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 28, 2014
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 27, 2014,
as reported by the NASDAQ Global Select Market, was approximately $21.3 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 16, 2014, was 1,073,455,204.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Fiscal 2014 Annual Meeting
of Shareholders to be held on January 22, 2015, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Definitions of Commonly Used Terms
As used herein, "we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context
indicates otherwise. Abbreviations, terms or acronyms are commonly used or found in multiple locations throughout this report
and include the following:
Term
2019 Notes
Definition
1.258% Secured Senior Notes due 2019
2022 Notes
5.875% Senior Notes due 2022
Term
MAI
Mb
Definition
Micron Akita, Inc.
Megabit
2025 Notes
5.500% Senior Notes due 2025
Micron
Micron Technology, Inc.
2031 Notes
The 2031A and 2031B Notes
2031A Notes
1.500% Convertible Senior Notes due 2031
2031B Notes
1.875% Convertible Senior Notes due 2031
2032 Notes
The 2032C and 2032D Notes
MIT
MLC
MMJ
Micron Technology, Italia, S.r.l.
Multi-Level Cell
Micron Memory Japan, Inc.
MMJ
Companies
Micron Akita, Inc. and Micron Memory Japan,
Inc.
2032C Notes
2.375% Convertible Senior Notes due 2032
MMJ Group MMJ and its subsidiaries
2032D Notes
3.125% Convertible Senior Notes due 2032
MMT
Micron Memory Taiwan Co., Ltd.
2033 Notes
The 2033E and 2033F Notes
MP Mask
MP Mask Technology Center, LLC
2033E Notes
1.625% Convertible Senior Notes due 2033
2033F Notes
2.125% Convertible Senior Notes due 2033
MTI
Nanya
Micron Technology, Inc.
Nanya Technology Corporation
2043G Notes
3.00% Convertible Senior Notes due 2043
Numonyx
Numonyx Holdings B.V.
Aptina
DRAM
Aptina Imaging Corporation
Photronics
Photronics, Inc.
Dynamic Random Access Memory
PSRAM
Pseudo-static Dynamic Random Access
Memory
Elpida
Elpida Memory, Inc.
Qimonda
Qimonda AG
Gb
GB
HP
1 gigabit
1 gigabyte
Hewlett-Packard Company
IM Flash
IMFT and IMFS
IMFS
IMFT
Inotera
Intel
IM Flash Singapore, LLP
IM Flash Technologies, LLC
Inotera Memories, Inc.
Intel Corporation
Japan Court
Tokyo District Court
LIBOR
LPDRAM
London Interbank Offered Rate
Mobile Low Power Dynamic Random Access
Memory
R&D
Rexchip
RLDRAM
SEC
SG&A
SLC
SSD
ST
Research and Development
Rexchip Electronics Corporation
Reduced Latency Dynamic Random Access
Memory
Securities and Exchange Commission
Selling, General and Administration
Single-Level Cell
Solid-State Drive
STMicroelectronics S.r.l.
Tera Probe
Tera Probe, Inc.
TLC
VIE
Triple-Level Cell
Variable Interest Entity
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 "Products"
regarding increased sales of DDR4 products, growth in demand for NAND Flash products and SSDs and in "Manufacturing"
regarding the transition to smaller line-width process technologies and 3D NAND Flash. 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, a Delaware corporation, was incorporated in 1978. 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 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 product and process
technologies and generating a return on R&D investments.
We obtain products for sale to our customers from our wholly-owned manufacturing facilities and our joint ventures. In
recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various
partnering arrangements.
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 technologies, such as our leading-edge line-width process
technology. 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.
1
On July 31, 2013, we completed the acquisition of Elpida, now known as MMJ, and a controlling interest in Rexchip, now
known as MMT (together, the "MMJ Acquisition"). The MMJ Acquisition included a 300mm DRAM wafer fabrication facility
located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan and an assembly and test
facility located in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer
capacity for 2014. The operations from the MMJ Acquisition, which are included primarily in our MBU and CNBU segments,
include the manufacture of Mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop
PCs, servers, notebooks and workstations. In connection with the MMJ Acquisition, we recorded net assets of $2.60 billion,
noncontrolling interests of $168 million and a gain on the transaction of $1.48 billion in 2013. (See "Part II – Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc." note.)
The MMJ Companies are currently subject to corporate reorganization proceedings under the Corporate Reorganization
Act of Japan. Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following
the MMJ Acquisition, these proceedings are continuing and the MMJ Companies remain subject to the oversight of 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 MMJ Companies as part of our global operations or to cause the MMJ 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 "Item 3. Legal Proceedings – Reorganization Proceedings of
the MMJ Companies" and "Item 1A. Risk Factors."
Business Segments
In the third quarter of 2014, we reorganized our business units. All prior period amounts reflect this reorganization.
Factors used to identify our segments include, among others, markets, customers and products. Segment information reported
herein is consistent with how it is reviewed and evaluated by our chief operating decision makers. We have the following four
business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"): Includes DRAM and NOR Flash products sold to the compute,
networking, graphics and cloud server markets.
Mobile Business Unit ("MBU"): Includes DRAM, NAND Flash and NOR Flash products sold to the smartphone, feature
phone and tablet mobile-device market.
Storage Business Unit ("SBU"): Includes NAND Flash components and SSDs sold into enterprise and client storage, cloud
and removable storage markets. SBU also includes NAND Flash products sold to Intel through our IMFT joint venture.
Embedded Business Unit ("EBU"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and
industrial applications, as well as the connected home and consumer electronics markets.
For more information regarding our segments, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes
to Consolidated Financial Statements – Segment Information."
Products
DRAM
DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage
and retrieval with a variety of performance, pricing and other characteristics. Sales of DRAM products were 68%, 48% and
39% of our total net sales in 2014, 2013 and 2012, respectively. DRAM products are sold by CNBU, MBU and EBU.
DDR3 DRAM is a standardized, high-density, high-volume, DRAM product, which offers high speed and high bandwidth
at a relatively low cost. DDR3 products are primarily targeted at computers, servers, networking devices and communications
equipment. In 2014, we offered DDR3 products in 1Gb, 2Gb and 4Gb densities. We also offered next generation DDR4
DRAM products in 2014 and we expect sales of these products to increase significantly in 2015 as they replace DDR3 DRAM
products in many applications. Sales of DDR3 DRAM products were 40%, 31% and 20% of our total net sales in 2014, 2013
and 2012, respectively.
2
LPDRAM products offer lower power consumption relative to other DRAM products and are used primarily in mobile
phones, tablets, embedded applications, ultra-thin laptop computers and other mobile consumer devices that require low power
consumption. We offer DDR4, DDR3, DDR2 and DDR versions of LPDRAM. Sales of mobile LPDRAM products were
20%, 6% and 3% of our total net sales in 2014, 2013 and 2012, respectively.
We also offer other DRAM products targeted to specialty markets including DDR2 DRAM, DDR DRAM, GDDR5
DRAM, SDRAM, RLDRAM and PSRAM. These 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 2014, we began selling Hybrid Memory Cube ("HMC") products, which 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.
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 27%, 40% and 44% of our total net sales in 2014, 2013 and 2012, respectively.
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, SSDs, tablets,
computers, industrial and automotive applications, networking 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 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 embedded and removable storage devices. NAND Flash products are sold by SBU, EBU, MBU and CNBU.
Our NAND Flash products feature a small cell structure that enables higher densities for demanding applications. We offer
high-speed SLC, MLC and TLC NAND Flash products that are compatible with advanced interfaces. MLC and TLC products
have two and three times, respectively, the bit density of SLC products. In 2014, we offered SLC NAND Flash products in
1Gb to 64Gb densities; 2-bit-per-cell MLC NAND Flash products in 8Gb to 128Gb densities; and 3-bit-per-cell TLC NAND
Flash products in 64Gb to 128Gb densities.
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 notebooks, desktops, workstations and other
consumer applications. Using our NAND Flash process technology and a leading-edge SATA 6 Gb per second 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 feature industry-leading encryption for corporate users and are offered in a 2.5-inch, M.2. and
mSATA modules, with densities up to 1 terabyte. Our enterprise SSDs are targeted at server and storage 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 Multi-Chip Package ("MCP") products, which incorporate our NAND Flash. Our managed
NAND products include e-MMC, e-MCP and embedded USB. Our e-MMC 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 e-MCP products combine
e-MMC with LPDRAM on the same substrate, 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.
3
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 3%, 9% and 12% of our total net sales for 2014, 2013
and 2012, respectively. NOR Flash products are sold primarily by EBU and CNBU.
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 28, 2014:
Entity
Consolidated entities:
IMFT
MP Mask
(1)
(2)
Member or Partner
Intel Corporation
Photronics, Inc.
Equity method investments:
Inotera
Tera Probe
(3)
(4)
Nanya Technology Corporation
Various
Micron
Ownership Interest
Formed/
Acquired
Product
Market
51%
50%
33%
40%
2006
2006
NAND Flash
Photomasks
2009
2013
DRAM
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, 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. The IMFT joint venture agreement extends through
2024 and includes certain buy-sell rights with an Intel put right, commencing in January 2015, and our call right
commencing in January 2018, 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 elects to sell to us, we would set the closing date of the transaction within two years
following such election and could elect to receive financing of the purchase price from Intel for one to two years from
the closing date. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
(2) MP Mask: We produce photomasks for leading-edge and advanced next generation semiconductors through MP
Mask, a joint venture with Photronics. The MP Mask joint venture agreement allows either party to terminate the joint
venture in either May 2016, provided notice is given prior to May 2015, or in each five-year successive period
following May 2016, provided such notice is given at least twelve months prior to the end of the successive five-year
period. We and Photronics also have supply arrangements wherein we purchase a substantial majority of the reticles
produced by MP Mask. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – MP Mask" note.)
4
(3) Inotera: We partner with Nanya for the manufacture of DRAM products. In connection therewith, we have partnered
with Nanya in Inotera, a DRAM memory company in Taiwan. Through December 2012, we purchased 50% of
Inotera's wafer production capacity based on a margin-sharing formula among Nanya, Inotera and us. Since January
2013, we have purchased substantially all of Inotera's DRAM output at a discount from market prices for our
comparable components under a new supply agreement (the "Inotera Supply Agreement"). The Inotera Supply
Agreement has a three-year term (currently through December 2016) that contemplates annual negotiations with
respect to potential successive one-year extensions. If 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. In the event of
a wind-down, our share of Inotera's capacity would decline over the wind-down period. We are currently in
negotiations regarding the extension of the Inotera Supply Agreement. (See "Part II – 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 interest in Tera Probe, an entity that provides semiconductor
probe and wafer testing services to us and others.
Manufacturing
Our manufacturing facilities are located in the United States, China, Japan, Malaysia, Puerto Rico, Singapore and Taiwan.
Our Inotera joint venture has a wafer fabrication facility in Taiwan. Nearly all of our products are manufactured on 300mm
wafers in facilities that 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. DRAM, NAND Flash and NOR Flash
products share a number of common manufacturing processes, enabling us to leverage our product and process technologies
and manufacturing infrastructure across these product lines. In 2014, we transitioned one of our Singapore wafer fabrication
facilities from production of DRAM to NAND Flash.
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 2014, the majority of our DRAM production was manufactured on our 30nm line-
width process technology. We expect that in 2015 that the majority of our DRAM production will be manufactured on our
25nm and 20nm line-width process technologies. In 2014, a majority of our NAND Flash memory production was
manufactured on 20nm line-width process technology. We expect that in 2015 a majority of our NAND Flash production will
be manufactured on our 16nm line-width process technology. We expect to begin sampling 3D NAND Flash products in the
fourth quarter of calendar 2014 and to begin volume production in the second half of calendar 2015.
Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield and quality-limiting
contaminants. Despite stringent manufacturing controls, individual circuits may be nonfunctional or wafers may need to be
scrapped due to equipment errors, minute impurities in materials, defects in photomasks, circuit design marginalities or defects
and dust particles. 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, SSDs, MCPs, managed NAND, memory cards and USB devices. We assemble many products in-house and,
in some cases, outsource assembly services where we can reduce costs and minimize our capital investment. We contract with
independent foundries and assembly and testing companies to manufacture NAND Flash media products such as memory cards
and USB devices.
5
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, photoresist, lead frames and molding compound. Shortages
may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in
response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. 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 compute and graphics, mobile, SSD and other storage, automotive, industrial, medical and other
embedded and server markets. Market concentrations from 2014 net sales were approximately as follows: 30% for compute
and graphics (including desktop PCs, notebooks and workstations); 20% for mobile; 20% for SSD and other storage; 10% for
automotive, industrial, medical and other embedded; and 10% for server. Sales to Kingston, primarily DRAM, were 10% of
our net sales in 2014. Sales to Intel, primarily NAND Flash products through IM Flash, were 8% of our net sales in 2014, 10%
of our net sales in 2013 and 12% of our net sales in 2012. Sales to HP, primarily DRAM, were 9% of our net sales in 2014,
10% of our net sales in 2013 and 8% of our net sales in 2012.
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 through 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.
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.
6
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. 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 LPDRAM products as well as high density and mobile NAND Flash
memory (including 3D NAND and MLC and TLC technologies), NOR Flash memory, specialty memory, SSDs, HMCs and
other memory technologies and systems.
Our R&D expenses were $1.37 billion, $931 million and $918 million in 2014, 2013 and 2012, respectively. We share
certain R&D process technology and design costs for NAND Flash and emerging technologies with Intel. We 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 $137 million, $146 million and $225 million in 2014, 2013 and 2012, respectively.
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; Hiroshima, Japan; Hashimoto, Japan; and Milpitas, California. We have
several additional product design centers in other strategic locations around the world. 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.
7
Geographic Information
Sales to customers outside the United States totaled $13.81 billion for 2014 and included sales of $6.72 billion in China,
$2.31 billion in Taiwan, $1.25 billion in Japan, $1.25 billion in Europe and $1.79 billion in the rest of the Asia Pacific region
(excluding China, Japan and Taiwan). Sales to customers outside the United States totaled $7.56 billion for 2013 and $6.97
billion for 2012. As of August 28, 2014, we had net property, plant and equipment of $3.28 billion in the United States, $3.10
billion in Singapore, $1.22 billion in Japan, $761 million in Taiwan, $242 million in China, and $75 million in other
countries. (See "Part II – 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 28, 2014, we
owned approximately 16,500 U.S. patents and 4,000 foreign patents. In addition, we have thousands of U.S. and foreign patent
applications pending. Our patents have various terms expiring through 2033.
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 partnering
arrangements. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
Employees
As of August 28, 2014, we had approximately 30,400 employees.
Environmental Compliance
Government regulations impose various environmental controls on raw materials and discharges, emissions and solid
wastes from our manufacturing processes. In 2014, our wafer fabrication facilities continued to conform to the requirements of
ISO 14001 certification. To continue certification, we must meet 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 executive 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 28, 2014, 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.
8
Name
Mark W. Adams
Scott J. DeBoer
D. Mark Durcan
Ronald C. Foster
Patrick T. Otte
Joel L. Poppen
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
50
President
48 Vice President of Research & Development
53 Director and Chief Executive Officer
63 Vice President of Finance and Chief Financial Officer
51 Vice President of Human Resources
50 Vice President of Legal Affairs, General Counsel, and Corporate Secretary
45 Vice President Memory Technology and Solutions
49 Vice President of Worldwide Sales and Corporate Marketing
57 Director
65 Director
53 Director
52 Director
60 Director
54 Director
67
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 an 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 is a member of the Board of Directors of MWI Veterinary Supply, Inc.
and Freescale Semiconductor, Inc. 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.
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 our 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.
Patrick T. Otte joined us in October 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.
Joel L. Poppen joined us in October 1995 and has held various positions of increased responsibility, including Deputy
General Counsel. He was appointed to his current position in December 2013. Mr. Poppen holds a BS in Electrical
Engineering from the University of Illinois and a JD from the Duke University School of Law.
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, Vice President of DRAM Solutions in June 2010 and has served as Vice
President Memory Technology and Solutions since April 2014. 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 in April 2012. Mr.
Thorsen holds a BA in Business Administration from Washington State University.
9
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.
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 and Analog
Devices. Mr. Beyer served three years as an officer in the United States Marine Corps. He holds a BA and an MA in Russian
from Georgetown University and an 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 served as the President of Tektronix, Inc., a subsidiary of Danaher Corporation, since July 2014. Mr.
Byrne was Vice President of Strategy and Business Development and Chief Technical Officer of Danaher Corporation from
November 2012 to July 2014. 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 holds a BS in Electrical Engineering from the University of
California, Berkeley, and an MS in Electrical Engineering from Stanford University. Mr. Byrne joined our Board of Directors
in April 2011.
D. Warren A. 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 BT Group plc, De La Rule
PLC, Inc. and Rolls Royce plc. 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 a BA BSc(Eng) and an 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, Juniper Networks, Inc. and
Teradyne, 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 Apollo Brands, a consumer products portfolio company,
since February 2014. Mr Mondry was the Chief Executive Officer of Flexi Compras Corporation, a rent-to-own retailer, from
June 2013 to February 2014. 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 and 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 Pulse
Electronics Corporation. 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.
10
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.
2014 from 2013
2013 from 2012
2012 from 2011
2011 from 2010
* Trade NAND Flash excludes sales to Intel from IMFT.
We may be unable to maintain or improve gross margins.
DRAM
Trade NAND
Flash*
(percentage change in average selling prices)
6%
(11)%
(45)%
(39)%
(23)%
(18)%
(55)%
(12)%
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 maintain or improve 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. 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. Consolidation of industry competitors could put us at
a competitive disadvantage. In addition, some governments, such as China, may be considering providing, or have provided,
significant financial assistance to some of our competitors or to new entrants. 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 by 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.
11
Our Inotera Supply Agreement involves numerous risks.
We have a supply agreement with Inotera (the "Inotera Supply Agreement") under which we are obligated to purchase
substantially all of Inotera's DRAM output over an initial three-year term at a purchase price based on a discount from market
prices for our comparable components, currently through December 2016. The Inotera Supply Agreement contemplates annual
negotiations with respect to potential successive one-year extensions, and if 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. In the
event of a wind-down, our share of Inotera's capacity would decline over the wind-down period. We are currently in
negotiations regarding the extension of the Inotera Supply Agreement. There can be no assurance that we will be able to reach
an agreement. Our Inotera Supply Agreement involves numerous additional risks including the following:
•
•
•
•
higher costs for supply obtained under the Inotera Supply Agreement as compared to our wholly-owned facilities;
difficulties and delays in ramping production at Inotera;
difficulties in transferring technology to Inotera; and
difficulties in coming to an agreement with Nanya regarding major corporate decisions, such as capital expenditures or
capital structure.
For 2014, we purchased $2.68 billion of DRAM products from Inotera and our supply from Inotera accounted for 38% 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.
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 28, 2014, we had debt with a carrying value of $6.59 billion. In addition, the
conversion value in excess of principal amount for our convertible notes outstanding as of August 28, 2014 was $2.99 billion.
In 2014, we paid $2.30 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of
$1.09 billion. In the first quarter of 2015, we paid $389 million to settle conversion obligations for convertible notes with a
principal amount of $114 million as of August 28, 2014. As of August 28, 2014, we had two credit facilities available that
provide 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.
Our debt 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;
continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes;
require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our
convertible notes to minimize dilution of our earnings per share;
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.
12
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 2015 will be
approximately $3.6 billion to $4.0 billion. In addition, as a result of the MMJ 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 transaction. As of August 28, 2014, we had cash and equivalents of $4.15 billion, short-term
investments of $384 million and long-term marketable investments of $819 million. Cash and investments included $1.60
billion held by MMJ and its consolidated subsidiaries and $84 million held by IMFT, none of which is generally available to
finance our other operations.
As a result of the corporate reorganization proceedings with the Japan Court under the Corporate Reorganization Act of
Japan (the "Japan Proceedings"), for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are
subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the MMJ Companies prohibit
the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in
their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also effectively prevent the
subsidiaries of the MMJ Companies from paying cash dividends to us in respect of the shares of such subsidiaries owned by the
MMJ Companies, as any such dividends would have to be first paid to the MMJ 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
MMJ 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 MMJ 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 MMJ Companies
and their subsidiaries, while available to satisfy the MMJ Companies' installment payments and the other obligations, capital
expenditures and other operating needs of the MMJ Companies and their subsidiaries, are not available for use by us in our
other operations. Furthermore, certain uses of the assets of the MMJ Companies, including investments in certain capital
expenditures in MMT, may require consent of MMJ'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 MMJ 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.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the
insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against MTI and
Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), 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 Micron B.V. and
Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera
Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera, and seeks an order
requiring us to retransfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover
damages for the alleged value of the joint venture relationship with Inotera and 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.
13
Following a series of hearings with pleadings, arguments and witnesses on behalf of the Qimonda estate, on March 13,
2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera
shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect
to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership
of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying
Qimonda’s claims against Micron Technology for any damages relating to the joint venture relationship with Inotera; and (5)
determining that Qimonda's obligations under the patent cross-license agreement are cancelled. In addition, the Court issued
interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares
still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third
parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it
from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and,
accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments
in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. A hearing on the matter
is scheduled for February 2, 2015.
We are unable to predict the outcome of the matter 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, unspecified damages
based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or 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 28, 2014, the Inotera Shares had a carrying value for purposes of our financial reporting of $505 million and a market
value of $2.06 billion.
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 materially adversely affected.
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, including system-level memory products, 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.
14
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:
• 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.
A determination that our products or manufacturing processes infringe the intellectual property rights of others or
entering into a license agreement covering such intellectual property could materially adversely affect our business,
results of operations or financial condition.
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 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. (See "Item 1. Legal Proceedings.")
We have a number of 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.
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, 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 our equity method investments in future periods;
•
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 materially adversely affected.
15
The operations of the MMJ 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 MMJ Companies provide for ongoing payments to creditors following the
closing of our acquisition of MMJ, the Japan Proceedings are continuing, and the MMJ 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 MMJ 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 MMJ 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 MMJ
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 MMJ Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our global
operations or to cause the MMJ 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 MMJ Companies.
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 and China. Additionally, our control over
operations at our IMFT, Inotera, 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, equipment failures, earthquakes or other environmental acts. 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, any of which could materially adversely affect our business,
results of operations or financial condition.
We may incur additional restructure or other charges in future periods.
In recent periods, we have implemented restructure activities and may implement restructure initiatives in future periods.
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 charges of $40 million for 2014 and $126 million for 2013. We do not anticipate incurring any
significant additional costs for these prior restructure activities. We may incur additional restructure charges or other losses
associated with other initiatives in future periods.
16
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 euro, the Singapore dollar, the New Taiwan dollar, the yen and the yuan. We
recorded net losses from changes in currency exchange rates of $28 million for 2014 and $229 million for 2013. 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 $7 million as of August 28, 2014. In
addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of
these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen
against the U.S. dollar, our manufacturing costs could significantly increase. In the event that the exchange rates for U.S. dollar
adversely change against our foreign currency exposures in the euro, Singapore dollar, New Taiwan dollar, the yen and the
yuan, our results of operations or financial condition may be adversely affected.
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;
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 and the 2012
bankruptcy filing by Elpida (now known as MMJ). These types of proceedings often lead to 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.
17
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, and in certain cases, third party services, that meet exacting standards. We generally
have multiple sources of supply for our raw materials and services. However, only a limited number of suppliers are capable of
delivering certain raw materials and services that meet our standards. In some cases, materials, components or services are
provided by a single supplier. Various factors could reduce the availability of raw materials or components such as silicon
wafers, controllers, photomasks, chemicals, gases, photoresist, lead frames and molding compound. Shortages may occur from
time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns
regarding climate change, which could increase the cost and limit the supply of our raw materials. 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 or services is disrupted or our lead times extended, our business, results of operations or
financial condition could be materially adversely affected.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing 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. From time to time 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 manufacturing equipment, our business, results of operations or financial condition could be
materially adversely affected.
We may incur additional tax expense or become subject to additional tax exposure.
We are subject to income taxes in the United States and numerous foreign jurisdictions, including among others, Singapore,
where we currently have arrangements that allow us to compute our tax provision at rates below the local statutory rates. Our
domestic and international taxes are dependent upon the distribution of our earnings among these different jurisdictions. Our
provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including
challenges by tax authorities to our tax structure, income before taxes being lower than anticipated in countries with lower
statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred
tax assets and liabilities and changes in tax laws and regulations. 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 U.S. federal and state tax
returns remain open to examination for 2010 through 2014. In addition, tax returns open to examination in multiple foreign
taxing jurisdictions range from the years 2005 to 2014. The results of audits and examinations of previously filed tax returns
and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax
liability.
We may not utilize all of our net deferred tax assets.
We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of
August 28, 2014, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.89
billion and $1.71 billion, respectively, which, if not utilized, will expire at various dates from 2015 through 2033. As
of August 28, 2014, our foreign net operating loss carryforwards were $5.37 billion, including $3.95 billion pertaining to Japan,
which, if not utilized, substantially all will expire at various dates from 2018 through 2023. As of August 28, 2014, we had
valuation allowances of $1.29 billion and $979 million against our net deferred tax assets in the U.S. and Japan, respectively.
A downturn in the worldwide economy may harm our business.
Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely
affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal
computers, mobile devices, solid-state drives and servers. 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
could 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.
18
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, explosion or other event that results in a prolonged disruption to our
operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations
or financial condition.
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 84% of our consolidated net sales for 2014. 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 Taiwan, Singapore and Japan. Our international sales and operations are
subject to a variety of risks, including:
•
•
•
•
•
•
•
•
•
•
•
export and import duties, changes to import and export regulations, customs regulations and processes 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.
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 relating to our customers and employees, 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, capped-call contracts on our stock and derivative instruments. 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.
19
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.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Boise, Idaho. The following is a summary of our principal facilities as of
August 28, 2014:
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
Muar, Malaysia
Assembly and test
Taichung City, Taiwan Wafer fabrication
Wafer fabrication
Hiroshima, Japan
Module assembly and test
Akita, Japan
Substantially all of the capacity of the facilities listed above is fully utilized. Our Inotera joint venture 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 December 2013, we sold our 200mm wafer fabrication equipment in Kiryat Gat, Israel to Intel and terminated the
related facility lease with Intel. Intel manufactured 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 "Part II – Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in
Subsidiaries – IMFT" 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 "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Geographic Information" note.)
20
ITEM 3. LEGAL PROCEEDINGS
Reorganization Proceedings of the MMJ Companies
On July 31, 2013, we completed the acquisition of Elpida, now known as MMJ, 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 the MMJ Companies' pending corporate reorganization proceedings under
the Corporate Reorganization Act of Japan.
The MMJ Companies filed petitions for commencement of corporate reorganization proceedings with 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 MMJ Companies and the Japan Court approved the Sponsor Agreement. Under the
Sponsor Agreement, we agreed to provide certain support for the reorganization of the MMJ Companies and the trustees agreed
to prepare and seek approval from the Japan Court and the MMJ Companies' creditors of plans of reorganization consistent
with such support.
The trustees initially submitted the proposed plans of reorganization for the MMJ 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 MMJ 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 MMJ in Japan challenging the plan approval order issued by the Japan
Court were denied.
In a related action, MMJ 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 MMJ'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 MMJ's plan of reorganization. On November 19, 2013, the U.S. Court closed the U.S. Chapter 15 proceeding.
The plans of reorganization provide for payments by the MMJ Companies to their secured and unsecured creditors in an
aggregate amount of 200 billion yen, 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 MMJ in exchange for 100% ownership of MMJ's equity and the use of such investment to fund the
initial installment payment by the MMJ Companies to their creditors of 60 billion yen, subject to reduction for certain items
specified in the Sponsor Agreement and plans of reorganization.
Under MMJ'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. MAI'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 MAI were paid in full on the first installment payment date, while the unsecured creditors will be paid in
seven installments.
21
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the
closing of the MMJ acquisition, the Japan Proceedings are continuing and the MMJ 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 MMJ 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 MMJ 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
MMJ 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 MMJ 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 MMJ
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 MMJ Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our global
operations or to cause the MMJ 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 MMJ Companies.
Rambus
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 $3.90 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 were engaged in litigation with Rambus relating to certain of Rambus' patents and certain of our claims and defenses.
Our lawsuits with Rambus related to patent matters were 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.
In December 2013, we settled all pending litigation between us and Rambus, including all antitrust and patent matters. We
also entered into a seven-year term patent cross-license agreement with Rambus that allows us to avoid costs of patent-related
litigation during the term. We agreed to pay Rambus up to $10 million per quarter over seven years, for a total of $280 million,
beginning in the second quarter of 2014. The primary benefits we received from these arrangements were (1) the settlement
and termination of all existing litigation, (2) the avoidance of future litigation expenses and (3) the avoidance of future
management and customer disruptions. As a result, other operating expense for the first quarter of 2014 included a $233
million charge to accrue a liability, which reflects the discounted value of amounts due under this arrangement.
22
Patent Matters
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 MMJ and Elpida
Memory (USA) Inc. On August 22, 2013, the plaintiffs filed a third amended complaint. The third amended complaint alleges
that certain of our DRAM and image sensor products infringe four U.S. patents and that certain MMJ and Elpida Memory
(USA) Inc. DRAM products infringe two U.S. patents and seeks damages, attorneys' fees, and costs. Trial currently is
scheduled for February 22, 2016. On March 23, 2012, MMJ and Elpida Memory (USA) Inc. 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 MMJ and Elpida Memory (USA)
Inc. Accordingly, the plaintiffs' case against MMJ and Elpida Memory (USA) was stayed. On June 25, 2013, the U.S.
Bankruptcy Court for the District of Delaware entered its Order (1) Granting Recognition of the Japanese Reorganization Plan
of MMJ and the Tokyo District Court's Confirmation Orders, (2) Entrusting MMJ's U.S. Assets to Foreign Representatives and
Approving Certain Plan Transactions, (3) Granting Permanent Injunction, and (4) Granting Related Relief (the "Recognition
Order"). Pursuant to the Recognition Order, the plaintiffs are permanently enjoined from continuing their case against MMJ
and Elpida Memory (USA) Inc. in respect of any claim or claims arising prior to the commencement of the Japan Proceeding
(as defined in the Recognition Order).
On December 5, 2011, the Board of Trustees for the University of Illinois (the "University") 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 Patent Trial and Appeal Board ("PTAB") held a hearing in connection with the three petitions on December
9, 2013. On March 10, 2014, the PTAB issued written decisions finding that each and every claim in the three patents in suit is
invalid, and cancelled all claims. The University has appealed the PTAB rulings to the U.S. Court of Appeals for the Federal
Circuit.
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 infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. Trial is
currently scheduled for August 21, 2015.
On December 7, 2007, Tessera, Inc. filed a patent infringement action against MMJ, Elpida Memory (USA) Inc., and
numerous other defendants, in the United States District Court for the Eastern District of Texas. The complaint alleges that
certain MMJ and Elpida Memory (USA) Inc. products infringe four U.S. patents and seeks injunctive relief, damages,
attorneys' fees, and costs. Prior to answering the complaint, MMJ and Elpida Memory (USA) Inc. and other defendants filed
motions to stay the case pending final resolution of a case before the International Trade Commission ("ITC") against MMJ and
Elpida Memory (USA) Inc. 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 MMJ and Elpida Memory (USA) Inc. 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.
Additionally, by operation of the Recognition Order, plaintiff in that action is permanently enjoined from continuing its case
against MMJ and Elpida Memory (USA) in respect of any claim or claims arising prior to the commencement of the Japan
Proceeding (as defined in the Recognition Order). On July 30, 2014, we entered into a five-year term patent cross-license
agreement with Tessera, which also settled the pending litigation against MMJ and Elpida Memory (USA). The agreement,
which requires us to make quarterly payments over its term, gives us "life-of-product" protection for specifically identified
DRAM products and a term license for certain other products.
Among other things, the above lawsuits pertain to certain of our DDR, DDR2, DDR3, SDR SDRAM, PSRAM, RLDRAM,
LPDRAM, NAND Flash, image sensor products and certain other memory products we manufacture, which account for a
significant portion of our net sales.
23
Except for the Tessera matter discussed above, we are unable to predict the outcome of assertions of infringement made
against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing
processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual
property 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
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, we agreed to pay approximately $67 million in aggregate in three equal installments over a two-year period. We
paid the full amount into an escrow account by the end of the first quarter of 2013 in accordance with the settlement agreement.
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 above discussion of the U.S. indirect purchaser cases. 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 (now known as MMJ) 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 MMJ
as of February 2013. The complaint alleges that the defendants engaged in various acts and misrepresentations to hide the
financial condition of MMJ and deceive shareholders prior to MMJ 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.
24
Qimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against MTI and
Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), 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 Micron B.V. and
Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera
Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera, and seeks an order
requiring us to retransfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover
damages for the alleged value of the joint venture relationship with Inotera and 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.
Following a series of hearings with pleadings, arguments and witnesses on behalf of the Qimonda estate, on March 13,
2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera
shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect
to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership
of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying
Qimonda’s claims against Micron Technology for any damages relating to the joint venture relationship with Inotera; and (5)
determining that Qimonda's obligations under the patent cross-license agreement are cancelled. In addition, the Court issued
interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares
still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third
parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it
from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and,
accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments
in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. A hearing on the matter
is scheduled for February 2, 2015.
We are unable to predict the outcome of the matter 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, unspecified damages
based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or 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 28, 2014, the Inotera Shares had a carrying value for purposes of our financial reporting of $505 million and a market
value of $2.06 billion.
(See "Item 1A. Risk Factors.")
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
25
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." The following
table represents the high and low closing sales prices for our common stock for each quarter of 2014 and 2013, as reported by
Bloomberg L.P.:
2014:
High
Low
2013:
High
Low
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
$
$
34.64
28.59
14.97
11.68
$
$
28.61
21.13
11.89
8.25
$
$
25.49
20.67
8.38
5.93
21.17
13.57
6.70
5.17
Holders of Record
As of October 16, 2014, there were 2,471 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 MMJ Group is subject to certain
restrictions on dividends, loans and advances. Our ability to access IMFT's cash and other assets through dividends, loans or
advances, including to finance our other operations, is subject to agreement by 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.
Issuer Purchases of Equity Securities
During the fourth quarter of 2014, we acquired, as payment of withholding taxes or exercise prices in connection with the
vesting or exercise of equity awards, 5,479 shares of our common stock at an average price per share of $32.02. We retired
these shares in the fourth quarter of 2014.
26
(a) Total
number of
shares
purchased
1,914
3,395
170
5,479
(b)
Average
price
paid per
share
$
29.65
33.42
30.70
32.02
(c) Total number of
shares (or units)
purchased as part of
publicly announced
plans or programs
N/A
N/A
N/A
(d) Maximum number (or
approximate dollar value) of
shares (or units) that may
yet be purchased under the
plans or programs
N/A
N/A
N/A
Period
May 30, 2014
July 4, 2014
August 1, 2014
– July 3, 2014
– July 31, 2014
– August 28, 2014
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, 2009, through August 31, 2014. 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, 2009 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
$
88
105
102
$
80
124
119
$
84
147
135
$
184
174
159
442
218
227
2009
2010
2011
2012
2013
2014
27
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
Redeemable convertible notes
Total Micron shareholders’ equity
Noncontrolling interests in subsidiaries
Total equity
2014
2013
2012
2011
2010
(in millions except per share amounts)
$
$
16,358
5,437
3,087
3,079
3,045
2.54
4,534
10,245
8,682
22,498
4,811
4,955
57
10,771
802
11,573
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
$
$
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
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a
controlling interest in Rexchip, now known as MMT. The MMJ Group's products include mobile DRAM targeted to mobile
phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks and workstations. The MMJ Acquisition
included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in
Taichung City, Taiwan and an assembly and test facility located in Akita, Japan. In connection with the MMJ Acquisition, we
recorded net assets of $2.60 billion, noncontrolling interests of $168 million and a gain on the transaction of $1.48 billion in
2013. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron
Memory Japan, Inc." note.)
We entered into a joint venture relationship with Intel to form IMFT in 2006 and IMFS in 2007 to manufacture NAND
Flash memory products for the exclusive use of the members. We have owned 51% of IMFT from inception through
August 28, 2014. 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, in which 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 – Equity – Noncontrolling
Interests in Subsidiaries – IM Flash" note.)
On May 7, 2010, we acquired Numonyx, which manufactured and sold primarily NOR Flash and NAND Flash memory
products. The total fair value of the consideration paid for Numonyx was $1.11 billion and consisted of 138 million shares of
our common stock issued to the Numonyx shareholders and 5 million restricted stock units issued to employees of Numonyx.
In connection with the acquisition, we recorded net assets of $1.55 billion. 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.
28
We have a noncontrolling interest in Inotera, a publicly-traded DRAM manufacturer in Taiwan. Through December 2012,
we purchased 50% of Inotera's wafer production capacity based on a margin-sharing formula among Nanya, Inotera and us.
Since January 2013, we have purchased substantially all of Inotera's DRAM output at a discount from market prices for our
comparable components under a new supply agreement (the "Inotera Supply Agreement"). Our costs for supply from Inotera
increased in 2014 from 2013 due to changes in average selling prices for our DRAM products and the changes in the pricing
terms. The Inotera Supply Agreement has a three-year term (currently through December 2016) that contemplates annual
negotiations with respect to potential successive one-year extensions. If 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. In the event of a
wind-down, our share of Inotera's capacity would decline over the wind-down period. In 2014, our cost of products purchased
from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities. We are
currently in negotiations regarding the extension of the Inotera Supply Agreement. There can be no assurance that we will be
able to reach an agreement. As of August 28, 2014, our ownership interest in Inotera was 33%. (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.")
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in "Operating
Expenses and Other" regarding SG&A and R&D expenses for the first quarter of 2015 and future Restructure and Asset
Impairment costs; and in "Liquidity and Capital Resources" regarding our pursuit of additional financing and debt
restructuring, regarding the use of cash on hand to fund any repurchases of common stock, regarding the sufficiency of our
cash and investments, cash flows from operations and available financing to meet our requirements for at least the next 12
months, regarding capital spending in 2015 and regarding the timing of payments for certain contractual obligations. 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 "Part I, Item 1A. Risk
Factors." This discussion should be read in conjunction with the consolidated financial statements and accompanying notes
for the year ended August 28, 2014. 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 2014, 2013 and 2012 each contained 52
weeks. Our fiscal 2015 will contain 53 weeks and the first quarter of fiscal 2015 will contain 14 weeks. All production data
includes the production of IMFT and Inotera. All tabular dollar amounts are in millions.
Our Management's Discussion and Analysis ("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: Description of 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.
Overview
For an overview of our business, see "Item 1 – Business – Overview." Our results of operations for 2014 were affected by
the following key transaction.
Acquisition of Micron Memory Japan, Inc.
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a
controlling interest in Rexchip, now known as MMT. In 2014, we purchased additional interests in MMT, increasing our
ownership interest to 99.5%. In connection with the MMJ Acquisition, we recorded net assets of $2.60 billion, noncontrolling
interests of $168 million and a gain on the transaction of $1.48 billion in 2013. In the second quarter of 2014, the provisional
amounts recorded in connection with the MMJ Acquisition were adjusted, primarily for pre-petition liabilities. As a result,
other non-operating expense for 2014 included these measurement period adjustments of $33 million. (See "Item 8. Financial
Statements – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc." note.)
The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM
wafer fabrication facility in Taichung City, Taiwan and an assembly and test facility located in Akita, Japan. These wafer
fabrication facilities together represented approximately 30% of our total wafer capacity for 2014. The MMJ Group's products
include mobile DRAM targeted to mobile phones and tablets, and computing DRAM targeted to desktop PCs, servers,
notebooks and workstations. The operations from the MMJ Acquisition are included primarily in the MBU and CNBU
segments.
30
Results of Operations
Consolidated Results
For the year ended
Net sales
Cost of goods sold
Gross margin
2014
2013
2012
$ 16,358
10,921
5,437
100 % $ 9,073
7,226
67 %
1,847
33 %
100 % $ 8,234
7,266
80 %
968
20 %
100 %
88 %
12 %
SG&A
R&D
Restructure and asset impairments
Other operating (income) expense, net
Operating income (loss)
707
1,371
40
232
3,087
4 %
8 %
— %
1 %
19 %
562
931
126
6 %
10 %
1 %
(8) — %
3 %
236
620
918
10
32
(612)
8 %
11 %
— %
— %
(7)%
Gain on MMJ Acquisition
Interest income (expense), net
Other non-operating income (expense), net
Income tax (provision) benefit
Equity in net income (loss) of equity method investees
Net income attributable to noncontrolling interests
Net income (loss) attributable to Micron
Business Segments
(33) — %
(329)
(2)%
— %
8
(128)
(1)%
474
3 %
(34) — %
1,484
(217)
(218)
16 %
(2)%
(2)%
(8) — %
(83)
(1)%
(4) — %
—
(171)
29
17
(294)
— %
(2)%
— %
— %
(4)%
(1) — %
(13)%
$ 3,045
19 % $ 1,190
13 % $ (1,032)
We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"): Includes DRAM and NOR Flash products sold to the compute,
networking, graphics and cloud server markets.
Mobile Business Unit ("MBU"): Includes DRAM, NAND Flash and NOR Flash products sold to the smartphone, feature
phone and tablet mobile-device market.
Storage Business Unit ("SBU"): Includes NAND Flash components and SSDs sold into enterprise and client storage, cloud
and removable storage markets. SBU also includes NAND Flash products sold to Intel through our IMFT joint venture.
Embedded Business Unit ("EBU"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and
industrial applications, as well as the connected home and consumer electronics markets.
Our other operations do not meet the thresholds of a reportable segment and are reported under All Other. In the third
quarter of 2014, we reorganized our business units. All prior period amounts reflect this reorganization.
Net Sales
For the year ended
CNBU
MBU
SBU
EBU
All Other
2014
2013
2012
$ 7,333
3,627
3,480
1,774
144
$ 16,358
45% $ 3,462
1,214
22%
2,824
21%
1,275
11%
298
1%
100% $ 9,073
38% $ 2,667
1,176
13%
2,842
31%
1,097
14%
452
4%
100% $ 8,234
32%
14%
35%
13%
6%
100%
31
Total net sales for 2014 increased 80% as compared to 2013 primarily due to higher CNBU and MBU sales resulting from
the MMJ Acquisition. Net sales for all segments in 2014 also benefitted, as compared to 2013, from increases in DRAM and
NAND Flash sales volumes driven primarily by higher manufacturing output as a result of improvements in product and
process technology and an increased share of output from Inotera.
Total net sales for 2013 increased 10% as compared to 2012 reflecting increases in CNBU, EBU and MBU 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 technologies, increased DRAM supply from Inotera due to the restructuring of our supply
agreement and $355 million of DRAM sales from the MMJ Acquisition after its acquisition on July 31, 2013.
Gross Margin
Our overall gross margin percentage improved to 33% for 2014 from 20% for 2013 primarily due to improvements in the
gross margin percentage for CNBU and MBU as a result of higher margins for DRAM products. The gross margin
improvements for CNBU and MBU for 2014 as compared to 2013 resulted primarily from the MMJ Acquisition,
manufacturing cost reductions and higher average selling prices for CNBU.
Through December 2012, we purchased 50% of Inotera's wafer production capacity based on a margin-sharing formula
among Nanya, Inotera and us. Since January 2013, we have purchased substantially all of Inotera's DRAM output at a discount
from market prices for our comparable components under a new supply agreement (the "Inotera Supply Agreement"). Our
costs for supply from Inotera increased in 2014 from 2013 due to increases in average selling prices for our DRAM products
and the changes in the pricing terms. The Inotera Supply Agreement has a three-year term (currently through December 2016)
that contemplates annual negotiations with respect to potential successive one-year extensions. If 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. In the event of a wind-down, our share of Inotera's capacity would decline over the wind-down period. In 2014, our
cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-
owned facilities. We are currently in negotiations regarding the extension of the Inotera Supply Agreement. There can be no
assurance that we will be able to reach an agreement. Under the Inotera supply agreements, we purchased $2.68 billion,
$1.26 billion, and $646 million of DRAM products in 2014, 2013 and 2012, respectively.
Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in
costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process
technologies and the comparatively lower manufacturing costs of the MMJ Group, partially offset by higher costs for product
obtained under the Inotera supply agreements. For 2014 and the fourth quarter of 2013, our costs of goods sold for DRAM
products included the sale of the MMJ Group's inventories recorded at fair value in the MMJ Acquisition, which was higher
than the manufacturing cost of such inventories. This increased our costs of goods sold by approximately $153 million for
2014 and $41 million for 2013.
Our overall gross margin percentage improved to 20% for 2013 from 12% for 2012 due to improvements in the gross
margin percentage for CNBU, and to a lesser extent EBU, SBU and MBU, 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.
Operating Results by Business Segments
CNBU
For the year ended
Net sales
Operating income (loss)
2014
2013
2012
$
$
7,333
1,957
$
3,462
160
2,667
(458)
32
CNBU 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.) CNBU sales
for 2014 increased 112% as compared to 2013 primarily due to (1) the MMJ Acquisition, (2) higher average selling prices, (3)
increased DRAM supply from Inotera as a result of the restructuring of our supply agreement and (4) higher output due to
improvements in product and process technologies. CNBU sales for 2014 as compared to 2013 were adversely impacted by the
transition of production at one of our Singapore wafer fabrication facilities from DRAM to NAND Flash. CNBU operating
income for 2014 improved from 2013 primarily due to the MMJ Acquisition, higher average selling prices and manufacturing
cost reductions.
CNBU sales for 2013 increased 30% as compared to 2012 primarily due to increases in gigabits sold partially offset by
declines in average selling prices. CNBU operating margin for 2013 improved 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.
CNBU results of operations for 2013 included sales of $153 million and operating income of $21 million from the acquired
MMJ Group. CNBU sales and operating margins for 2012 were adversely impacted by a $58 million charge for a settlement
with a customer.
MBU
For the year ended
Net sales
Operating income (loss)
2014
2013
2012
$
$
3,627
683
$
1,214
(265)
1,176
(371)
In 2014, MBU sales were comprised primarily of DRAM, NAND Flash and NOR Flash, in decreasing order of revenue,
with mobile DRAM products accounting for a significant majority of the sales. MBU sales for 2014 increased 199% as
compared to 2013 primarily due significant increases in mobile DRAM sales as a result of the MMJ Acquisition. MBU
operating margin for 2014 also improved from 2013 primarily due to the MMJ Acquisition and manufacturing cost reductions,
which significantly outpaced declines in average selling prices.
MBU sales increased 3% for 2013 as compared to 2012 primarily due to higher sales of mobile DRAM products as a result
of the MMJ Acquisition partially offset by declines in sales of wireless NOR Flash products. MBU results of operations for
2013 included sales of $192 million and operating income of $22 million from the MMJ Group. Sales of wireless NOR Flash
products declined in 2014 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. The improvement in MBU operating margin for 2013 from 2012 was
primarily due to reductions in manufacturing, SG&A and R&D costs.
SBU
For the year ended
Net sales
Operating income
2014
2013
2012
$
$
3,480
255
$
2,824
173
2,842
199
SBU sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for
our sales of NAND Flash products. (See "Operating Results by Product – NAND Flash" for further detail.) SBU sales for
2014 increased 23% from 2013 primarily due to increases in gigabits sold partially offset by declines in average selling prices.
Increases in gigabits sold for 2014 were primarily due to the transition in 2014 of production at one of our wafer fabrication
facilities in Singapore from DRAM to NAND Flash and improvements in product and process technologies. SBU sells a
portion of its products to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. SBU sales of
NAND Flash products to Intel under this arrangement were $423 million, $387 million and $718 million for 2014, 2013 and
2012, respectively. All other SBU products are sold to OEMs, resellers, retailers and other customers (including Intel), which
we collectively refer to as "trade customers."
SBU sales of NAND Flash products to trade customers for 2014 increased 26% as compared to 2013 primarily due to an
increase in gigabits sold partially offset by declines in average selling prices. SBU operating income for 2014 improved from
2013 primarily due to higher gigabit sales volumes as manufacturing cost reductions were essentially offset by declines in
average selling prices.
33
SBU 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. SBU sales of NAND Flash products to trade customers for 2013 increased 22% as compared to 2012 primarily
due to increases in gigabits sold partially offset by declines in average selling prices. On April 6, 2012, we acquired Intel's
interests and supply rights from IM Flash wafer fabrication facilities in Singapore and Virginia, resulting in subsequent
increases in our sales to trade customers. SBU operating income for 2013 declined from 2012 primarily due to decreases in
average selling prices and increases in R&D costs mitigated by manufacturing cost reductions. Manufacturing cost reductions
resulted primarily from improvements in product and process technologies.
EBU
For the year ended
Net sales
Operating income
2014
2013
2012
$
$
1,774
331
$
1,275
227
1,097
129
In 2014, EBU sales were comprised of DRAM, NAND Flash and NOR Flash in decreasing order of revenue. EBU sales
for 2014 increased 39% as compared to 2013 primarily due to increased sales volumes of DRAM and NAND Flash products
partially offset by declines in average selling prices. EBU operating income for 2014 improved as compared to 2013 primarily
due to higher margins on sales of DRAM and NAND Flash products as a result of the increase in sales and cost reductions.
In 2013, EBU sales were comprised of DRAM, NOR Flash and NAND Flash in decreasing order of revenue. EBU sales
increased 16% for 2013 as compared to 2012 primarily due to increased sales volumes of DRAM, NAND Flash and NOR
Flash products as EBU continued to expand its customer base, partially offset by declines in average selling prices. EBU
operating income for 2013 improved from 2012 primarily due to manufacturing cost reductions and higher sales volumes
partially offset by declines in average selling prices.
Operating Results by Product
Net Sales by Product
For the year ended
DRAM
NAND Flash
NOR Flash
Other
2014
2013
2012
$ 11,164
4,468
505
221
$ 16,358
68% $ 4,361
3,589
27%
792
3%
331
2%
100% $ 9,073
48% $ 3,178
3,627
40%
977
9%
452
3%
100% $ 8,234
39%
44%
12%
5%
100%
In order to balance our future product mix in anticipation of the closing of the MMJ Acquisition, in the fourth quarter of
2013, we began to transition production at one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash.
This transition to NAND Flash production is substantially complete. During this period of transition, there was a marginal
reduction in wafer production.
DRAM
For the year ended
Net sales
Average selling prices per gigabit
Gigabits sold
Cost per gigabit
2014
2013
(percentage change from prior period)
156 %
6 %
142 %
(20)%
37 %
(11)%
55 %
(25)%
34
The increase in gigabit sales of DRAM products for 2014 as compared to 2013 was primarily due to higher production
volumes resulting from the MMJ Acquisition, increased supply under the new Inotera Supply Agreement and improved product
and process technologies, partially offset by the transition of one of our wafer fabrication facilities in Singapore from DRAM to
NAND Flash. In 2014, DRAM products produced by our MMJ Group facilities constituted 54% of our aggregate DRAM
gigabit production as compared to 9% in 2013.
In 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products
manufactured in our wholly-owned facilities and were higher than our costs in 2013. DRAM products acquired from Inotera
accounted for 38% of our DRAM gigabit production for 2014 as compared to 54% for 2013 and 46% for 2012.
Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in
costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process
technologies and the comparatively lower manufacturing costs of the MMJ Group, partially offset by higher costs for product
obtained under the Inotera supply agreement and the sale of the MMJ Group's inventories recorded in the MMJ Acquisition.
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
MMJ Acquisition on July 31, 2013. 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 technologies partially offset
by declines in average selling prices. DRAM sales and gross margins for 2012 were adversely impacted by the effects of a $58
million charge to revenue for a settlement with a customer.
NAND Flash
We sell a portion of our output of NAND Flash products to Intel through IMFT at long-term negotiated prices
approximating cost. (See "Operating Results by Business Segments – Storage Business Unit" 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
2014
2013
(percentage change from prior period)
27 %
(23)%
65 %
(23)%
15 %
(18)%
40 %
(22)%
Increases in NAND Flash gigabits sold to trade customers for 2014 as compared to 2013 were primarily due to the
transition of one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash production and improved product
and process technologies. Our gross margin percentage on sales of trade NAND Flash products for 2014 was relatively
unchanged from 2013 as manufacturing cost reductions offset declines in average selling prices. Manufacturing cost reductions
for 2014 as compared to 2013 primarily resulted from improvements in product and process technologies.
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.
NOR Flash
Sales of NOR Flash products for 2014 declined as compared to 2013 primarily due to decreases in sales of wireless NOR
Flash products as a result of the continued transition of wireless applications to NAND Flash products. Our gross margin
percentage on sales of NOR Flash products for 2014 declined as compared to 2013 primarily due to costs of underutilized
capacity in connection with the decrease in production of wireless products and decreases in average selling prices.
35
Sales of NOR Flash products for 2013 declined as compared to 2012 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, 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.
Operating Expenses and Other
Selling, General and Administrative
SG&A expenses for 2014 increased 26% as compared to 2013 primarily due to the incremental costs resulting from the
MMJ Acquisition and higher payroll costs resulting primarily from the reinstatement of variable pay plans. We expect that
SG&A expenses will approximate $195 million to $205 million for the first quarter of 2015.
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 and other costs incurred in connection with the MMJ Acquisition.
Research and Development
R&D expenses for 2014 increased 47% from 2013 primarily due to the incremental costs resulting from the MMJ
Acquisition, higher payroll costs resulting primarily from the reinstatement of variable pay plans and increased resources
dedicated to development efforts. We expect that R&D expenses, net of amounts reimbursable from our R&D partners, will be
approximately $395 million to $405 million for the first quarter of 2015.
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.
As a result of amounts reimbursable from Intel under a joint development program for NAND Flash and certain emerging
memory technologies, R&D expenses were reduced by $137 million, $127 million and $87 million for 2014, 2013 and 2012,
respectively. As a result of amounts reimbursable from Nanya under a DRAM R&D joint development program, R&D
expenses were reduced by $19 million and $138 million for 2013 and 2012, respectively. Effective January 1, 2013, Nanya
ceased participating in the DRAM joint development program.
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, Mobile LPDRAM products, high density
NAND Flash memory (including 3D NAND and MLC and TLC technologies), SSDs, Hybrid Memory Cubes, specialty
memory, NOR Flash memory, and other memory technologies and systems.
Restructure and Asset Impairments
For the year ended
Loss on impairment of LED assets
Loss on impairment of MIT assets
Gain on termination of lease to Transform
Loss on restructure of ST consortium agreement
Other
2014
2013
2012
$
$
(6) $
(5)
—
—
51
40
$
33
62
(25)
26
30
126
$
$
—
—
—
—
10
10
36
In order to optimize operations, improve efficiency and increase our focus on our core memory operations, we have
entered into various restructure activities. For 2014 and 2013, other restructure included charges associated with our efforts to
wind down our 200mm operations primarily in Agrate, Italy and Kiryat Gat, Israel and charges associated with workforce
optimization activities, primarily related to our MBU and EBU operating segments. As of August 28, 2014, we had accrued
$14 million for unpaid other restructure activities related to our workforce optimization activity. As of August 28, 2014, 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)
Net interest expense for 2014, 2013 and 2012, included aggregate amounts of amortization of debt discount and other costs
of $167 million, $122 million and $81 million, respectively.
Income Taxes
Income tax provision (benefit) for 2014 included $249 million of expenses related to the utilization of deferred tax assets
by the MMJ Group partially offset by a $190 million benefit from increases in amount of MMJ Group's deferred tax assets
expected to be realized based on our forecasted utilization of net operating losses. The remaining tax provision for 2014
primarily reflects taxes on our other non-U.S. operations. The provision (benefit) for taxes on U.S. operations for 2014 was
substantially offset by changes in the valuation allowance. As of August 28, 2014, we had valuation allowances of $1.29
billion against substantially all U.S. net deferred tax assets and $1.15 billion related to our foreign subsidiaries, primarily
related to net operating loss carryforwards. Our valuation allowance decreased $712 million for 2014 primarily due to the
utilization of U.S. and foreign net operating losses and due to the $190 million benefit to deferred tax assets of the MMJ Group.
The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.
Management continues to evaluate future financial performance to determine whether such performance is sufficient evidence
to support reversal of the valuation allowances. Our unrecognized tax benefits increased $150 million in 2014, primarily due to
transfer pricing and other matters, which was substantially offset by changes in our deferred tax asset valuation allowance.
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 2014, 2013 and 2012 by $286 million, $141 million and $52 million, respectively.
Income taxes for 2013 and 2012 primarily reflect taxes on our non-U.S. operations offset by benefits of $19 million and
$56 million, respectively, from the favorable resolution of prior year tax matters and a change in tax laws applicable to prior
years.
(See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Income
Taxes.")
Equity in Net Income (Loss) of Equity Method Investees
We recognize our share of earnings or losses from the entities listed below 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
Tera Probe
Other
2014
2013
2012
$
$
465
11
(2)
474
$
$
(79) $
—
(4)
(83) $
(189)
—
(105)
(294)
Our equity in net income (loss) of Inotera improved for 2014 as compared to 2013 primarily due to Inotera's improved
operating results as a result of higher selling prices and lower manufacturing costs. Higher selling prices resulted from the new
Inotera Supply Agreement coupled with an improved market.
Losses in 2012 for our other equity method investments were primarily attributable to Transform Solar Pty Ltd. As of
August 30, 2012, Transform's operations were substantially discontinued. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments.")
37
Other Operating and Non-Operating
In 2014, we settled all pending litigation between us and Rambus, including all antitrust and patent matters, and entered
into a patent cross-license agreement. As a result, other operating expense for 2014 included a $233 million charge to accrue a
liability, which reflects the discounted value of amounts due under this arrangement. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Contingencies" note.)
Other non-operating expense for 2014 included losses from the restructure of our debt of $184 million. Other non-
operating expense for 2013 included losses of $31 million from the restructure of our debt. (See "Item 8. Financial Statements
and Supplementary Data – Notes to Consolidated Financial Statements – Debt" note.)
Other non-operating expense included losses from changes in currency exchange rates of $28 million, $229 million and $6
million for 2014, 2013 and 2012, respectively. The loss for 2013 includes a $228 million loss for currency contracts to hedge
our yen-denominated obligations in connection with the MMJ Acquisition. (See "Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Derivative Instruments" note.)
On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433 million and we recognized a
non-operating gain of $119 million on the sale of our shares based on our diluted ownership interest of approximately 27%.
On May 15, 2014, Inotera issued 400 million common shares in a public offering at a price equal to 31.50 New Taiwan
dollars per share, which was in excess of our carrying value per share. As a result of the issuance, our ownership interest
decreased from 35% to 33% and we recognized a non-operating gain of $93 million in 2014.
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
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets.
Specifically, in 2014, we generated cash from operations of $5.70 billion and obtained $2.21 billion of proceeds from issuance
of debt. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly
from period to period. We are continuously evaluating alternatives for efficiently financing our capital expenditures, dilution-
management activities (including repurchases of convertible notes or equity) and ongoing operations. We expect, from time to
time in the future, to engage in a variety of transactions for such purposes, including the issuance or incurrence of secured and
unsecured debt and the refinancing and restructuring of existing debt.
On October 27, 2014, we announced that our Board of Directors authorized the discretionary repurchase of up to
$1.00 billion of our outstanding common stock. Any repurchases under the new authorization may be made in open market
purchases, block trades, privately negotiated transactions and/or derivative transactions, subject to market conditions and our
ongoing determination that it is the best use of available cash. We expect to use cash on hand to fund any repurchases. The
repurchase authorization does not obligate us to acquire any common stock.
We expect that our cash and investments, cash flows from operations and available financing will be sufficient to meet our
requirements at least through 2015.
38
As of
Cash and equivalents and short-term investments:
Bank deposits
Money market funds
Certificates of deposit
Corporate bonds
Government securities
Commercial paper
Asset-backed securities
Long-term marketable investments
2014
2013
$
$
$
2,445
1,281
410
154
136
107
1
4,534
819
$
$
$
1,619
1,188
47
112
72
61
2
3,101
499
As of August 28, 2014, $2.80 billion of our cash and equivalents and short-term investments was held by foreign
subsidiaries, of which $758 million was denominated in currencies other than the U.S. dollar. To mitigate credit risk, we invest
through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by
restricting the amount of investments with any single obligor.
Limitations on the Use of Cash and Investments
MMJ Group: Cash and equivalents and short-term investments in the table above included an aggregate of $1.60 billion
held by the MMJ Group as of August 28, 2014. As a result of the corporate reorganization proceedings of the MMJ Companies
entered into in March 2012 and for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are
subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the MMJ Companies prohibit
the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in
their businesses or to fund the MMJ Companies' installment payments. These prohibitions also effectively prevent the
subsidiaries of the MMJ Companies from paying cash dividends to us as any such dividends would have to be first paid to the
MMJ 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 MMJ 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
MMJ Companies may be considered outside of the ordinary course of business and subject to approval of the legal trustee and
Japan Court. As a result, the assets of the MMJ Group, while available to satisfy the MMJ Companies' installment payments
and the other obligations, capital expenditures and other operating needs of the MMJ Group, are not available for use by us in
our other operations. Moreover, certain uses of the assets of the MMJ Group, including investments in certain capital
expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
IMFT: Cash and equivalents and short-term investments in the table above included $84 million held by IMFT as of
August 28, 2014. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and
contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
Indefinitely Reinvested: As of August 28, 2014, we had $2.70 billion of cash and equivalents and short-term investments
that were 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. Determination of the amount of unrecognized
deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Operating Activities
Net cash provided by operating activities was $5.70 billion for 2014, due primarily to a strong market for our products and
our continued focus on cost-efficient operations. Operating cash flows in 2014 also benefitted by a $671 million increase in
accounts payable and accrued expenses offset by a $518 million increase in receivables.
39
Investing Activities
Net cash used for investing activities was $2.45 billion for 2014, which consisted primarily of cash expenditures of
$2.66 billion for property plant and equipment and $506 million for the acquisition of available-for-sale securities (net of
proceeds from sales and maturities of $557 million) offset by the use of $534 million of restricted cash in connection with the
first MMJ creditor installment payment.
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 2015 will be approximately $3.6 billion to $4.0 billion. The actual amounts for 2015 will
vary depending on market conditions. As of August 28, 2014, we had commitments of approximately $1.18 billion for the
acquisition of property, plant and equipment, substantially all of which is expected to be paid within one year.
Financing Activities
Net cash used by financing activities was $1.95 billion for 2014, which included $3.84 billion for repayments of debt
(including $1.20 billion for the amount in excess of principal of our convertible notes), $479 million of payments on equipment
purchase contracts and $92 million of net cash received from noncontrolling interests offset by $2.21 billion of proceeds from
issuance of debt and by $265 million of proceeds from issuance of common stock under our equity plans.
2014 Debt Restructure
Throughout 2014, we reduced the dilutive effects of our convertible notes by exchanging, converting or repurchasing a
portion of these notes using cash generated from operations and proceeds from issuing non-convertible debt with near
investment-grade covenants. Approximately 90% of our Free Cash Flow (cash flows from operating activities less expenditures
for property, plant and equipment less payments on equipment purchase contracts) generated during 2014 was used for these
dilution-management activities. As a result, we eliminated convertible notes that would have been converted into 118 million
shares of our common stock.
In 2014, we initiated a series of actions to restructure our debt, including exchanges, conversions and settlements,
repurchases, issuances and early repayments. The following table presents the net effect of each of the actions:
Exchanges
Conversions and settlements(2)
Repurchases
Issuances
Early repayments
Increase
(Decrease) in
Principal
Increase
(Decrease) in
Carrying
Value
Increase
(Decrease) in
Cash
(Decrease) in
Equity
Loss(1)
$
585
$
(770)
(320)
2,212
(336)
$
1,371
$
282
(437)
(269)
2,212
(334)
1,454
$
$
— $
(1,446)
(857)
2,157
(339)
(485) $
(238) $
(886)
(567)
—
—
(1,691) $
49
130
23
—
3
205
(1) The loss on 2014 debt restructure activities was recorded as $184 million in other non-operating expense and $21
million in interest expense in 2014.
(2) The change in carrying value includes an increase of $275 million for the reclassification of the fair value of the equity
component to debt in connection with our election to settle the conversions of the 2031B Notes in cash.
• Exchanges: Exchanged $440 million in aggregate principal amount of our 2027 Notes, 2031A Notes and 2031B
Notes into $1.03 billion principal amount at maturity of 2043G Notes.
• Conversions and Settlement: Holders of substantially all of our remaining 2014 Notes, 2027 Notes and 2031A
Notes (with an aggregate principal amount of $770 million) converted their notes and we settled the conversions
in cash for $1.45 billion.
40
• Repurchases: Repurchased $320 million in aggregate principal amount of our 2031B Notes, 2032C Notes and
•
2032D Notes in privately-negotiated transactions for an aggregate of $857 million in cash.
Issuances: Issued $600 million in principal amount of 5.875% senior notes due February 2022 and $1.15 billion
in principal amount of 5.500% senior notes due February 2025. Issued $462 million in principal amount of
1.258% senior notes due 2019 Notes, payable in 10 semi-annual installments commencing in July 2014.
• Early Repayments: Repaid $334 million of notes and capital leases prior to their scheduled maturities.
Subsequent to 2014, we settled an aggregate principal amount of $114 million of our remaining 2031B Notes for $389
million and repaid a $120 million note prior to its scheduled maturity.
Available Credit Facilities: As of August 28, 2014, we had credit facilities available that provide 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" note.)
Potential Settlement Obligations of Convertible Notes
Since the closing price of our common stock for at least 20 trading days in the 30 trading day periods ended on June 30,
2014 and September 30, 2014 exceeded 130% of the initial conversion price per share of our 2032 Notes and 2033 Notes,
holders of those notes have the right to convert their notes at any time through December 31, 2014. For our convertible notes,
we have: (1) the requirement to pay cash for the principal amount and the option to pay either cash, shares of our common stock
or any combination thereof for any remaining conversion obligation, or (2) the option to pay cash, issue shares of common
stock or any combination thereof for the aggregate amount due upon conversion.
The following table summarizes the potential settlements, as of August 28, 2014, that we could be required to make if all
holders converted their 2032 Notes and 2033 Notes:
Initial
Conversion
Price Per
Share
Settlement
Option for
Principal
Amount
$
9.63 Cash and/or shares
9.98 Cash and/or shares
10.93 Cash
10.93 Cash
If Settled With Minimum
Cash Required(1)
If Settled Entirely
With Cash(2)
Outstanding
Principal
Cash
Remainder
in Shares
Cash
$
$
362
344
300
300
1,306
$
$
—
—
300
300
600
38
34
18
18
108
$
$
1,235
1,129
900
900
4,164
2032C Notes
2032D Notes
2033E Notes
2033F Notes
(1) We are required to settle the principal amount of the 2033 Notes in cash. The remaining conversion obligation paid in
shares is based on our closing share price of $32.81 as of August 28, 2014.
(2) Based on our closing share price of $32.81 as of August 28, 2014. Assumes we elect cash settlement for the entire
obligation.
41
Contractual Obligations
As of August 28, 2014
Notes payable(1)(2)
Capital lease obligations(2)
Operating leases(3)
Purchase obligations
Other long-term liabilities(4)(5)
Total
Payments Due by Period
Total
Less than
1 year
$
$
7,959
998
116
1,869
1,060
12,002
$
$
976
356
22
1,724
335
3,413
1-3 years
1,001
404
32
117
411
1,965
$
$
3-5 years
1,601
115
25
12
206
1,959
$
$
More than
5 years
$
$
4,381
123
37
16
108
4,665
(1) Amounts include MMJ Creditor Installment Payments, convertible notes and other notes. Any future redemption or
conversion of convertible debt could impact the amount and timing of our cash payments.
(2) Amounts reflect principal and interest.
(3) Amounts do not include contingent lease payments.
(4) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance
sheet, including $335 million for the current portion of these long-term liabilities.
(5) We are unable to reliably estimate the timing of future payments related to uncertain tax positions and noncurrent
deferred tax liabilities; therefore, $255 million in aggregate of long-term income taxes payable and noncurrent deferred
tax liabilities has been excluded from the preceding table. However, other noncurrent liabilities recorded on our
consolidated balance sheet included these uncertain tax positions and noncurrent deferred tax liabilities.
The obligations disclosed above do not include 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.
Under the Inotera Supply Agreement, effective on January 1, 2013, we are obligated to purchase for a three-year term
(currently through December 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 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. In the event of a wind-down, our share of
Inotera's capacity would decline over the three year wind-down period. We purchased $2.68 billion of DRAM products from
Inotera in 2014 under the Inotera Supply Agreement. 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.
42
Off-Balance Sheet Arrangements
We have entered into capped calls, which are intended to reduce the effect of potential dilution from our convertible notes.
The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our
stock is above a specified initial strike price at the expiration dates. The amounts receivable varies based on the trading price of
our stock, up to specified cap prices. The dollar value of the cash or shares that we would receive from the capped calls on
their expiration dates ranges from $0 if the trading price of our stock is below the initial strike price for all of the capped calls
to $864 million if the trading price of our stock is at or above the cap price for all of the capped calls. To purchase the capped
calls, we paid $57 million in 2011, $103 million in 2012 and $48 million in 2013, respectively. The amounts paid were
recorded as charges to additional capital. For further details of our capped call arrangements, see "Item 8. Financial Statements
and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Micron Shareholders' Equity – Capped
Calls" note.
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 VIEs. Determining whether to consolidate a VIE
requires 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. In accounting for the resolution of contingencies, considerable judgment is necessary to estimate
amounts pertaining to periods prior to the resolution, which are charged to operations in the period of resolution, and amounts
related to future periods.
43
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. In recent periods, our results of operations
have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital
spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or
benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are
inherently difficult and involve numerous judgments including, among others, projecting future average selling prices and sales
volumes, manufacturing and overhead costs, levels of capital spending and other factors that significantly impact our analyses
of the amount of net deferred tax assets that are more likely than not to be realized.
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 $254 million as of August 28,
2014. 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. Inventories are
primarily categorized as memory (including DRAM, NAND Flash and NOR Flash) for purposes of determining lower of
average cost or market. 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.
44
Recently Issued Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently
Issued Accounting Standards" note.
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 is 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 28, 2014 and August 29, 2013, a hypothetical decrease in market interest rates of 1% would
increase the fair value of our convertible notes and other notes by approximately $250 million and $147 million, respectively.
The increase in interest expense caused by a 1% increase in the interest rates of our variable-rate debt would not be significant.
As of August 28, 2014 and August 29, 2013, we held debt securities of $1,653 million and $787 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 $6 million as of August 28, 2014 and $4 million as of August 29, 2013.
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 Singapore dollar, the New Taiwan dollar, 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 $7 million as of August 28, 2014 and $19 million as of
August 29, 2013. 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 within 12 to 18 months.
As of August 28, 2018, under the terms and conditions of the MMJ Companies' plans of reorganization, we are obligated to
pay 142 billion yen (or the equivalent of $1.37 billion based on exchange rates as of August 28, 2014) to the external creditors
of the MMJ Companies. The installment payments are due at the end of each calendar year beginning in 2014 through 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 MMJ
Companies' cash and equivalent balances in yen mitigate the foreign currency exchange risk associated with the remaining
installment payments due in 2015 and after. (See "Item 8 – Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements – Debt – MMJ Creditor Installment Payments.")
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements as of August 28, 2014 and August 29, 2013 and for the fiscal years ended
August 28, 2014, August 29, 2013 and August 30, 2012:
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
47
48
49
50
51
52
97
107
113
46
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 MMJ Acquisition
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 28,
2014
August 29,
2013
August 30,
2012
$
$
16,358
10,921
5,437
$
9,073
7,226
1,847
8,234
7,266
968
707
1,371
40
232
3,087
(33)
23
(352)
8
2,733
(128)
474
3,079
(34)
3,045
2.87
2.54
1,060
1,198
$
$
562
931
126
(8)
236
1,484
14
(231)
(218)
1,285
(8)
(83)
1,194
(4)
1,190
1.16
1.13
1,022
1,057
$
$
620
918
10
32
(612)
—
8
(179)
29
(754)
17
(294)
(1,031)
(1)
(1,032)
(1.04)
(1.04)
991
991
$
$
See accompanying notes to consolidated financial statements.
47
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
Pension liability adjustments
Gain (loss) on investments, net
Other comprehensive income (loss)
Total comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Micron
$
August 28,
2014
August 29,
2013
August 30,
2012
$
3,079
$
1,194
$
(1,031)
(9)
(2)
3
1
(7)
3,072
(34)
3,038
$
(9)
(5)
(1)
(1)
(16)
1,178
(5)
1,173
$
(18)
(16)
—
(24)
(58)
(1,089)
5
(1,084)
See accompanying notes to consolidated financial statements.
48
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 debt
Total current liabilities
Long-term debt
Other noncurrent liabilities
Total liabilities
Commitments and contingencies
Redeemable convertible notes
Micron shareholders' equity:
Common stock, $0.10 par value, 3,000 shares authorized, 1,073 shares issued and
outstanding (1,044 as of August 29, 2013)
Additional capital
Retained earnings (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.
49
August 28,
2014
August 29,
2013
$
$
$
$
$
$
$
4,150
384
2,906
2,455
—
350
10,245
819
8,682
971
468
816
497
22,498
2,698
309
166
1,638
4,811
4,955
1,102
10,868
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
57
—
107
7,879
2,729
56
10,771
802
11,573
22,498
$
104
9,187
(212)
63
9,142
864
10,006
19,118
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Micron Shareholders
Balance at September 1, 2011
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
Common Stock
Number
of
Shares
984
Amount
Additional
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Total Micron
Shareholders'
Equity
Noncontrolling
Interests in
Subsidiaries
Total
Equity
$
98
$
8,610
$
(370) $
132
$
8,470
$
1,382
$ 9,852
(1,032)
(52)
(1,032)
(52)
1
(6)
(1,031)
(58)
27
8
3
1
191
135
87
5
(102)
(6)
—
—
191
138
87
6
—
—
(102)
(6)
197
(466)
(391)
197
191
138
87
6
(466)
(391)
(102)
(6)
Repurchase and retirement of stock
(1)
—
Balance at August 30, 2012
1,018
$
102
$
8,920
$
(1,402) $
80
$
7,700
$
717
$ 8,417
Net income
Other comprehensive income (loss), net
MMJ Acquisition
Stock issued under stock plans
27
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 stock
(1)
—
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
$
104
$
9,187
$
(212) $
63
$
9,142
$
864
$10,006
Net income
Other comprehensive income (loss), net
Stock issued under stock plans
36
4
Stock-based compensation expense
Contributions from noncontrolling
interests
Settlement of capped calls
Exchange, conversion and repurchase
of convertible notes
Acquisitions of noncontrolling interests
Redeemable convertible notes
Distributions to noncontrolling interests
Repurchase and retirement of stock
(7)
(1)
3,045
3,045
34
3,079
262
115
86
(1,691)
34
(57)
(57)
(104)
(7)
(7)
266
115
—
86
(1,691)
34
(57)
—
(162)
(7)
266
115
102
86
102
(1,691)
(180)
(146)
(18)
(57)
(18)
(162)
Balance at August 28, 2014
1,073
$
107
$
7,879
$
2,729
$
56
$
10,771
$
802
$11,573
See accompanying notes to consolidated financial statements.
50
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
Loss on restructure of debt
Stock-based compensation
(Gain) on MMJ Acquisition
(Gains) losses from currency hedges, net
Equity in net (income) loss of equity method investees
Gain from disposition of interest in Aptina
Gain from Inotera issuance of shares
Noncash restructure and asset impairments
Change in operating assets and liabilities:
Receivables
Inventories
Accounts payable and accrued expenses
Deferred income taxes, net
Other noncurrent liabilities
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
Additions to equity method investments
Proceeds from sales and maturities of available-for-sale securities
Decrease in restricted cash
Cash received from disposition of interest in Aptina
Other
Net cash provided by (used for) investing activities
Cash flows from financing activities
Repayments of debt
Payments on equipment purchase contracts
Cash paid to purchase stock under equity plans
Acquisitions of noncontrolling interests
Distributions to noncontrolling interests
Proceeds from issuance of debt
Proceeds from issuance of stock under equity plans
Contributions from noncontrolling interests
Proceeds from equipment sale-leaseback transactions
Other
Net cash provided by (used for) financing activities
Effect of changes in currency exchange rates on cash and equivalents
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:
Exchange of convertible notes
Equipment acquisitions on contracts payable and capital leases
Acquisition of noncontrolling interest
Conversion of notes to stock, net of unamortized issuance cost
August 28,
2014
August 29,
2013
August 30,
2012
$
3,079
$
1,194
$
(1,031)
2,103
167
195
115
33
27
(474)
(119)
(97)
(17)
(518)
194
671
68
243
29
5,699
(2,658)
(1,063)
(26)
—
557
536
105
96
(2,453)
(3,843)
(479)
(76)
(18)
(10)
2,212
265
102
14
(115)
(1,948)
(28)
$
$
1,270
2,880
4,150
$
(43) $
(163)
756
587
127
—
1,804
122
31
91
(1,484)
222
83
—
(48)
112
(409)
83
22
(7)
(15)
10
1,811
(1,244)
(924)
(253)
—
678
—
—
31
(1,712)
(743)
(214)
(5)
—
(37)
1,121
150
11
126
(87)
322
—
421
2,459
2,880
4
(107)
—
443
—
—
$
$
2,141
81
—
87
—
19
294
—
—
(6)
238
258
182
3
(89)
(63)
2,114
(1,699)
(564)
(62)
(187)
152
5
—
43
(2,312)
(203)
(172)
(6)
(466)
(391)
1,065
5
197
609
(141)
497
—
299
2,160
2,459
13
(72)
—
897
—
138
See accompanying notes to consolidated financial statements.
51
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. Certain
deferred tax assets in prior years were corrected with corresponding changes in the valuation allowance, resulting in no change
to net deferred tax assets. Changes in these items were not material for any period presented.
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 2014, 2013 and 2012
each contained 52 weeks. Fiscal year 2015 will contain 53 weeks, and the first quarter of fiscal 2015 will contain 14 weeks.
All period references are to our fiscal periods unless otherwise indicated.
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 significant.
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. If we are unable to
reasonably estimate returns or the price is not fixed or determinable, sales made under agreements allowing rights of return or
price protection 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 cost-sharing arrangements are reflected as a reduction of research and development expense. (See "Equity Method
Investments" and "Equity – Noncontrolling Interests in Subsidiaries" 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.
Functional Currency: The U.S. dollar is the functional currency for all of our consolidated operations.
52
Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of
three months or less that are readily convertible to known amounts of cash. Investments with maturities greater than three
months and 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 instruments to manage a portion of our exposure to changes in
currency exchange rates from our monetary assets and liabilities or future cash flows and to reduce the volatility that changes in
interest rates on variable-rate debt have on our earnings. Our currency derivatives have consisted of forward and option
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.
We seek to enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge
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 with each counterparty under these arrangements have been presented in
our consolidated balance sheet on a net basis.
(See "Derivative Instruments" note.)
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes depreciation, labor,
material and overhead costs, including product and process technology costs. Determining market values of inventories
involves numerous judgments, including projecting future average selling prices, sales volumes 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. Inventories are primarily
categorized as memory (including DRAM, NAND Flash and NOR Flash) for purposes of determining lower of average cost or
market. The major characteristics considered in determining inventory categories for purposes of determining the lower of cost
or market value are product type and markets. We remove amounts from inventory and charge such amounts to cost of goods
sold on an average cost basis.
Product and Process Technology: Costs incurred to (1) acquire product and process technology, (2) patent technology
and (3) maintain patent technology are capitalized and amortized on a straight-line basis over periods ranging up to 12.5
years. We capitalize a portion of the costs incurred to patent technology based on historical and projected patents issued as a
percent of patents we file. Capitalized product and process technology costs are amortized over the shorter of (1) the estimated
useful life of the technology, (2) the patent term or (3) 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 is 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 generally
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, plant or equipment is retired or otherwise disposed, the net book value 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.
53
Variable Interest Entities
We have interests in entities that are 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 is a VIE because its equity is not sufficient to permit it to finance its activities without additional support
from its shareholders. 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.
See "Equity Method Investments – Inotera" 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. 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 impact its economic performance. Therefore, we do not consolidate SCHE.
Consolidated Variable Interest Entities
IMFT: IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase
agreements and IMFT is dependent upon us or Intel for any additional cash requirements. 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. As a result, we have determined that we have the power
to direct the activities of IMFT that most significantly impact its economic performance and, therefore, we consolidate IMFT.
IMFS: Prior to April 6, 2012, 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. 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 is a VIE because substantially all of its costs are passed to us and its other member, Photronics,
through product purchase agreements and MP Mask is dependent upon us or Photronics for any additional cash
requirements. We have tie-breaking voting rights over key operating decisions and 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. As a result, we have determined that we have the power to direct the activities
of MP Mask that most significantly impact its economic performance and, therefore, we consolidate MP Mask.
54
(See "Equity – Noncontrolling Interests in Subsidiaries" note.)
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-09 –
Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S.
GAAP. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. This ASU will be effective for us in our first quarter of 2018. Early adoption is not
permitted. The ASU allows for either full retrospective or modified retrospective adoption. We are evaluating the transition
method that will be elected and the potential effects of the adoption of this ASU on our financial statements.
Micron Memory Japan, Inc.
On July 31, 2013, we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT, for
an aggregate of $949 million in cash (collectively, "the MMJ Acquisition"). The MMJ Acquisition included (1) the acquisition
of MMJ, including its 65% interest in MMT and (2) the acquisition of an additional 24% interest in MMT from Powerchip
Technology Corporation (the "MMT Share Purchase"). The MMJ Acquisition was treated as a single business combination
because: (1) the two transactions were entered into and closed contemporaneously, and (2) the MMT Share Purchase was
negotiated in contemplation of the acquisition of MMJ and its completion was contingent on the closing of the acquisition of
MMJ.
In 2014, we purchased additional interests in MMT, increasing our ownership interest to 99.5%. (See "Equity –
Noncontrolling Interest in Subsidiaries – MMT" note.)
The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM
wafer fabrication facility located in Taichung City, Taiwan and an assembly and test facility located in Akita, Japan. The
operations from the MMJ Acquisition, which are included primarily in our MBU and CNBU segments, include the manufacture
of Mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks and
workstations.
We estimated the provisional fair values of the assets and liabilities of the MMJ 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. In the second
quarter of 2014, the provisional amounts recorded in connection with the MMJ Acquisition were adjusted, primarily for pre-
petition liabilities, and we recognized a charge in 2014 for these measurement period adjustments. The valuation of assets
acquired and liabilities assumed were as follows:
55
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 MMJ
Consideration
Preliminary gain on acquisition recognized in 2013
Adjustment for primarily pre-petition liabilities
Final 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
(33)
1,451
Our results of operations for 2013 include $355 million of net sales and $46 million of operating income from the MMJ
Group's operations after the July 31, 2013 acquisition date. Included in the selling, general and administrative expenses in
results of operations for 2013 are transaction costs of $50 million incurred in connection with the MMJ Acquisition.
The acquisition of MMJ was pursuant to the terms and conditions of an Agreement on Support for Reorganization
Companies (as amended, the "Sponsor Agreement") that we entered into in July 2012 with the trustees of the MMJ Companies
pursuant to and in connection with the MMJ Companies' corporate reorganization proceedings under the Corporate
Reorganization Act of Japan. As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ
Companies are subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the MMJ
Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess
earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also
effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends to us as any such dividends would have
to be first paid to the MMJ 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 MMJ 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 MMJ Companies may be considered outside the ordinary course of business and may require consent of
MMJ's trustees or, in certain cases, approval by the Japan Court. As a result, the assets of the MMJ Companies, while available
to satisfy the MMJ Companies' installment payments and other obligations, capital expenditures and other operating needs of
the MMJ Companies, are not available for use by us in our other operations. Certain uses of the assets of the MMJ Companies,
including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees or, in certain cases,
approval by the Japan Court. Disposition of certain assets of the MMJ Companies may also require consent of one or more of
the secured creditors.
56
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations as if the MMJ
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 MMJ Group
for the eleven months ended May 31, 2013 included a gain of $1.69 billion for the forgiveness of debt related to liabilities
subject to compromise upon approval of the bankruptcy by the creditors and the Japan Court and, for the year ended June 30,
2012, included a $2.83 billion loss for impairment of long-lived assets. No adjustments were made to the unaudited pro forma
financial information for these items, consistent with the requirements for preparation of 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 MMJ Acquisition occurred on September 2, 2011.
For the year ended
Net sales
Net income (loss)
Net income (loss) attributable to Micron
Earnings (loss) per share:
Basic
Diluted
$
$
2013
2012
$
$
12,494
3,825
3,770
3.69
3.57
11,492
(4,439)
(4,471)
(4.51)
(4.51)
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 MMJ Group following the closing of the MMJ Acquisition, and the results of the MMJ
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 MMJ Group, including the adjustments
described above, for the year ended June 30, 2012.
Investments
The fair values of available-for-sale investments, which approximated amortized costs, were as follows:
As of
Money market funds
Corporate bonds
Certificates of deposit
Government securities
Asset-backed securities
Commercial paper
Marketable equity securities
2014
2013
1,281
561
437
420
128
107
1
2,935
$
$
1,188
414
349
168
97
61
6
2,283
$
$
57
The table below presents the fair value of available-for-sale debt securities by contractual maturity:
As of
Money market funds
Due in 1 year or less
Due in 1 - 2 years
Due in 2 - 4 years
Due after 4 years
2014
$
1,281
835
438
351
29
$
2,934
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 sales of available-
for-sale securities for 2014, 2013 and 2012 were $355 million, $526 million and $149 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.
Receivables
As of
Trade receivables (net of allowance for doubtful accounts of $3 and $5, respectively)
Income and other taxes
Other
2014
2013
$
$
2,524
104
278
2,906
$
$
2,069
74
186
2,329
As of August 28, 2014 and August 29, 2013, other receivables included $70 million and $34 million, respectively, due
from Intel for amounts related to product design and process development activities under cost-sharing agreements for NAND
Flash and certain emerging memory technologies. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
Inventories
As of
Finished goods
Work in process
Raw materials and supplies
Property, Plant and Equipment
As of
Land
Buildings (includes $289 and $209, respectively, from capital leases)
Equipment (includes $1,108 and $1,305, respectively, from capital leases)
Construction in progress
Software
Accumulated depreciation (includes $693 and $463, respectively, from capital leases)
58
2014
2013
$
$
$
$
898
1,372
185
2,455
2014
86
5,093
17,781
114
358
23,432
(14,750)
8,682
$
$
$
$
796
1,719
134
2,649
2013
86
4,835
15,600
84
315
20,920
(13,294)
7,626
Depreciation expense was $1,993 million, $1,721 million and $2,053 million for 2014, 2013 and 2012, respectively. Other
noncurrent assets included land held for development of $57 million as of August 28, 2014 and $54 million as of August 29,
2013.
As of August 28, 2014, production equipment and buildings with carrying values of $476 million and land with a carrying
value of $43 million were pledged as collateral under various notes payable. (See "Debt – Other Notes Payable" note.)
Equity Method Investments
As of
Inotera(1)
Tera Probe
Other
(1) Entity is a variable interest entity.
2014
2013
Investment
Balance
Ownership
Percentage
Investment
Balance
Ownership
Percentage
$
$
914
48
9
971
33% $
40%
Various
$
344
40
12
396
35%
40%
Various
As of August 28, 2014, substantially all of our maximum exposure to loss from our VIEs that were not consolidated was
the $914 million carrying value of our investment in Inotera. 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.
We recognize our share of earnings or losses from our equity method investees 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
Tera Probe
Other
2014
2013
2012
$
$
465
11
(2)
474
$
$
(79) $
—
(4)
(83) $
(189)
—
(105)
(294)
The summarized financial information in the tables below reflects aggregate amounts for all of our equity method
investees. Financial information is presented for equity method investments 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 or through the disposition of our ownership interests.
As of
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
For the years ended
Net sales
Gross margin
Operating income (loss)
Net income (loss)
$
$
2014
2013
$
$
2,233
2,502
1,417
254
2013
1,788
1
(203)
(188)
1,018
2,634
1,912
435
2012
1,798
(451)
(751)
(793)
$
2014
3,382
1,576
1,371
1,339
59
Inotera
We have partnered with Nanya in Inotera, a Taiwan DRAM memory company, since 2009. In 2012, we contributed $170
million to Inotera, which increased our ownership percentage to 40%. In 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, 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 non-operating gain of $48 million in 2013. On May 15, 2014, Inotera issued 400 million common shares in a
public offering at a price equal to 31.50 New Taiwan dollars per share, which was in excess of our carrying value per share. As
a result of the issuance, our ownership interest decreased from 35% to 33% and we recognized a non-operating gain of $93
million in 2014. As of August 28, 2014, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a
33% ownership interest and the remaining ownership interest in Inotera was publicly held.
As of August 28, 2014, the market value of our equity interest in Inotera was $3.72 billion based on the closing trading
price of 51.90 New Taiwan dollars per share in an active market. As of August 28, 2014 and August 29, 2013, there were gains
of $44 million and $44 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 our earnings through equity in net
income (loss) of equity method investees (the "Inotera Amortization"). For 2012, we recognized $48 million of Inotera
Amortization and as of August 30, 2012, the remaining amount of unrecognized Inotera Amortization was not significant.
Through December 2012, we purchased 50% of Inotera's wafer production capacity based on a margin-sharing formula
among Nanya, Inotera and us. Since January 2013, we have purchased substantially all of Inotera's DRAM output at a discount
from market prices for our comparable components under a new supply agreement (the "Inotera Supply Agreement"). Our
costs for supply from Inotera increased in 2014 from 2013 due to changes in average selling prices for our DRAM products and
the changes in the pricing terms. The Inotera Supply Agreement has a three-year term (currently through December 2016) that
contemplates annual negotiations with respect to potential successive one-year extensions. If 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. In the event of a wind-down, our share of Inotera's capacity would decline over the wind-down period. In 2014, our
cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-
owned facilities. We are currently in negotiations regarding the extension of the Inotera Supply Agreement. There can be no
assurance that we will be able to reach an agreement. Under the Inotera supply agreements, we purchased $2.68 billion,
$1.26 billion and $646 million of DRAM products in 2014, 2013 and 2012 respectively.
Pursuant to a DRAM R&D joint development program with Nanya, which was effective through December 31, 2012, our
R&D costs were reduced by $19 million and $138 million in 2013 and 2012, respectively. Nanya ceased participating in the
DRAM joint development program after December 31, 2012.
Tera Probe
In 2013, as part of the MMJ Acquisition, we acquired a 40% interest in Tera Probe, which provides semiconductor wafer
testing and probe services to us and others. The initial net carrying value of our investment was less than our proportionate
share of Tera Probe's equity and the difference is being amortized as a credit to our earnings through equity in net income (loss)
of equity method investees (the "Tera Probe Amortization"). As of August 28, 2014, the remaining balance of the Tera Probe
Amortization was $26 million and is expected to be amortized over a weighted-average period of 6 years.
As of August 28, 2014, the market value of our equity interest in Tera Probe was $39 million based on the closing trading
price of 1,087 yen per share in an active market and was $9 million below our carrying value. We evaluated our investment in
Tera Probe and concluded that the decline in the market value below our 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 and historical volatility
of Tera Probe's stock price.
We incurred manufacturing costs for 2014 and 2013 of $117 million and $13 million, respectively, for services performed
by Tera Probe.
60
Other
Transform: In 2010, we acquired a 50% interest in Transform, a developer, manufacturer and marketer of photovoltaic
technology and solar panels, from Origin. As of August 28, 2014, we and Origin each held a 50% ownership interest in
Transform. In 2012, the Board of Directors of Transform approved a liquidation plan and as a result, we recognized a charge of
$69 million in 2012. As of August 30, 2012, Transform's operations were substantially discontinued.
Aptina: We held an equity interest in Aptina until August 15, 2014. On August 15, 2014, ON Semiconductor Corporation
acquired Aptina for approximately $433 million and we recognized a non-operating gain of $119 million based on our diluted
ownership interest of approximately 27%. The gain approximated our share of the consideration because the carrying value of
our investment had been reduced to zero in the second quarter of 2012, at which time we ceased recognizing our proportionate
share of Aptina's losses.
Through May 3, 2013, we manufactured components for Complementary Metal-Oxide Semiconductor ("CMOS") image
sensors for Aptina under a wafer supply agreement. Subsequent to May 3, 2013, we provided various services for Aptina under
a service agreement. For 2014, 2013 and 2012, we recognized net sales of $43 million, $182 million and $372 million,
respectively, from products sold to and services performed for Aptina, and cost of goods sold of $37 million, $219 million and
$395 million, respectively. In 2013, we assigned to LFoundry Marsica L.r.l. ("LFoundry") our supply agreement with Aptina to
manufacture components for image sensors at our 200mm Avezzano facility. (See "Restructure and Asset Impairments" note.)
In connection with the sale of our 200mm Avezzano facility to LFoundry in 2013, we entered into a short-term, interest-
free, unsecured loan agreement with Aptina. As of August 29, 2013, other current assets included $45 million for amounts due
under the loan agreement, which was repaid in 2014.
Intangible Assets
As of
Product and process technology
Customer relationships
2014
2013
Gross
Amount
$
$
809
1
810
$
Accumulated
Amortization
$
Gross
Amount
642
127
769
Accumulated
Amortization
(269)
$
(114)
(383)
$
(341) $
(1)
(342) $
During 2014 and 2013, we capitalized $177 million and $100 million, respectively, for product and process technology
with weighted-average useful lives of 6 years and 7 years, respectively. Amortization expense was $110 million, $83 million
and $88 million for 2014, 2013 and 2012, respectively. Annual amortization expense is estimated to be $112 million for 2015,
$98 million for 2016, $88 million for 2017, $77 million for 2018 and $31 million for 2019.
Accounts Payable and Accrued Expenses
As of
Accounts payable
Related party payables
Salaries, wages and benefits
Customer advances
Income and other taxes
Other
2014
2013
1,119
673
456
98
71
281
2,698
$
$
1,048
374
267
140
47
239
2,115
$
$
As of August 28, 2014 and August 29, 2013, related party payables included $660 million and $345 million, respectively,
due to Inotera primarily for the purchase of DRAM products under the Inotera Supply Agreement. As of August 28, 2014 and
August 29, 2013, related party payables also included $13 million and $29 million, respectively, due to Tera Probe for probe
services performed. (See "Equity Method Investments" note.)
61
As of August 28, 2014, customer advances included $90 million for amounts received from a customer in 2014 under a
DRAM supply agreement to be applied to purchases at market pricing through September 2016. As of August 28, 2014, other
noncurrent liabilities included $90 million from this DRAM supply agreement. As of August 29, 2013, customer advances
included $134 million for amounts received from Intel, all of which was applied to Intel's purchases of NAND Flash in 2014
under a supply agreement. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
Debt
2014
Long-
Term
Stated
Rate
Effective
Rate
$
Instrument(1)
MMJ creditor installment payments
Capital lease obligations(2)
2014 convertible senior notes
2019 senior notes
2022 senior notes
2025 senior notes
2027 convertible senior notes
2031A convertible senior notes
2031B convertible senior notes(3)
2032C convertible senior notes(4)
2032D convertible senior notes(4)
2033E convertible senior notes(4)(5)
2033F convertible senior notes(4)(5)
2043G convertible senior notes
Other notes payable
Current
192
323
—
92
—
—
—
—
362
—
—
278
265
—
126
$ 1,638
(1) We have either the obligation or the option to pay cash for the aggregate amount due upon conversion for all of our
convertible notes. Since it is our current intent to settle in cash the principal amount of all of our convertible notes
upon conversion, the dilutive effect of such notes on earnings per share is computed under the treasury stock method.
Total
$ 1,131
911
—
416
600
1,150
—
—
362
314
288
278
265
636
242
$ 6,593
Current
527
$
407
465
—
—
—
—
—
—
—
—
—
—
—
186
$ 1,585
939
588
—
324
600
1,150
—
—
—
314
288
—
—
636
116
$ 4,955
6.25% $
N/A
7.88%
1.97%
6.14%
5.56%
6.95%
6.55%
6.98%
5.95%
6.33%
4.50%
4.93%
6.76%
3.40%
N/A
N/A
1.875%
1.258%
5.875%
5.500%
1.875%
1.500%
1.875%
2.375%
3.125%
1.625%
2.125%
3.000%
2.289%
Total
$ 1,644
1,252
465
—
—
—
147
277
253
463
369
272
260
—
635
$ 6,037
2013
Long-
Term
$ 1,117
845
—
—
—
—
147
277
253
463
369
272
260
—
449
$ 4,452
(2) Weighted-average imputed rate of 4.3% and 4.1% as of August 28, 2014 and August 29, 2013, respectively.
(3) Amount recorded for 2014 includes the debt and equity components, which was reclassified as a result of our obligation
to settle the conversions of the 2031B Notes.
(4) Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ending on June
30, 2014 exceeded 130% of the initial conversion price per share, holders have the right to convert their notes at any
time during the calendar quarter ended September 30, 2014. The closing price of our common stock also exceeded the
thresholds for the calendar quarter ended September 30, 2014; therefore, these notes are convertible by the holders
through December 31, 2014.
(5) As a result of these notes being convertible at the option of the holder through September 30, 2014, and because the
terms of these notes would require us to pay cash for the principal amount of any converted notes, amounts are
classified as current.
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. Our parent company, MTI, has $3.89 billion of debt including all
of our convertible notes, the 2022 Notes and the 2025 Notes, which are structurally subordinated to $1.57 billion of capital
lease obligations and notes payable of its subsidiaries. MTI guarantees certain debt obligations of its subsidiaries. MTI does
not guarantee the MMJ creditor installment payments. MTI's guarantees of its subsidiary debt obligations are unsecured
obligations ranking equally in right of payment with all of MTI's other existing and future unsecured indebtedness.
62
2014 Debt Restructure
In 2014, we initiated a series of actions to restructure our debt, including exchanges, conversions and settlements,
repurchases, issuances and early repayments. The following table presents the net effect of each of the actions:
Increase
(Decrease) in
Principal
Increase
(Decrease) in
Carrying
Value
Increase
(Decrease) in
Cash
(Decrease) in
Equity
Loss(1)
Exchanges
$
585
$
Conversions and settlements
Repurchases
Issuances
Early repayments
(770)
(320)
2,212
(336)
282
(437)
(269)
2,212
(334)
1,454
$
— $
(1,446)
(857)
2,157
(339)
(485) $
(238) $
(886)
(567)
—
—
(1,691) $
49
130
23
—
3
205
$
(1) The loss on 2014 debt restructure activities was recorded as $184 million in other non-operating expense and
1,371
$
$
$21 million in interest expense in 2014.
• Exchanges: Exchanged $440 million in aggregate principal amount of our 2027 Notes, 2031A Notes and 2031B
Notes into $1.03 billion principal amount at maturity of 2043G Notes.
• Conversions and Settlements: Holders of substantially all of our remaining 2014 Notes, 2027 Notes and 2031A
Notes (with an aggregate principal amount of $770 million) converted their notes and we settled the conversions
in cash for $1.45 billion.
• Repurchases: Repurchased $320 million in aggregate principal amount of our 2031B Notes, 2032C Notes and
•
2032D Notes in privately-negotiated transactions for an aggregate of $857 million in cash.
Issuances: Issued $600 million in principal amount of 5.875% senior notes due February 2022 and $1.15 billion
in principal amount of 5.500% senior notes due February 2025. Issued $462 million in principal amount of
1.258% senior notes due 2019 Notes, payable in 10 semi-annual installments commencing in July 2014.
• Early Repayments: Repaid $334 million of notes and capital leases prior to their scheduled maturities. (See
"Other Notes Payable" below.)
Subsequent to 2014, we settled an aggregate principal amount of $114 million of our remaining 2031B Notes for
$389 million in cash and repaid a $120 million note prior to its scheduled maturity. (See "Other Notes Payable" below.)
The following discussion provides further details of our 2014 debt restructure activities:
Exchanges: During 2014, in a series of separate non-cash transactions, we exchanged portions of our 2027 Notes, 2031A
Notes and 2031B Notes (collectively, the "Exchanged Notes") into 2043G Notes (collectively, the "Exchange Transactions").
In connection with the Exchange Transactions, which were accounted for as extinguishments, we issued to holders of the
Exchanged Notes new 2043G Notes with an aggregate principal amount at issuance of $820 million, which accrete up to a
principal amount at maturity of $1.03 billion (see further discussion in "2043G Notes" below). The liability and equity
components of the Exchanged Notes had previously been stated separately within debt and additional capital in our
consolidated balance sheet. As a result, our accounting for the Exchanged Notes affected debt and equity. In connection with
the Exchange Transactions, we recognized a loss of $49 million based primarily on the difference between the carrying values
and the fair values of the debt components of the Exchanged Notes, of which $38 million was included in other non-operating
expense for 2014. The fair value of the debt component of each of the Exchanged Notes was determined as if they were stand-
alone instruments using interest rates for similar nonconvertible debt issued by entities with credit ratings comparable to ours at
the time of issuance (based on Level 2 fair value measurements). The table below summarizes the Exchange Transactions:
63
Amounts reduced in connection with the Exchanged Notes:
2027 Notes
2031A Notes
2031B Notes
Amounts added in connection with the issued notes:
2043G Notes
Principal
Amount
Carrying
Value of Debt
Equity
$
$
80
155
205
440
1,025
$
68
125
152
345
627
51
148
212
411
173
Net increase (decrease) as a result of the Exchange Transactions
$
585
$
282
$
(238)
Conversions and Settlements: During 2014, we initiated a series of actions resulting in a number of debt conversions and
settlements. Those actions included the following:
Termination of Conversion Rights of our 2027 Notes – On November 7, 2013, we announced the termination of the
conversion rights for our remaining 2027 Notes, effective on December 13, 2013. Prior to such effective date, substantially all
of the holders of our 2027 Notes exercised their option to convert their notes and, in each case, we elected to settle the
conversion amount entirely in cash.
Redemption of our 2031A Notes – On November 7, 2013, we called for the redemption of our remaining 2031A Notes
effective on December 7, 2013. Prior to such effective date, substantially all of the holders of our 2031A Notes exercised their
option to convert their notes and, in each case, we elected to settle the conversion amount entirely in cash.
Redemption of our 2014 Notes – On January 31, 2014, we called for the redemption of our remaining 2014 Notes
effective on March 3, 2014. Prior to such effective date, substantially all of the holders of our 2014 Notes exercised their
option to convert their notes and, in each case, we elected to settle the conversion amount entirely in cash.
Redemption of our 2031B Notes – On July 23, 2014, we called for the redemption of our remaining 2031B Notes with
a principal amount of $114 million effective on August 22, 2014. Prior to such effective date, substantially all of the holders of
our 2031B Notes exercised their option to convert their notes and, in each case, we elected to settle the conversion amount
entirely in cash. All conversions of the 2031B Notes were settled in the first quarter of 2015.
As a result of our elections to settle the conversion amounts in cash, each of the settlement obligations became derivative
debt liabilities subject to mark-to-market accounting treatment. Under the terms of the indentures for the above notes, cash
settlement amounts for these derivative debt liabilities were determined based on the shares underlying the converted notes
multiplied by the volume-weighted-average price of our common stock over a period of 20 consecutive trading days, beginning
three days after the holder's election to convert their notes. Therefore, we reclassified the fair values of the equity components
of each of the converted notes from additional capital to derivative debt liabilities within current debt in our consolidated
balance sheet. In connection with the above, we used an aggregate of $1.45 billion in cash in 2014 and $389 million in 2015 to
settle conversion activities. A summary of the conversion activities for these notes is as follows:
64
2014 Notes
2027 Notes
2031A Notes
2031B Notes(3)
Debt
Principal
$
$
485
95
190
—
770
(Increase)
Decrease in
Carrying
Value of Debt
478
$
80
154
(275)
437
$
Equity
Component
Reclassified
To Debt(1)
$
$
341
58
217
270
886
$
$
Loss(2)
9
42
70
9
130
(1) Based on Level 2 fair value measurements.
(2) The loss on conversion and settlement activities was recorded as $120 million in other non-operating expense and
$10 million in interest expense in 2014.
(3) In the first quarter of 2015, we used an aggregate of $389 million in cash to settle the remaining 2031B Notes. In
connection therewith, we incurred an additional charge of $24 million for the settlement of the 2031B Notes in the first
quarter of 2015.
Repurchases: During 2014, we repurchased $320 million in aggregate principal amount of our 2031B Notes, 2032C
Notes and 2032D Notes in privately-negotiated transactions for an aggregate of $857 million in cash, collectively referred to
herein as the "Repurchased Notes." In connection with the Repurchased Notes, we recognized losses (based on Level 2 fair
value measurements) of $23 million in 2014, which were included in other non-operating expense.
The liability and equity components of the Repurchased Notes had previously been stated separately within debt and
additional capital in our consolidated balance sheet. As a result, our accounting for the Repurchased Notes affect debt and
equity. The table below summarizes amounts reduced in 2014 in connection with the Repurchased Notes:
2031B Notes
2032C Notes
2032D Notes
Principal
Amount
$
$
26
188
106
320
Carrying
Value of Debt
19
$
161
89
269
$
$
$
Equity
43
316
208
567
Issuances: During 2014, as part of our debt restructure activities, we issued the following senior notes:
5.875% Senior Notes due February 2022: On February 10, 2014, we issued $600 million in principal amount of the 2022
Notes. Issuance costs for the 2022 Notes totaled $14 million.
The 2022 Notes contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of
our domestic restricted subsidiaries (which are generally subsidiaries in the U.S. in which we own at least 80% of the voting
stock) to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur or guarantee
certain additional secured indebtedness and unsecured indebtedness of certain of our domestic restricted subsidiaries, and (3)
consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity. These
covenants are subject to a number of limitations, exceptions and qualifications.
Cash Redemption at Our Option: Prior to February 15, 2017, we may redeem the 2022 Notes, in whole or in part, at a
price equal to the principal amount of the 2022 Notes to be redeemed plus a make-whole premium as described in the indenture
governing the 2022 Notes, together with accrued and unpaid interest. On or after February 15, 2017, we may redeem the 2022
Notes, in whole or in part, at prices above the principal amount that decline over time, as specified in the indenture, together
with accrued and unpaid interest. Additionally, prior to February 15, 2017, we may use the net cash proceeds of one or more
equity offerings to redeem up to 35% of the aggregate principal amount of the 2022 Notes at a price equal to 105.875% of the
principal amount together with accrued and unpaid interest.
5.500% Senior Notes due February 2025: On July 28, 2014, we issued $1.15 billion in principal amount of the 2025
Notes. Issuance costs for the 2025 Notes totaled $13 million.
65
The 2025 Notes contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of
our domestic restricted subsidiaries (which are generally subsidiaries in the U.S. in which we own at least 80% of the voting
stock) to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur or guarantee
certain additional secured indebtedness and unsecured indebtedness of certain of our domestic restricted subsidiaries, and (3)
consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity. These
covenants are subject to a number of limitations, exceptions and qualifications.
Cash Redemption at Our Option: Prior to August 1, 2019, we may redeem the 2025 Notes, in whole or in part, at a price
equal to the principal amount of the 2025 Notes to be redeemed plus a make-whole premium as described in the indenture
governing the 2025 Notes, together with accrued and unpaid interest. On or after August 1, 2019, we may redeem the 2025
Notes, in whole or in part, at prices above the principal amount that decline over time, as specified in the indenture, together
with accrued and unpaid interest. Additionally, prior to August 1, 2017, we may use the net cash proceeds of one or more
equity offerings to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a price equal to 105.5% of the
principal amount together with accrued and unpaid interest.
2013 Debt Restructure
During 2013, we repurchased $464 million of aggregate principal amount of our 2014 Notes for $477 million in cash in
privately negotiated transactions. The liability and equity components of the 2014 Notes had previously been stated separately
within debt and additional capital in our consolidated balance sheet. As a result, 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 loss of $31 million (based on Level 2 fair value measurements) in 2013, which was
included in other non-operating expense.
MMJ Creditor Installment Payments
Under the MMJ Companies' plans of reorganization, which set forth the treatment of the MMJ Companies' pre-petition
creditors and their claims, the MMJ Companies were required to pay 200 billion yen, less certain expenses of the
reorganization proceedings and other items, to their secured and unsecured creditors in seven annual installment payments (the
"MMJ Creditor Installment Payments"). The MMJ Creditor Installment Payments do not provide for interest and were
recorded at fair value in the MMJ Acquisition. The fair-value discount is accreted to interest expense over the term of the
installment payments.
Under the MMJ Companies' corporate reorganization proceedings, the secured creditors of MMJ will recover 100% of
their amount of their fixed claims in 6 annual installment payments through December 2018 and the unsecured creditors will
recover at least 17.4% of the amount of their fixed claims in 7 annual installment payments through December 2019. In
October 2013, we paid the first installment payment of 51 billion yen to the reorganization creditors of the MMJ Companies.
The secured creditors of MAI were paid in full with a portion of the first installment payment made in October 2013, while the
unsecured creditors of MAI will recover at least 19% of the amount of their claims in 7 installment payments through
December 2019. The remaining portion of the unsecured claims of the creditors of the MMJ Companies not recovered
pursuant to the Reorganization Proceedings will be discharged, without payment, through December 2019.
The following table presents the remaining amounts of MMJ Creditor Installment Payments (stated in Japanese yen and
U.S. dollars) and the amount of unamortized discount as of August 28, 2014:
2015
2016
2017
2018
2019
2020
Less unamortized discount
MMJ Creditor Installment Payments
66
MMJ Creditor Installment
Payments
¥
20,330
$
20,197
20,063
19,928
28,674
33,024
142,216
(24,700)
117,516
$
¥
196
194
193
192
276
318
1,369
(238)
1,131
Pursuant to the terms of the Sponsor Agreement, we entered into a series of agreements with the MMJ Companies,
including supply agreements, research and development services agreements and general services agreements, which are
intended to generate operating cash flows to meet the requirements of the MMJ Companies' businesses, including the funding
of the MMJ Creditor Installment Payments.
Capital Lease Obligations
We have various capital lease obligations due in periodic installments with a weighted-average remaining term of 4.1 years
as of August 28, 2014. 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.
Convertible Notes With Debt and Equity Components
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 a nonconvertible borrowing rate when
interest expense is recognized in subsequent periods. The amount initially recorded as debt is based on the fair value of the
debt component as a standalone instrument, determined using an interest rate for similar nonconvertible debt issued by entities
with credit ratings similar to ours at the time of issuance. The difference between the debt recorded at inception and its
principal amount is accreted to principal through interest expense through the estimated life of the note.
The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date
or dates earlier than the contractual maturity of the notes or upon the occurrence of certain events or circumstances. In these
cases, we amortize any initial debt discount or imputed interest over the period from issuance of the notes through the earliest
date that holders can require us to repurchase all or a portion of their notes. As a result, the period of amortization can be
significantly shorter than the contractual maturity. (See "Holder Put Date" in the table below.)
As of August 28, 2014, the trading price of our common stock was higher than the initial conversion prices of all of our
outstanding convertible notes. As a result, the conversion values were in excess of principal amounts for such notes. The
following table summarizes certain features of our convertible notes outstanding as of August 28, 2014:
$
Underlying
Shares
Outstanding
Principal
2032C Notes
2032D Notes
2033E Notes
2033F Notes
2043G Notes(3)
Initial
Conversion
Price Per
Share
Holder Put
Date
May 2019
May 2021
February 2018
February 2020
November 2028
Conversion
Value in
Excess of
Principal(2)
873
785
600
600
128
2,986
(1) Holders have the right to convert all or a portion of their notes at a date or dates earlier than the contractual maturity
if, during any calendar quarter, 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 initial
conversion price.
Conversion
Price Per
Share
Threshold(1)
12.52
$
12.97
14.21
14.21
37.91
362
344
300
300
1,025
2,331
9.63
9.98
10.93
10.93
29.16
38
34
27
27
35
161
$
$
$
$
(2) Based on our closing share price of $32.81 as of August 28, 2014.
(3) The original principal amount of $820 million accretes up to $917 million in November 2028 and $1.03 billion at
maturity in 2043.
67
The debt and equity components of all of our convertible notes outstanding as of August 28, 2014 were required to be
accounted for separately. Principal and carrying amounts of the liability components for our convertible notes were as follows:
As of
Term
(Years)(1)
Outstanding
Principal
2014
Unamortized
Discount
Net Carrying
Amount
Outstanding
Principal
2013
Unamortized
Discount
Net Carrying
Amount
$
N/A $
N/A
N/A
N/A
5
7
3
5
14
2014 Notes
2027 Notes
2031A Notes
2031B Notes(2)
2032C Notes
2032D Notes
2033E Notes
2033F Notes
2043G Notes
465
147
277
253
463
369
272
260
—
2,506
(1) Expected term for amortization of the remaining debt discount as of August 28, 2014. The expected term of the 2031B
Notes was not applicable because substantially all of the holders had exercised their option to convert their notes,
which were settled in cash in the first quarter of 2015.
— $
—
—
362
314
288
278
265
636
2,143
— $
—
—
114
362
344
300
300
1,025
2,445
— $
—
—
(27)
(48)
(56)
(22)
(35)
(389)
(577) $
(20) $
(28)
(68)
(92)
(87)
(81)
(28)
(40)
—
(444) $
485
175
345
345
550
450
300
300
—
2,950
$
$
$
$
(2) As holders had elected to convert these notes and we elected to settle the conversions in cash, net carrying amount for
2014 included the debt and equity components, which was reclassified as a result of our obligation to settle the
conversions of the 2031B Notes.
Carrying amounts of the equity components, which are included in additional capital in the accompanying consolidated
balance sheets, for our convertible notes, were as follows:
As of
2014 Notes
2027 Notes
2031A Notes
2031B Notes
2032C Notes
2032D Notes
2033E Notes (excludes $22 million as of 2014 in mezzanine equity)
2033F Notes (excludes $35 million as of 2014 in mezzanine equity)
2043G Notes
2014
2013
— $
—
—
—
67
69
8
7
173
324
$
353
40
89
109
101
90
30
42
—
854
$
$
68
Interest expense for our convertible notes consisting of contractual interest and amortization of discount and issuance costs
aggregated $132 million, $156 million and $124 million for 2014, 2013 and 2012. Interest expense by note was as follows:
Contractual Interest
2013
2012
2014
Amortization of Discount and Issuance Costs
2013
2012
2014
2
1
1
3
11
13
5
6
24
66
$
$
13
3
5
6
13
14
3
3
—
60
$
$
18
3
5
6
5
5
—
—
—
42
$
$
14
2
3
5
12
8
7
6
9
66
$
$
37
7
12
10
14
9
4
3
—
96
$
$
47
6
11
10
5
3
—
—
—
82
For the year ended
2014 Notes
2027 Notes
2031A Notes
2031B Notes
2032C Notes
2032D Notes
2033E Notes
2033F Notes
2043G Notes
2019 Notes
$
$
On December 20, 2013, we issued $462 million in principal amount of the 2019 Notes. The 2019 Notes mature on January
15, 2019 and are collateralized by certain equipment, which had a carrying value of $190 million as of August 28, 2014. The
principal amount of the 2019 Notes is payable in 10 semi-annual installments in January and July of each year, commencing in
July 2014. The Export-Import Bank of the United States (the "Ex-Im Bank") guaranteed payment of all regularly scheduled
installment payments of principal of, and interest on, the 2019 Notes. We paid $23 million to Ex-Im Bank for its guarantee
upon issuance of the 2019 Notes.
The 2019 Notes contains covenants which are customary for financings of this type, including negative covenants that
limit or restrict our ability to create liens or dispose of the equipment securing the 2019 Notes. Events of default also include,
among others, the occurrence of any event or circumstance that, in the reasonable judgment of Ex-Im Bank, is likely materially
and adversely to affect our ability to perform any payment obligation, or any of our other material obligations under the
indenture, the 2019 Notes or under any other related transaction documents to which Ex-Im Bank is a party.
Cash Redemption at Our Option: At any time prior to the maturity date of the 2019 Notes, we may redeem the 2019
Notes, in whole or in part, at a price equal to the principal amount of the 2019 Notes to be redeemed plus a make-whole
premium as described in the indenture, together with accrued and unpaid interest.
2031B Notes
On July 26, 2011, we issued $345 million of 2031B Notes due August 2031. During 2014, we exchanged $205 million of
aggregate principal amount in the Exchange Transaction, repurchased $26 million of aggregate principal amount for cash and
called for the redemption of the remaining $114 million of aggregate principal amount effective on August 22, 2014. Prior to
such effective date, substantially all of the holders of the 2031B Notes had converted their notes, which were settled in cash
with payments of $389 million in the first quarter of 2015.
2032C and 2032D Notes
On April 18, 2012, we issued $550 million of the 2032C Notes and $450 million of the 2032D 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. During 2014, we repurchased in
privately-negotiated transactions $188 million and $106 million of aggregate principal amounts of the 2032C and 2032D Notes,
respectively, for cash.
69
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 of the 2032 Notes (approximately $12.52 per share for the 2032C Notes and $12.97 per share for the 2032D
Notes); (3) if the trading price of the 2032 Notes is less than 98% of the product of the closing price of our common stock and
the conversion rate of the 2032 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 any conversion. As a result,
only the amounts payable in excess of the principal amounts upon conversion 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 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 1.50%.
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 at a price
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 price
equal to the principal amount plus accrued and unpaid interest.
2033E and 2033F Notes
On February 12, 2013, we issued $300 million of the 2033E Notes and $300 million of the 2033F Notes. 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.
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 of the 2033 Notes (approximately $14.21 per share); (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, only the amounts payable in excess of the principal amounts upon
conversion 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 at a price 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 at a price 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 price equal to the principal amount plus accrued and unpaid
interest.
70
2043G Notes
In connection with the Exchange Transactions, on November 12, 2013, we issued $1.03 billion principal amount of the
2043G Notes. Each $1,000 of principal amount at maturity had an original issue price of $800. An amount equal to the
difference between the original issue price and the principal amount at maturity will accrete in accordance with a schedule set
forth in the indenture. The initial conversion rate for the 2043G Notes is 34.2936 shares of common stock per $1,000 principal
amount at maturity, equivalent to an initial conversion price of approximately $29.16 per share of common stock.
Upon issuance of the 2043G Notes, we recorded $627 million of debt, $173 million of additional capital and $5 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 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). We recorded a debt
discount of $398 million for the difference between the debt recorded at inception and the principal amount at maturity.
Holders of the 2043G Notes have the right to require us to repurchase all or a portion of their notes on November 15, 2028 at
the accreted principal amount, which is scheduled to be $917 million at such date. 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 current intent to settle in
cash the principal amount of the 2043G Notes upon conversion. As a result, the dilutive effect of the 2043G Notes in earnings
per share is computed under the treasury stock method.
Conversion Rights: Holders may convert their 2043G Notes under the following circumstances: (1) if the 2043G 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 of the 2043G Notes (approximately $37.91 per share); (3) if the trading price of the 2043G Notes is less than
98% of the product of the closing price of our common stock and the conversion rate of the 2043G Notes during the periods
specified in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture; or (5) at any time
after August 15, 2043.
Cash Redemption at Our Option: Prior to November 20, 2018, we may redeem for cash the 2043G Notes if the closing
price of our common stock is more than 130% of the conversion price for at least 20 trading days in the 30 consecutive trading
days ending within five trading days prior to the date on which we provide notice of redemption at a redemption would equal to
the principal amount at maturity plus accrued and unpaid interest. On or after November 20, 2018, we may redeem for cash the
2043G Notes without regard to the closing price of our common stock at a price equal the accreted principal amount plus
accrued and unpaid interest. If we redeem the 2043G Notes prior to November 20, 2018, we are required to pay in cash a
make-whole premium as specified in the indenture.
Cash Repurchase at the Option of the Holder: Holders of the 2043G Notes may require us to repurchase for cash all or
a portion of the 2043G Notes on November 15, 2028 at a price equal to the accreted principal amount at such date plus accrued
and unpaid interest. Holders of the 2043G Notes may also require us to repurchase for cash all or a portion of their 2043G
Notes at a price equal to the accreted principal amount plus accrued and unpaid interest upon a change in control or a
termination of trading, as defined in the indenture.
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 was payable in equal quarterly installments, commencing on November 27, 2013. Interest
accrued at a variable rate equal to the three-month London Interbank Offered Rate ("LIBOR") rate plus a margin of 3.25% per
annum. 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. On August 27, 2014, we repaid the remaining carrying value of $252 million of this note prior to its scheduled
maturity and terminated the interest rate swaps.
On October 2, 2012, we entered into a facility agreement to obtain financing collateralized by certain production
equipment. Amounts drawn were 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
available amount under the facility of $41 million with interest at 2.4% per annum. On July 31, 2014, we repaid $32 million of
this facility prior to its scheduled maturity and as of August 28, 2014, the outstanding principal balance was $120 million. On
October 17, 2014, subsequent to fiscal 2014, we repaid the remaining carrying value of $120 million on this facility prior to its
scheduled maturity date.
71
On July 31, 2013, in connection with the MMJ Acquisition, we recorded a note payable of $120 million, collateralized by
certain property, plant and equipment. Principal on the note is payable in equal quarterly installments through May 2016.
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 28, 2014, the outstanding balance was $70 million.
On February 27, 2014, in connection with our acquisition of an additional 9.9% interest in MMT, we recorded a $127
million note payable to the seller for the present value of the monthly installments, due from March 2014 through December
2014. (See "Equity – Noncontrolling Interests in Subsidiaries – MMT" note.) As of August 28, 2014, the outstanding balance
was $52 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 note was fully repaid in 2014 according to the scheduled terms. (See "Equity
– Noncontrolling Interests in Subsidiaries – IMFT" 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, with any amounts drawn
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 aging of
the receivables exceeds a specified threshold. Interest is payable 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 28, 2014, we had not drawn any of the
amounts 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 28, 2014, we had not drawn any of the amounts available under this
facility.
Maturities of Notes Payable and Future Minimum Lease Payments
As of August 28, 2014, maturities of notes payable (including the MMJ Creditor Installment Payments) and future
minimum lease payments under capital lease obligations were as follows:
2015
2016
2017
2018
2019
2020 and thereafter
Unamortized discounts and interest, respectively
72
Notes
Payable
Capital Lease
Obligations
$
$
$
803
352
320
602
684
3,628
(707)
5,682
$
356
301
103
60
55
123
(87)
911
Commitments
As of August 28, 2014, we had commitments of approximately $1.18 billion for the acquisition of property, plant and
equipment. We lease certain facilities and equipment under operating leases. Total rental expense was $57 million, $41 million
and $48 million for 2014, 2013 and 2012, respectively. Minimum future rental commitments as of August 28, 2014 were as
follows:
2015
2016
2017
2018
2019
2020 and thereafter
Contingencies
Operating
Lease
Commitments
22
$
18
14
13
12
37
116
$
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.
Rambus
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 $3.90 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 were engaged in litigation with Rambus relating to certain of Rambus' patents and certain of our claims and defenses.
Our lawsuits with Rambus related to patent matters were 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.
In December 2013, we settled all pending litigation between us and Rambus, including all antitrust and patent matters. We
also entered into a seven-year term patent cross-license agreement with Rambus that allows us to avoid costs of patent-related
litigation during the term. We agreed to pay Rambus up to $10 million per quarter over seven years, for a total of $280 million,
beginning in the second quarter of 2014. The primary benefits we received from these arrangements were (1) the settlement
and termination of all existing litigation, (2) the avoidance of future litigation expenses and (3) the avoidance of future
management and customer disruptions. As a result, other operating expense for the first quarter of 2014 included a $233
million charge to accrue a liability, which reflects the discounted value of amounts due under this arrangement.
73
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.
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 MMJ and Elpida
Memory (USA) Inc. On August 22, 2013, the plaintiffs filed a third amended complaint. The third amended complaint alleges
that certain of our DRAM and image sensor products infringe four U.S. patents and that certain MMJ and Elpida Memory
(USA) Inc. DRAM products infringe two U.S. patents and seeks damages, attorneys' fees, and costs. Trial currently is
scheduled for February 22, 2016. On March 23, 2012, MMJ and Elpida Memory (USA) Inc. 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 MMJ and Elpida Memory (USA)
Inc. Accordingly, the plaintiffs' case against MMJ and Elpida Memory (USA) was stayed. On June 25, 2013, the U.S.
Bankruptcy Court for the District of Delaware entered its Order (1) Granting Recognition of the Japanese Reorganization Plan
of MMJ and the Tokyo District Court's Confirmation Orders, (2) Entrusting MMJ's U.S. Assets to Foreign Representatives and
Approving Certain Plan Transactions, (3) Granting Permanent Injunction, and (4) Granting Related Relief (the "Recognition
Order"). Pursuant to the Recognition Order, the plaintiffs are permanently enjoined from continuing their case against MMJ
and Elpida Memory (USA) Inc. in respect of any claim or claims arising prior to the commencement of the Japan Proceeding
(as defined in the Recognition Order).
On December 5, 2011, the Board of Trustees for the University of Illinois (the "University") 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 Patent Trial and Appeal Board ("PTAB") held a hearing in connection with the three petitions on December
9, 2013. On March 10, 2014, the PTAB issued written decisions finding that each and every claim in the three patents in suit is
invalid, and cancelled all claims. The University has appealed the PTAB rulings to the U.S. Court of Appeals for the Federal
Circuit.
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 infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. Trial is
currently scheduled for August 21, 2015.
On December 7, 2007, Tessera, Inc. filed a patent infringement action against MMJ, Elpida Memory (USA) Inc., and
numerous other defendants, in the United States District Court for the Eastern District of Texas. The complaint alleges that
certain MMJ and Elpida Memory (USA) Inc. products infringe four U.S. patents and seeks injunctive relief, damages,
attorneys' fees, and costs. Prior to answering the complaint, MMJ and Elpida Memory (USA) Inc. and other defendants filed
motions to stay the case pending final resolution of a case before the International Trade Commission ("ITC") against MMJ and
Elpida Memory (USA) Inc. 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 MMJ and Elpida Memory (USA) Inc. 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.
Additionally, by operation of the Recognition Order, plaintiff in that action is permanently enjoined from continuing its case
against MMJ and Elpida Memory (USA) in respect of any claim or claims arising prior to the commencement of the Japan
Proceeding (as defined in the Recognition Order). On July 30, 2014, we entered into a five-year term patent cross-license
agreement with Tessera, which also settled the pending litigation against MMJ and Elpida Memory (USA). The agreement,
which requires us to make quarterly payments over its term, gives us “life-of-product” protection for specifically identified
DRAM products and a term license for certain other products. We capitalized an intangible asset for the term of the agreement
and also recorded a $66 million charge to cost of goods sold in the fourth quarter of 2014.
Among other things, the above lawsuits pertain to certain of our DDR, DDR2, DDR3, SDR SDRAM, PSRAM, RLDRAM,
LPDRAM, NAND Flash, image sensor products and certain other memory products we manufacture, which account for a
significant portion of our net sales.
74
Except for the Tessera matter discussed above, we are unable to predict the outcome of assertions of infringement made
against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing
processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual
property 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
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, we agreed to pay approximately $67
million in aggregate in three equal installments over a two-year period. We paid the full amount into an escrow account by the
end of the first quarter of 2013 in accordance with the settlement agreement.
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 above discussion of the U.S. indirect purchaser cases. 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 (now known as MMJ) 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 MMJ
as of February 2013. The complaint alleges that the defendants engaged in various acts and misrepresentations to hide the
financial condition of MMJ and deceive shareholders prior to MMJ 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.
75
Qimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against MTI and
Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), 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 Micron B.V. and
Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera
Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera, and seeks an order
requiring us to retransfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover
damages for the alleged value of the joint venture relationship with Inotera and 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.
Following a series of hearings with pleadings, arguments and witnesses on behalf of the Qimonda estate, on March 13,
2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera
shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect
to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership
of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying
Qimonda’s claims against Micron Technology for any damages relating to the joint venture relationship with Inotera; and (5)
determining that Qimonda's obligations under the patent cross-license agreement are cancelled. In addition, the Court issued
interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares
still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third
parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it
from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and,
accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments
in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. A hearing on the matter
is scheduled for February 2, 2015.
We are unable to predict the outcome of the matter 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, unspecified damages
based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or 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 28, 2014, the Inotera Shares had a carrying value in equity method investments for purposes of our financial reporting
of $505 million and a market value of $2.06 billion.
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.
Redeemable Convertible Notes
Under the terms of the indentures of the 2033E and 2033F Notes, upon conversion, we would be required to pay cash
equal to the lesser amount of (1) the aggregate principal amount or (2) the conversion value of the notes being converted (we
could pay cash, shares of common stock or a combination thereof, at our option, for the remainder, if any, of our conversion
obligation). Additionally, the 2033E and 2033F Notes were convertible at the option of the holders as of August 28, 2014.
Therefore, the 2033E and 2033F Notes were classified as current debt and the aggregate difference of $57 million between the
principal amount and the carrying value was classified as redeemable convertible notes in the mezzanine section of the
accompanying consolidated balance sheet as of August 28, 2014. (See "Debt" note.)
76
Equity
Micron Shareholders' Equity
Capped Calls
Issued and Outstanding Capped Calls: We have entered into capped calls, which are intended to reduce the effect of
potential dilution from our convertible notes. The capped calls provide for our receipt of cash or shares, at our election, from
our counterparties if the trading price of our stock is above a specified initial strike price at the expiration date. The amount
receivable varies based on the trading price of our stock, up to a specified cap price. The dollar value of the cash or shares that
we would receive from the capped calls upon their expiration date ranges from $0 if the trading price of our stock is below the
initial strike price for all of the capped calls to $864 million if the trading price of our stock is at or above the cap price for all
of the capped calls. We paid $57 million in 2011 to purchase the 2031 Capped Calls, $103 million in 2012 to purchase the
2032 Capped Calls and $48 million in 2013 to purchase the 2033 Capped Calls. The amounts paid were recorded as charges to
additional capital.
The following table presents information related to the issued and outstanding capped calls as of August 28, 2014:
Capped
Calls
2031
2032C
2032D
2033E
2033F
Expiration Dates
Jul 2015
– Feb 2016
$
May 2016
– Nov 2017
Nov 2016
– May 2018
Jan 2018
– Feb 2018
Jan 2020
– Feb 2020
Strike
Price
9.50
9.80
10.16
10.93
10.93
Cap Price Range
Low
High
Underlying
Common
Shares
Value at Expiration(1)
Minimum Maximum
$
12.67
$
14.26
14.62
14.51
14.51
13.17
15.69
16.04
14.51
14.51
34
56
44
27
27
$
— $
—
—
—
—
117
307
244
98
98
864
(1) 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 low strike price, to the maximum amount if the market
price per share of our common stock is at or above the high cap price. If share settlement were elected, the number of
shares received 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 the capped calls prior to the expiration dates may be for an amount less
than the maximum value at expiration.
— $
188
$
Unwind of Capped Calls: In May 2014, we and the counterparties agreed to terminate and unwind a portion of our
2031 Capped Calls. We elected share settlement and received 3 million shares of our stock, equivalent to approximately $86
million based on the trading stock price at the time of the unwind. The shares were retired from treasury stock in 2014.
Restrictions on Net Assets
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ Group is subject to certain
restrictions on dividends, loans and advances. In addition, our ability to access IMFT's cash and other assets through dividends,
loans or advances, including to finance our other operations, is subject to agreement by Intel. As a result, our total restricted
net assets (net assets less intercompany balances and noncontrolling interests) as of August 28, 2014 were $3.10 billion for the
MMJ Group, which included cash and equivalents of $1.60 billion, and $793 million for IMFT.
(See "Micron Memory Japan, Inc." note and "IMFT" below.)
77
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component for the year ended August 28, 2014, were as
follows:
Cumulative
Foreign
Currency
Translation
Adjustments
44
$
Gains
(Losses) on
Derivative
Instruments,
Net
Gains
(Losses) on
Investments,
Net
Pension
Liability
Adjustments
Total
$
$
21
$
— $
(2) $
(4)
(4)
(1)
(9)
12
$
4
(3)
—
1
1
$
1
1
1
3
1
$
63
2
(9)
—
(7)
56
1
(3)
—
(2)
42
2014
2013
Noncontrolling
Interest
Balance
Noncontrolling
Interest
Percentage
Noncontrolling
Interest
Balance
Noncontrolling
Interest
Percentage
$
$
693
93
9
7
802
49% $
50%