client
Amount
% of net
sales
Amount
% of net
sales
Amount
% of net
sales
NTC
Micron
MSA
Total
$ 20,718,863
6,155,918
14,579,238
$ 41,454,019
49.98
14.85
35.17
100.00
18,349,030
12,964,946
6,071,165
37,385,141
49.08
34.68
16.24
100.00
13,000,892
48,561
22,246,534
35,295,987
36.83
0.14
63.03
100.00
(26) Summary of Significant Differences between Accounting Principles Generally Accepted in the Republic
of China and Generally Accepted Accounting Principles in the United States of America
(a) Capital surplus
Under ROC GAAP, the expatriate employees payroll cost paid by a foreign joint venture partner/shareholder
is not recorded nor treated as the shareholder’s capital surplus in the Company.
Under U.S. GAAP, the expatriate employees payroll cost paid by a partner/shareholder would be recorded
as expense and treated as capital surplus in the Company.
(b) Lease
Under ROC GAAP, the estimated fair value of a partially leased building used in evaluating the lease
classification described under Note 2(o) to the financial statements can be based on the proportionate fair
value of the entire building.
(Continued)
38
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Under U.S. GAAP, the fair value of a partially leased building used in determining the lease classification
must be based on the specific fair value of the leased asset. In the event that the fair value of the partially
leased building cannot be determined, the lease of portion of a building should be treated as an operating
lease. As a result, the leased asset described in Note 6 to the financial statements, which was treated as a
capital lease under ROC GAAP, would be treated as an operating lease under U.S. GAAP.
(c) Related party transactions
Under ROC GAAP, the transaction with the General Administrative Office of Formosa Group as described
in Note 24(b) is not treated as a related party transaction.
Under U.S. GAAP, the transaction would be considered a related party transaction.
(d) Loss per share
Under ROC GAAP, basic loss per share are calculated by dividing net loss attributable to common
shareholders by the weighted average number of shares outstanding during the year. The shares distributed
for employee bonus are treated as outstanding at the beginning of each period. Diluted loss per share are
calculated by taking basic loss per share into consideration plus additional common shares that would have
been outstanding if the dilutive share equivalents had been issued. Net loss is also adjusted for the interest
and other income or expenses derived from any underlying dilutive share equivalents. The weighted average
shares outstanding are adjusted retroactively for stock dividends issued, capitalization of additional paid-
in capital and employee bonus. Anti-dilutive effects are not included in the dilutive EPS calculation. Under
the ARDF Interpretation No. 97-169 “Impacts of Employee Stock Bonuses on Earnings Per Share” which
took effect in 2008, the shares distributed for employees bonus are treated as outstanding at grant date in
the calculation of basic earnings (loss) per share after 2008. For employees bonus that may be distributed
in shares, the number of shares to be distributed is taken into consideration assuming the distribution will
be made entirely in shares when calculating for diluted earnings per share.
Under U.S. GAAP, when a simple capital structure exists, basic loss per share is calculated using the weighted
average number of common shares outstanding. When a complex capital structure exists, diluted loss per
share is based on the weighted average number of shares outstanding plus the number of additional shares
that would have been outstanding if dilutive potential common shares had been issued, with appropriate
adjustments to income or loss that would result from the assumed conversions of those potential common
shares. The materiality of the dilutive effect is not considered. Due to the contingent nature of employee
stock bonuses, they are not included in the diluted EPS calculation.
(e) Pension
Under ROC GAAP, the Company’s unrecognized actuarial gains and losses are not recognized as pension
liabilities of a defined benefit post-retirement plan until the accumulated unrecognized amounts exceed
certain thresholds.
(Continued)
39
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Under U.S. GAAP, an employer to recognize the overfunded or underfunded status of a defined benefit
post-retirement plan as an asset or liability in the balance sheet and to recognize changes in that funded
status in other comprehensive income in the year in which the changes occur.
(f) Write-down and valuation of inventory
Under ROC GAAP, inventory is valued at the lower of cost or market. Market is determined on the basis
of net realizable value. Reversals of previous write-downs are recognized in profit or loss in the period in
which the reversal occurs.
Under U.S. GAAP, inventory is valued at the lower of cost or market, with market limited to an amount
that is not more than net realizable value nor less than net realizable value less a normal profit margin. The
write-down establishes a new cost basis for the inventory. Reversals of previous write-downs are not
permitted.
(g) Classification of loans with covenants
Based on its ROC GAAP financial statements as of December 31, 2012 and for the twelve-month period
then ended, Inotera did not meet the covenant requirements for leverage ratio of not higher than 1.5 to 1
and current ratio of not less than 1 to 1 under the long-term loan agreement. As of December 31, 2012, the
total liabilities plus contingent liabilities amounted to $67,840,341 versus tangible net worth of $21,964,083
or actual leverage ratio of 3.09 to 1 and the current assets amounted to $12,711,207 versus current liabilities
of $50,552,378 or actual current ratio of 0.251 to 1. On July 2, 2013, the Company received from the
syndicate banks a waiver for these December 31, 2012 financial covenant requirements. However, the
Company was not able to meet the same financial covenant requirements as of June 30, 2013 and
management therefore will submit a request to the managing bank for a waiver of these June 30, 2013
financial covenant requirements. While management is optimistic the Company will receive such waiver
from the syndicate banks, there can be no assurance that the syndicate banks will grant such waiver.
Under ROC GAAP, there is no specific guidance on whether or not the debtor is deemed to be in default
on the balance sheet date when the provisions of a long-term syndicate loan agreement requires the creditor/
bank to review its audited semi-annual or annual financial statements before declaring the debtor is in
default. In practice, however, such long-term loan is classified as non-current if the debtor (i) is able to
secure from syndicate banks formal confirmations that they do not have any information that the debtor is
in default of its financial covenant on the balance sheet date, and (ii) has not been formally notified by
syndicate banks that it is in default of any loan covenant or the loan agreement contains a provision that
the debtor is allowed to avail of the cure period of not over 6 months and 5 months if the debtor is in breach
of its financial covenants in its annual financial statements and semi-annual financial statements,
respectively.
(Continued)
40
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Under U.S. GAAP, long-term obligations that are or can be callable by the creditor either because the debtor’s
violation of a debt covenant at the balance sheet date makes the obligation callable, or because the violation,
if not cured within a specific grace period, will make the obligation callable, are classified as current
liabilities. Therefore, a callable loan shall be classified as current on balance sheet date, unless one of the
following conditions is met:
(i) The creditor has waived or subsequently lost the right to demand repayment for more than one year
from the balance sheet.
(ii) For long-term obligations containing a grace period within which the debtor may cure the violation, it
is probable that the violation will be cured within that period, thus preventing the obligation from
becoming callable.
Consequently, under U.S. GAAP, loans totaling $24,950,000 and $13,300,600 at December 31, 2011 and
2012, respectively, would be classified as current liabilities instead of as long-term liabilities under ROC
GAAP.
(h) Classification of losses on impairment of long-lived assets to be held and use
Under ROC GAAP, the loss on impairment of long-lived assets is classified as non-operating expenses and
losses.
Under U.S. GAAP, the loss on impairment of long-lived assets is classified as operating expense.
(i) Determination of impairment loss on long-lived assets to be held and use
Under ROC GAAP, an impairment loss is recognized if an asset’s (CGU’s) carrying amount exceeds its
recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use,
which is based on the net present value of future cash flows. If there is evidence that impairment losses
recognized previously no longer exists, or has diminished, and the recoverable amount of the long-lived
assets increases because of an increase in the asset’s estimated service potential, the amount of loss may
be reversed to the extent that the resulting carrying value should not exceed the carrying value had no
impairment loss been recognized in prior years.
Under U.S. GAAP, an impairment loss is recognized if the asset’s (asset group’s) carrying amount exceeds
the undiscounted cash flows of the asset (asset group). The impairment loss is calculated based on excess
of the carrying amount over the fair value of the asset (asset group), which is based on the net present value
of future cash flows. Such impairment cannot be reversed.
(Continued)
41
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(j) Employee Stock Options
Prior to January 1, 2008, the employee stock options were accounted for based on Interpretations (92) 070,
071 and 072 issued by the Accounting Research and Development Foundation, under which, the intrinsic
value method is adopted to recognize the compensation cost, which is the difference between the market
price of the stock and the exercise price of the employee stock option on the measurement date. Any
compensation cost is charged to expense over the employee vesting period and increases the stockholders’
equity accordingly. Effective from January 1, 2008, under ROC SFAS No. 39, “Accounting for Share-based
Payment,” share-based payment transactions are measured at fair value and charged against profit and loss.
Under U.S. GAAP, a fair-value based measurement method in accounting for share-based transactions with
employees is also used, except for equity instruments held by employee share ownership plans.
(k) Income Tax
ROC SFAS No. 22 “Accounting for Income Taxes” which was issued in June 1994, is substantially similar
to U.S. GAAP. However, under ROC GAAP, the criteria for determining whether a valuation allowance
for deferred tax asset is required are less stringent as compared to U.S. GAAP.
Under ROC GAAP, particularly ROC SFAS 22, the income tax provision at both the annual financial
statements and interim quarterly financial statements is calculated at corporate income tax rate of 17% for
the years 2010, 2011 and 2012.
Companies in the ROC are subject to a 10% surtax on profits retained and earned after December 31, 1997.
If the retained profits are distributed in the following year, no 10% surtax is due. Under ROC GAAP, income
tax expense for the 10% surtax is recorded in the statement of operations in the following year if the earnings
are not distributed.
Under U.S. GAAP, a valuation allowance is not provided on tax assets to the extent that it is not “more
likely than not” that such deferred tax assets will be realized. Also, if a company has experienced cumulative
losses in recent years, it is not generally able to consider projections of future operating profits for the
purpose of determining the valuation allowance for deferred income tax assets. Management considered
that the cumulative losses in recent years are a significant piece of negative evidence that could not be
overcome. Consequently, a valuation allowance was recognized for all of the deferred tax assets at December
31, 2011 and 2012.
(Continued)
42
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Under U.S. GAAP, income tax expense related to the 10% retained profit tax is recorded in the statement
of operations in the year that the profits were earned. The income tax expense, including the tax effects of
temporary differences, is measured by using the rate that includes the estimated tax on undistributed earnings.
The tax rate used by the Company to measure its deferred taxes under U.S. GAAP was 24.47% for the years
from and after 2011.
(l) Deferred charge
Under ROC GAAP, transaction costs are deducted from the initial measurement of financial instruments
that are not measured at fair value through profit or loss. Transaction costs are those incremental costs
directly attributable to acquiring or issuing a financial instrument, and exclude internal administrative or
holding costs.
Under U.S. GAAP, directly related transaction costs for financial instruments not measured at fair value
upon initial recognition are included in the determination of cost. Unlike ROC GAAP, certain internal costs
of originating loans that are related directly to specified activities performed by the lender are included in
capitalized initial direct costs. However, for financial liabilities, the transaction costs are deferred as an
asset, unlike ROC.
(m) Capitalization of interest expense
Under ROC GAAP, capital increase in cash for which government approval is obtained specifically for the
construction or expansion of plant facilities and for purposes of availing an investment tax credit thereof
is deducted from the total capital expenditures relating to such construction or expansion for purposes of
capitalizing the interest expense incurred from existing borrowings.
Under U.S. GAAP, capital increase in cash for which government approval is obtained specifically for the
construction or expansion of plant facilities and for purposes of availing an investment tax credit thereof
is not deducted from the total capital expenditures relating to such construction or expansion for purposes
of capitalizing the interest expense incurred from existing borrowings.
(27) Additional U.S. GAAP disclosures
(a) Basis of Presentation and Liquidity
Under ROC GAAP and U.S. GAAP, the Company has reported significant net losses for each of the last 5
years. As of December 31, 2012, under U.S. GAAP the Company’s total current liabilities exceeded its total
current assets by $51,197,755. As described in note 13, the Company has been unable to maintain certain
of its financial covenants as required in the loan the agreements. These conditions and facts initially raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans for
additional sources of liquidity include:
(Continued)
43
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(i) Draw down loans for cash to strengthen liquidity. On January 10, 2013, the Company signed a
syndicated loan agreement with Bank of Taiwan, the managing bank of the syndicated loan, and 11
other banks to apply for a loan of $10,000,000 with a term of three years. The Company has drawn
the entire amount of this loan in March and May, 2013. Included among of the financial covenants in
this agreement is the requirement for the Company to keep the aggregate balance of its liabilities to
Formosa Group at no less than $21,000,000 during the entire period of this agreement. This new bank
syndicate loan and Formosa Group’s commitment to maintain a revolving financing arrangement for
the Company are made possible through the approval in August 2012 by the NPC’s board of directors
to issue a Letter of Undertaking to enable the Company to obtain new syndicate loans for its present
and future operations.
(ii) The completion of the wafer-start migration of 30 nanometer process technology in June 2013 had its
full effect in improving production efficiency and reducing operating costs in 2013. Also, the DRAM
market has recovered. These factors resulted in a positive impact on the Company’s operating results
as the Company generated a net income of $2,858,868 and net cash flows provided from operations
of $4,743,298 for the six months ended June 30, 2013 (unaudited). The positive operating results
and improvement in financial condition have reduced the excess of the Company’s total current
liabilities over its total current assets to $30,870,800 as of June 30, 2013 under U.S. GAAP (unaudited).
In order to further strengthen cost competitiveness and revenue generation, management is expecting
that the Company will continue to migrate to more advanced technologies.
(iii) The Company signed a “New Finance Agreement” with NPC and Micron on January 17, 2013. Under
this agreement, the Company has received an increase capital in cash of $6,000,000 out of a private
placement of shares to NPC and NTC on May 28, 2013.
Management believes that its ability to execute these plans mitigates the facts and conditions that initially
raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period
of time. The financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets or the amounts and classification of liabilities or any other adjustments that
might be necessary upon the resolution of this going concern uncertainty.
(b) Date through Which Subsequent Events Have Been Evaluated
Management of the Company has evaluated subsequent events through October 4, 2103, which is the date
when the accompanying financial statements were made available for issue.