Micron Technology, Inc.
MICRON TECHNOLOGY INC (Form: 10-Q, Received: 01/09/2015 13:01:38)


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 4, 2014

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number 1-10658

Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
75-1618004
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 
 
 
8000 S. Federal Way, Boise, Idaho
83716-9632
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code
(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x    No   o

Indicate by check mark whether the registrant 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   x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x

The number of outstanding shares of the registrant's common stock as of January 2, 2015, was 1,077,313,410 .

 
 
 
 
 




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
 
Definition
 
Term
 
Definition
2027 Notes
 
1.875% Convertible Senior Notes
 
MLC
 
Multi-Level Cell
2031A Notes
 
1.500% Convertible Senior Notes due 2031
 
MMJ
 
Micron Memory Japan, Inc.
2031B Notes
 
1.875% Convertible Senior Notes due 2031
 
MMJ Companies
 
MMJ and MAI
2032 Notes
 
The 2032C and 2032D Notes
 
MMJ Group
 
MMJ and its subsidiaries
2032C Notes
 
2.375% Convertible Senior Notes due 2032
 
MMT
 
Micron Memory Taiwan Co., Ltd.
2032D Notes
 
3.125% Convertible Senior Notes due 2032
 
MP Mask
 
MP Mask Technology Center, LLC
2033 Notes
 
The 2033E and 2033F Notes
 
MTI
 
Micron Technology, Inc.
2033E Notes
 
1.625% Convertible Senior Notes due 2033
 
Nanya
 
Nanya Technology Corporation
2033F Notes
 
2.125% Convertible Senior Notes due 2033
 
Photronics
 
Photronics, Inc.
2043G Notes
 
3.00% Convertible Senior Notes due 2043
 
PSRAM
 
Pseudo-static DRAM
Aptina
 
Aptina Imaging Corporation
 
Qimonda
 
Qimonda AG
DRAM
 
Dynamic Random Access Memory
 
Rambus
 
Rambus, Inc.
Elpida
 
Elpida Memory, Inc.
 
R&D
 
Research and Development
IMFT
 
IM Flash Technologies, LLC
 
RLDRAM
 
Reduced Latency DRAM
Inotera
 
Inotera Memories, Inc.
 
SEC
 
Securities and Exchange Commission
Intel
 
Intel Corporation
 
SG&A
 
Selling, General and Administration
Japan Court
 
Tokyo District Court
 
SSD
 
Solid-State Drive
LIBOR
 
London Interbank Offered Rate
 
Tera Probe
 
Tera Probe, Inc.
LPDRAM
 
Low Power DRAM
 
TLC
 
Triple-Level Cell
MAI
 
Micron Akita, Inc.
 
VIE
 
Variable Interest Entity

1



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)

Quarter ended
 
December 4,
2014
 
November 28,
2013
Net sales
 
$
4,573

 
$
4,042

Cost of goods sold
 
2,935

 
2,761

Gross margin
 
1,638

 
1,281

 
 
 
 
 
Selling, general and administrative
 
193

 
176

Research and development
 
376

 
320

Other operating (income) expense, net
 
(16
)
 
234

Operating income
 
1,085

 
551

 
 
 
 
 
Interest income
 
7

 
5

Interest expense
 
(90
)
 
(101
)
Other non-operating income (expense), net
 
(49
)
 
(80
)
 
 
953

 
375

 
 
 
 
 
Income tax (provision) benefit
 
(75
)
 
(80
)
Equity in net income of equity method investees
 
124

 
86

Net income
 
1,002

 
381

 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
1

 
(23
)
Net income attributable to Micron
 
$
1,003

 
$
358

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.94

 
$
0.34

Diluted
 
0.84

 
0.30

 
 
 
 
 
Number of shares used in per share calculations:
 
 
 
 
Basic
 
1,070

 
1,046

Diluted
 
1,195

 
1,196












See accompanying notes to consolidated financial statements.

2



MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)

Quarter ended
 
December 4,
2014
 
November 28,
2013
Net income
 
$
1,002

 
$
381

 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustments
 
(24
)
 
6

Gain (loss) on derivatives, net
 
(16
)
 
(2
)
Pension liability adjustments
 
19

 

Gain (loss) on investments, net
 

 
1

Other comprehensive income (loss)
 
(21
)
 
5

Total comprehensive income
 
981

 
386

Comprehensive (income) loss attributable to noncontrolling interests
 
1

 
(23
)
Comprehensive income attributable to Micron
 
$
982

 
$
363





































See accompanying notes to consolidated financial statements.

3



MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
(Unaudited)

As of
 
December 4,
2014
 
August 28,
2014
Assets
 
 
 
 
Cash and equivalents
 
$
3,764

 
$
4,150

Short-term investments
 
466

 
384

Receivables
 
2,663

 
2,906

Inventories
 
2,448

 
2,455

Other current assets
 
331

 
350

Total current assets
 
9,672

 
10,245

Long-term marketable investments
 
1,077

 
819

Property, plant and equipment, net
 
9,132

 
8,682

Equity method investments
 
1,080

 
971

Intangible assets, net
 
450

 
468

Deferred tax assets
 
685

 
816

Other noncurrent assets
 
446

 
497

Total assets
 
$
22,542

 
$
22,498

 
 
 
 
 
Liabilities and equity
 
 
 
 
Accounts payable and accrued expenses
 
$
2,965

 
$
2,864

Deferred income
 
286

 
309

Current debt
 
1,168

 
1,638

Total current liabilities
 
4,419

 
4,811

Long-term debt
 
4,608

 
4,955

Other noncurrent liabilities
 
969

 
1,102

Total liabilities
 
9,996

 
10,868

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Redeemable convertible notes
 
53

 
57

 
 
 
 
 
Micron shareholders' equity:
 
 
 
 
Common stock, $0.10 par value, 3,000 shares authorized, 1,075 shares issued and outstanding (1,073 as of August 28, 2014)
 
108

 
107

Additional capital
 
7,822

 
7,879

Retained earnings
 
3,713

 
2,729

Accumulated other comprehensive income
 
35

 
56

Total Micron shareholders' equity
 
11,678

 
10,771

Noncontrolling interests in subsidiaries
 
815

 
802

Total equity
 
12,493

 
11,573

Total liabilities and equity
 
$
22,542

 
$
22,498






See accompanying notes to consolidated financial statements.

4



MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Quarter ended
 
December 4,
2014
 
November 28,
2013
Cash flows from operating activities
 
 
 
 
Net income
 
$
1,002

 
$
381

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation expense and amortization of intangible assets
 
643

 
491

Amortization of debt discount and other costs
 
38

 
50

Stock-based compensation
 
35

 
22

Loss on restructure of debt
 
30

 
86

Equity in net income of equity method investees
 
(124
)
 
(86
)
Change in operating assets and liabilities:
 
 
 
 
Receivables
 
252

 
(494
)
Inventories
 
7

 
190

Accounts payable and accrued expenses
 
(321
)
 
620

Other noncurrent liabilities
 
(12
)
 
186

Deferred income taxes, net
 
126

 
59

Other
 
(84
)
 
2

Net cash provided by operating activities
 
1,592

 
1,507

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Expenditures for property, plant and equipment
 
(669
)
 
(669
)
Purchases of available-for-sale securities
 
(668
)
 
(196
)
Payments to settle hedging activities
 
(66
)
 
(4
)
Proceeds from sales and maturities of available-for-sale securities
 
330

 
162

Decrease in restricted cash
 

 
556

Other
 
(3
)
 
29

Net cash provided by (used for) investing activities
 
(1,076
)
 
(122
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Repayments of debt
 
(786
)
 
(737
)
Cash paid to purchase stock under equity plans
 
(26
)
 
(42
)
Contributions from noncontrolling interests
 
20

 
49

Proceeds from issuance of stock under equity plans
 
18

 
144

Other
 
(32
)
 
(6
)
Net cash provided by (used for) financing activities
 
(806
)
 
(592
)
 
 
 
 
 
Effect of changes in currency exchange rates on cash and equivalents
 
(96
)
 
(19
)
 
 
 
 
 
Net increase (decrease) in cash and equivalents
 
(386
)
 
774

Cash and equivalents at beginning of period
 
4,150

 
2,880

Cash and equivalents at end of period
 
$
3,764

 
$
3,654

 
 
 
 
 
Noncash investing and financing activities:
 
 
 
 
Exchange of convertible notes
 

 
756



See accompanying notes to consolidated financial statements.

5



MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
(Unaudited)

Business and Basis of Presentation

Micron Technology, Inc., including its consolidated subsidiaries (hereinafter referred to collectively as "we," "our," "us" and similar terms unless the context indicates otherwise), is a global leader in advanced semiconductor systems. Our broad portfolio of high-performance memory technologies, including DRAM, NAND Flash and NOR Flash, is the basis for solid state drives, modules, multichip packages and other system solutions. Our memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications. The accompanying 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 consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended August 28, 2014. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein.

Certain reclassifications have been made to prior period amounts to conform to current period presentation. In addition, amounts for certain equipment purchases were reclassified from financing to investing within the statement of cash flows to better reflect the current nature of these transactions and to improve comparability with our industry peers.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal year 2015 contains 53 weeks and the first quarter of fiscal 2015, which ended on December 4, 2014, contained 14 weeks. Fiscal year 2014 contained 52 weeks and the first quarter of fiscal 2014, which ended on November 28, 2013, contained 13 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended August 28, 2014.


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: EQUVO HK Limited ("EQUVO") is a special purpose entity created to facilitate an equipment sale-leaseback financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities have an equity interest in EQUVO. EQUVO is a VIE because its equity is not sufficient to permit it to finance its 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 arrangement with EQUVO is merely a financing vehicle and we do not bear any significant risks from variable interests with EQUVO. Therefore, we have determined that we do not have the power to direct the activities of EQUVO that most significantly impact its economic performance and we do not consolidate EQUVO.

6




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 consolidate IMFT because we (1) have the power to direct the activities of IMFT that most significantly impact its economic performance and (2) have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it.

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 consolidate MP Mask because we (1) have the power to direct the activities of MP Mask that most significantly impact its economic performance and (2) have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to it.

(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 effects of the adoption of this ASU on our financial statements.


Investments

The fair values of available-for-sale investments, which approximated amortized costs, were as follows:

 
 
December 4,
2014
 
August 28,
2014
Money market funds
 
$
866

 
$
1,281

Corporate bonds
 
799

 
561

Certificates of deposit
 
581

 
437

Government securities
 
440

 
420

Asset-backed securities
 
220

 
128

Commercial paper
 
93

 
107

Marketable equity securities
 
1

 
1

 
 
$
3,000

 
$
2,935



7



The table below presents the fair value of available-for-sale debt securities by contractual maturity:

 
 
December 4,
2014
Money market funds
 
$
866

Due in 1 year or less
 
1,057

Due in 1 - 2 years
 
562

Due in 2 - 4 years
 
467

Due after 4 years
 
47

 
 
$
2,999


Proceeds from the sales of available-for-sale securities for the first quarters of 2015 and 2014 were $233 million and $113 million , respectively. Gross realized gains and losses for the first quarters of 2015 and 2014 were not significant. As of December 4, 2014 , none of our available-for-sale securities had been in a loss position for longer than 12 months.


Receivables

 
 
December 4,
2014
 
August 28,
2014
Trade receivables, net
 
$
2,301

 
$
2,524

Income and other taxes
 
61

 
104

Other
 
301

 
278

 
 
$
2,663

 
$
2,906


As of December 4, 2014 and August 28, 2014 , other receivables included $95 million and $70 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

 
 
December 4,
2014
 
August 28,
2014
Finished goods
 
$
916

 
$
898

Work in process
 
1,325

 
1,372

Raw materials and supplies
 
207

 
185

 
 
$
2,448

 
$
2,455





8



Property, Plant and Equipment

 
 
December 4,
2014
 
August 28,
2014
Land
 
$
86

 
$
86

Buildings
 
5,165

 
5,093

Equipment
 
18,608

 
17,781

Construction in progress
 
146

 
114

Software
 
344

 
358

 
 
24,349

 
23,432

Accumulated depreciation
 
(15,217
)
 
(14,750
)
 
 
$
9,132

 
$
8,682


Depreciation expense was $613 million and $468 million for the first quarters of 2015 and 2014 , respectively.


Equity Method Investments

 
 
December 4, 2014
 
August 28, 2014
 
 
Investment Balance
 
Ownership Percentage
 
Investment Balance
 
Ownership Percentage
Inotera (1)
 
$
1,028

 
33
%
 
$
914

 
33
%
Tera Probe
 
36

 
40
%
 
48

 
40
%
Other
 
16

 
Various

 
9

 
Various

 
 
$
1,080

 
 

 
$
971

 
 

(1) Entity is a variable interest entity.

As of December 4, 2014 , substantially all of our maximum exposure to loss from our VIEs that were not consolidated was the $1,028 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 of equity method investees, net of tax, included the following:

Quarter ended
 
December 4,
2014
 
November 28,
2013
Inotera
 
$
129

 
$
84

Tera Probe
 
(7
)
 
2

Other
 
2

 

 
 
$
124

 
$
86


Inotera

We have partnered with Nanya in Inotera, a Taiwan DRAM memory company, since 2009. As of December 4, 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 December 4, 2014 , the market value of our equity interest in Inotera was $3.37 billion based on the closing trading price of 48.90 New Taiwan dollars per share in an active market. As of December 4, 2014 and August 28, 2014 , there were gains of $25 million and $44 million , respectively, in accumulated other comprehensive income for cumulative translation adjustments from our equity investment in Inotera.


9



We purchase all of Inotera's DRAM output at a discount from market prices for our comparable components under a 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. In the first quarters of 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities. We currently are 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 $729 million and $587 million of DRAM products in the first quarters of 2015 and 2014, respectively.

Tera Probe

In 2013, we acquired a 40% interest in Tera Probe, which provides semiconductor wafer testing and probe services to us and others. During the first quarter of 2015, we recorded an impairment charge of $10 million within equity in net income of equity method investees to write down the carrying value of our investment in Tera Probe to its fair value, based on its trading price (Level 1 fair value measurement). As of December 4, 2014 , the difference between our investment balance and our proportionate share of underlying equity in Tera Probe was $34 million and is expected to be accreted as income to our earnings through equity in net income of equity method investees over a weighted-average period of 7 years. We incurred manufacturing costs for the first quarters of 2015 and 2014 of $25 million and $33 million , respectively, for services performed by Tera Probe.


Intangible Assets

 
 
December 4, 2014
 
August 28, 2014
 
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Product and process technology
 
$
814

 
$
(364
)
 
$
809

 
$
(341
)
Customer relationships
 
1

 
(1
)
 
1

 
(1
)
 
 
$
815

 
$
(365
)
 
$
810

 
$
(342
)

During the first quarters of 2015 and 2014 , we capitalized $12 million and $6 million , respectively, for product and process technology with weighted-average useful lives of 8 years and 9 years, respectively. Amortization expense was $30 million and $23 million for the first quarters of 2015 and 2014 , respectively.  Annual amortization expense is estimated to be $115 million for 2015 , $101 million for 2016 , $90 million for 2017 , $79 million for 2018 and $31 million for 2019 .


Accounts Payable and Accrued Expenses

 
 
December 4,
2014
 
August 28,
2014
Accounts payable
 
$
961

 
$
996

Property, plant and equipment payables
 
664

 
289

Related party payables
 
489

 
673

Salaries, wages and benefits
 
364

 
456

Customer advances
 
110

 
98

Income and other taxes
 
89

 
71

Other
 
288

 
281

 
 
$
2,965

 
$
2,864


As of December 4, 2014 and August 28, 2014 , related party payables included $479 million and $660 million , respectively, due to Inotera primarily for the purchase of DRAM products under the Inotera Supply Agreement. As of December 4, 2014 and August 28, 2014 , related party payables also included $10 million and $13 million , respectively, due to Tera Probe for testing and probe services performed. (See "Equity Method Investments" note.)

10




As of December 4, 2014 and August 28, 2014 , customer advances included $90 million and $90 million , respectively, 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 December 4, 2014 and August 28, 2014 , other noncurrent liabilities included $68 million and $90 million , respectively, from this DRAM supply agreement.


Debt

 
 
 
 
 
 
December 4, 2014
 
August 28, 2014
Instrument (1)
 
Stated Rate
 
Effective Rate
 
Current
 
Long-Term
 
Total
 
Current
 
Long-Term
 
Total
MMJ creditor installment payments
 
N/A

 
6.25
%
 
$
169

 
$
828

 
$
997

 
$
192

 
$
939

 
$
1,131

Capital lease obligations (2)
 
N/A

 
N/A

 
315

 
472

 
787

 
323

 
588

 
911

2019 senior notes
 
1.258
%
 
1.97
%
 
92

 
324

 
416

 
92

 
324

 
416

2022 senior notes
 
5.875
%
 
6.14
%
 

 
600

 
600

 

 
600

 
600

2025 senior notes
 
5.500
%
 
5.56
%
 

 
1,150

 
1,150

 

 
1,150

 
1,150

2031B convertible senior notes
 
1.875
%
 
6.98
%
 

 

 

 
362

 

 
362

2032C convertible senior notes (3)
 
2.375
%
 
5.95
%
 

 
312

 
312

 

 
314

 
314

2032D convertible senior notes (3)
 
3.125
%
 
6.33
%
 

 
264

 
264

 

 
288

 
288

2033E convertible senior notes (3)(4)
 
1.625
%
 
4.50
%
 
273

 

 
273

 
278

 

 
278

2033F convertible senior notes (3)(4)
 
2.125
%
 
4.93
%
 
267

 

 
267

 
265

 

 
265

2043G convertible senior notes
 
3.000
%
 
6.76
%
 

 
639

 
639

 

 
636

 
636

Other notes payable
 
2.157
%
 
2.45
%
 
52

 
19

 
71

 
126

 
116

 
242

 
 
 
 
 
 
$
1,168

 
$
4,608

 
$
5,776

 
$
1,638

 
$
4,955

 
$
6,593

(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.
(2)  
Weighted-average imputed rate of 4.3% and 4.3% as of December 4, 2014 and August 28, 2014, respectively.
(3)  
Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ending on September 30, 2014 exceeded 130% of the conversion price per share, holders have the right to convert their notes at any time during the calendar quarter ended December 31, 2014. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2014; therefore, these notes are convertible by the holders through March 31, 2015.
(4)  
As a result of these notes being convertible at the option of the holder through December 31, 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.


11



2015 Debt Restructure

In the first quarter of 2015, we continued to restructure our debt, including conversions and settlements, repurchases and early repayment of an other note payable. The following table presents the effect of each of the actions:

 
 
Decrease in Principal
 
Decrease in Carrying Value
 
Decrease in Cash
 
Decrease in Equity
 
(Loss) Gain (1)
Conversions and settlements:
 
 
 
 
 
 
 
 
 
 
2031B Notes
 
$
(114
)
 
$
(362
)
 
$
(389
)
 
$

 
$
(24
)
2033E Notes
 
(6
)
 
(6
)
 
(18
)
 
(14
)
 
2

 
 
(120
)
 
(368
)
 
(407
)
 
(14
)
 
(22
)
 
 
 
 
 
 
 
 
 
 
 
Repurchases:
 
 
 
 
 
 
 
 
 
 
2032C Notes
 
(5
)
 
(4
)
 
(18
)
 
(13
)
 
(1
)
2032D Notes
 
(31
)
 
(26
)
 
(107
)
 
(79
)
 
(2
)
 
 
(36
)
 
(30
)
 
(125
)
 
(92
)
 
(3
)
 
 
 
 
 
 
 
 
 
 
 
Early repayment of note
 
(121
)
 
(120
)
 
(122
)
 

 
(5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(277
)
 
$
(518
)

$
(654
)
 
$
(106
)
 
$
(30
)
(1)  
Included in other non-operating expense.

Conversions and Settlements : During the first quarter of 2015, we had the following debt conversions and settlements:

2031B Notes – On July 23, 2014, we called for the redemption of our remaining 2031B Notes 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 amount due upon conversion entirely in cash.

2033E Notes – On September 30, 2014, a holder converted a portion of our 2033E Notes and we elected to settle the amount due upon conversion entirely in cash.

As a result of our elections to settle the amounts due upon conversion 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, at the dates of our election to settle the conversion in cash, 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.

Repurchases : During the first quarter of 2015, we repurchased a portion of our 2032C Notes and 2032D Notes in privately-negotiated transactions. 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 affected debt and equity.

Early Repayment : On October 17, 2014, we repaid a note payable prior to its scheduled maturity.


12



2014 Debt Restructure

Throughout 2014, we reduced the dilutive effects of our convertible notes by exchanging portions of these notes with less-dilutive convertible notes, or by converting or repurchasing portions of these notes using cash generated from operations and proceeds from issuing non-convertible debt with near investment-grade covenants. In the first quarter of 2014, we incurred losses related to these activities as follows:

$49 million (which included $38 million in non-operating expense and $11 million of interest expense from the payment of a "make-whole") from the exchange of an aggregate principal amount of $440 million of 2027 Notes, 2031A Notes and 2031B Notes into 2043G Notes; and
$43 million (which included $37 million in non-operating expense and $6 million of interest expense from the payment of a "make-whole") from the conversion of $95 million of principal amount of 2027 Notes and $112 million of aggregate principal amount of 2031A Notes.

Convertible Notes With Debt and Equity Components

As of December 4, 2014 , the trading price of our common stock was higher than the 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 December 4, 2014 :

 
 
Holder Put Date (1)
 
Outstanding Principal
 
Underlying Shares
 
Conversion Price Per Share
 
Conversion Price Per Share Threshold (2)
 
Conversion Value in Excess of Principal (3)
2032C Notes
 
May 2019
 
$
357

 
37

 
$
9.63

 
$
12.52

 
$
982

2032D Notes
 
May 2021
 
313

 
31

 
9.98

 
12.97

 
816

2033E Notes
 
February 2018
 
294

 
27

 
10.93

 
14.21

 
674

2033F Notes
 
February 2020
 
300

 
27

 
10.93

 
14.21

 
690

2043G Notes (4)
 
November 2028
 
1,025

 
35

 
29.16

 
37.91

 
243

 
 
 
 
$
2,289

 
157

 
 
 
 
 
$
3,405

(1)  
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 maturities of the notes or upon the occurrence of certain events or circumstances.
(2)  
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 conversion price. As a result, as of December 4, 2014, holders of our 2032 Notes and 2033 Notes had the right to convert their notes.
(3)  
Based on our closing share price of $36.07 as of December 4, 2014 .
(4)  
The original principal amount of $820 million accretes up to $917 million in November 2028 and $1.03 billion at maturity in 2043.

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 (see "Holder Put Date" in the table above). As a result, the period of amortization can be significantly shorter than the contractual maturity.


13



Revolving Credit Facilities

On December 2, 2014, we terminated our unused $153 million senior secured three -year revolving credit facility and entered into a senior secured five -year revolving credit facility, collateralized by a security interest in trade receivables and inventory. The credit facility has an aggregate revolving commitment which is subject to certain adjustments, including an availability block that effectively limits the maximum amount we could draw to $540 million .  Additionally, the maximum amount we could draw may decrease further if the value, as defined of our trade receivables and inventory collateralizing the credit facility decrease below a specified threshold. 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 not to exceed LIBOR plus an applicable margin ranging between 1.25% to 1.75% , based on the monthly average undrawn availability under the credit facility. As of December 4, 2014 , the amount available to us was $500 million and we had not drawn any amounts under this facility.

Contractual Maturities

As of December 4, 2014 , maturities of notes payable (including the MMJ creditor installment payments) and future minimum lease payments under capital lease obligations were as follows:

 
 
Notes Payable
 
Capital Lease Obligations
Remainder of 2015
 
$
304

 
$
247

2016
 
290

 
295

2017
 
260

 
98

2018
 
552

 
56

2019
 
642

 
52

2020 and thereafter
 
3,556

 
110

Unamortized discounts and interest, respectively
 
(615
)
 
(71
)
 
 
$
4,989

 
$
787



Contingencies

We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our business, results of operations or financial condition.

Patent Matters

As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights.


14



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 on December 9, 2013 in connection with the three petitions. 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, Inc. infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. Trial currently is scheduled for August 21, 2015.

On December 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against us in the U.S. District Court for the District of Delaware.  The complaint alleges that a variety of our NAND Flash products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs.

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.

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.


15



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, including final court approval of the class settlements, we agreed to pay approximately $67 million in aggregate in three equal installments over a two-year period. We 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.

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.


16



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 MTI 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 April 24, 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 December 4, 2014, the Inotera Shares had a carrying value in equity method investments for purposes of our financial reporting of $568 million and a market value of $1.86 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 2033 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 2033 Notes were convertible at the option of the holders as of December 4, 2014 and August 28, 2014 . Therefore, the 2033 Notes were classified as current debt and the aggregate difference of $53 million and $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 December 4, 2014 and August 28, 2014 , respectively. (See "Debt" note.)




17



Equity

Changes in the components of equity were as follows:

 
 
Quarter Ended December 4, 2014
 
Quarter Ended November 28, 2013
 
 
Attributable to Micron
 
Noncontrolling Interests
 
Total Equity
 
Attributable to Micron
 
Noncontrolling Interests
 
Total Equity
Beginning balance
 
$
10,771

 
$
802

 
$
11,573

 
$
9,142

 
$
864

 
$
10,006

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
1,003

 
(1
)
 
1,002

 
358

 
23

 
381

Other comprehensive income (loss)
 
(21
)
 

 
(21
)
 
5

 

 
5

Comprehensive income (loss)
 
982

 
(1
)
 
981

 
363

 
23

 
386

 
 
 
 
 
 
 
 
 
 
 
 
 
Contribution from noncontrolling interests
 

 
20

 
20

 

 
49

 
49

Distributions to noncontrolling interests
 

 
(6
)
 
(6
)
 

 
(9
)
 
(9
)
Capital and other transactions attributable to Micron
 
(75
)
 

 
(75
)
 
(286
)
 

 
(286
)
Ending balance
 
$
11,678

 
$
815

 
$
12,493

 
$
9,219

 
$
927

 
$
10,146


Micron Shareholders' Equity

Issued and Outstanding Capped Calls

We have capped calls with strike prices that range from $9.50 to $10.93 which are intended to reduce the effect of potential dilution from our convertible notes.  These capped calls provide for the receipt of cash or shares, at our election, from counterparties if the trading price of our stock is above the specified initial strike prices at the capped call expiration dates. Amounts received would be based on the trading price of our stock and would range from $0 (if the trading price of our stock is below the initial strike prices for all of the capped calls) to $864 million (if the trading price of our stock is at or above the cap prices for all of the capped calls).

Restrictions on Net Assets

As a result of the reorganization proceedings of the MMJ Companies being initiated on March 23, 2012, and 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 December 4, 2014 were $3.17 billion for the MMJ Group, which included cash and equivalents of $1.53 billion , and $789 million for IMFT.


18



Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component for the quarter ended December 4, 2014 , were as follows:

 
 
Cumulative Foreign Currency Translation Adjustments
 
Gains (Losses) on Derivative Instruments, Net
 
Gains (Losses) on Investments, Net
 
Pension Liability Adjustments
 
Total
Balance as of August 28, 2014
 
$
42

 
$
12

 
$
1

 
$
1

 
$
56

Other comprehensive income before reclassifications
 
(24
)
 
(15
)
 

 
31

 
(8
)
Amount reclassified out of accumulated other comprehensive income
 

 
(2
)
 

 
(1
)
 
(3
)
Tax effects
 

 
1

 

 
(11
)
 
(10
)
Other comprehensive income (loss)
 
(24
)
 
(16
)
 

 
19

 
(21
)
Balance as of December 4, 2014
 
$
18

 
$
(4
)
 
$
1

 
$
20

 
$
35


Noncontrolling Interests in Subsidiaries

 
 
December 4, 2014
 
August 28, 2014
 
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
IMFT (1)
 
$
707

 
49
%
 
$
693

 
49
%
MP Mask (1)
 
93

 
50
%
 
93

 
50
%
Other
 
15

 
Various

 
16

 
Various

 
 
$
815

 
 
 
$
802

 
 
(1)  
Entity is a variable interest entity.

IMFT

Since its inception in 2006, we have owned 51% of IMFT, a venture between us and Intel to manufacture NAND Flash memory products and certain emerging memory technologies for the exclusive use of the members. IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. Commencing in January 2015, Intel can put to us, and commencing in January 2018, we can call from Intel, Intel's interest in IMFT for an amount equal to the noncontrolling interest balance for Intel. If Intel elects to sell to us, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date.

IMFT manufactures NAND Flash memory products using designs and technology we develop with Intel. We generally share with Intel the costs of product design, other NAND Flash R&D costs and R&D costs of certain emerging memory technologies. Our R&D expenses were reduced by reimbursements from Intel of $54 million and $29 million for the first quarters of 2015 and 2014 , respectively.

We sell a portion of our products to Intel through IMFT at long-term negotiated prices approximating cost. Sales of NAND Flash products to Intel under this arrangement were $108 million and $101 million for the first quarters of 2015 and 2014 , respectively. Receivables from Intel as of December 4, 2014 and August 28, 2014 , were $66 million and $66 million , respectively for these sales.


19



The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:

 
 
December 4,
2014
 
August 28,
2014
Assets
 
 
 
 
Cash and equivalents
 
$
79

 
$
84

Receivables
 
77

 
73

Inventories
 
50

 
48

Other current assets
 
5

 
5

Total current assets
 
211

 
210

Property, plant and equipment, net
 
1,538

 
1,545

Other noncurrent assets
 
49

 
47

Total assets
 
$
1,798

 
$
1,802

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
101

 
$
106

Deferred income
 
8

 
8

Current portion of long-term debt
 
21

 
21

Total current liabilities
 
130

 
135

Long-term debt
 
65

 
71

Other noncurrent liabilities
 
107

 
110

Total liabilities
 
$
302

 
$
316

Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets.

The following table presents IMFT's distributions to and contributions from its shareholders:

Quarter ended
 
December 4,
2014
 
November 28,
2013
IMFT distributions to Micron
 
$
6

 
$

IMFT distributions to Intel
 
6

 

Micron contributions to IMFT
 
21

 
51

Intel contributions to IMFT
 
20

 
49


MP Mask

In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation semiconductors.  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 successive five -year period following May 2016, provided such notice is given at least twelve months prior to the end of the successive five-year period. Since its inception, we have owned approximately 50% and Photronics has owned approximately 50% of MP Mask.  We purchase a substantial majority of the photomasks produced by MP Mask pursuant to a supply arrangement.


20



The following table presents the assets and liabilities of MP Mask included in our consolidated balance sheets:

 
 
December 4,
2014
 
August 28,
2014
Current assets
 
$
23

 
$
24

Noncurrent assets (primarily property, plant and equipment)
 
202

 
203

Current liabilities
 
36

 
28

Noncurrent liabilities
 
6

 
14

Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

Creditors of MP Mask have recourse only to MP Mask's assets and do not have recourse to any other of our assets.


Derivative Instruments

We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in cash. We do not use derivative instruments for speculative purpose.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities. Our primary objective in entering into currency derivatives is to reduce the volatility that changes in currency exchange rates have on our earnings.

To hedge our exposures to monetary assets and liabilities, we generally utilize a rolling hedge strategy with currency forward contracts that mature within 35 days.  At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market.  Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). To mitigate the risk of the yen strengthening against the U.S. dollar on the MMJ creditor installment payments due in December 2014 and December 2015, we entered into forward contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarter of 2015, we paid $33 million to settle the 20 billion yen forward contracts.

Realized and unrealized gains and losses on currency derivatives without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense).

Convertible Notes Settlement Obligations: In connection with our debt restructure activities in the fourth quarter of 2014 and the first quarter of 2015, holders elected to convert the remaining outstanding 2031B Notes and a portion of the 2033E Notes. In the first quarter of 2014, holders elected to convert substantially all of the outstanding 2027 Notes and a portion of the 2031A Notes. As a result of our elections to settle the amounts due upon conversion in cash, each of the settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment for a period of approximately 30 days, beginning on the date we notified the holder of our intention to settle the obligation in cash through the settlement date. The fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2 fair value measurements). The Black-Scholes model requires the input of assumptions, including the stock price, expected stock-price volatility, estimated option life, risk-free interest rate and dividend rate. The subsequent measurements and final settlement amounts of our convertible notes settlement obligations were based on the volume-weighted average stock price (Level 1 fair value measurements). Changes in fair values of the derivative settlement obligations were included in other non-operating income (expense), net.


21



Total gross notional amounts and fair values for derivative instruments without hedge accounting designation were as follows:

 
 
Notional Amount (1)
 
Fair Value of
Current Liabilities (2)
 
Noncurrent Liabilities (3)
As of December 4, 2014
 
 
 
 
 
 
Currency forward contracts:
 
 
 
 
 
 
Yen
 
$
111

 
$
(19
)
 
$

Euro
 
72

 
(5
)
 

 
 
$
183

 
$
(24
)
 
$

As of August 28, 2014
 
 
 
 
 
 
Currency forward contracts:
 
 
 
 
 
 
Yen
 
$
554

 
$
(12
)
 
$
(6
)
Euro
 
245

 
(1
)
 

Singapore dollar
 
330

 

 

Shekel
 
62

 
(1
)
 

 
 
$
1,191

 
 
 
 
 
 
 
 
 
 
 
Convertible notes settlement obligations
 
12

 
(389
)
 

 
 
 
 
$
(403
)
 
$
(6
)
(1)
Notional amounts of forward contracts in U.S. dollars and convertible notes settlement obligations in shares.
(2)  
Included in accounts payable and accrued expenses for forward contracts and in current debt for convertible notes settlement obligations.
(3)  
Included in other noncurrent liabilities.

Net gains (losses) for derivative instruments without hedge accounting designation were as follows:

Quarter Ended
 
December 4,
2014
 
November 28,
2013
 
Location
Foreign exchange contracts
 
$
(58
)
 
$
(14
)
 
Other non-operating income (expense)
Convertible notes settlement obligations
 
6

 
(37
)
 
Other non-operating income (expense)

Derivative Instruments with Cash Flow Hedge Accounting Designation

Currency Derivatives: We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures.  Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rate and credit risk spread (Level 2 fair value measurements).  


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For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss).  Amounts in accumulated other comprehensive income (loss) 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. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense).  Total gross notional amounts and fair values for derivative instruments with cash flow hedge accounting designation were as follows:

 
 
Notional Amount  
(in U.S. Dollars)
 
Fair Value of Current Liabilities (1)
As of December 4, 2014
 
 
 
 
Euro
 
$
74

 
$
(5
)
Yen
 
8

 

 
 
$
82

 
$
(5
)
As of August 28, 2014
 
 

 
 

Euro
 
$
24

 
$

Yen
 
94

 
(2
)
 
 
$
118

 
$
(2
)
(1)  
Included in accounts payable and accrued expenses.

For the first quarters of 2015 and 2014 , we recognized losses of $15 million and $2 million , respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges.  The ineffective and excluded portions of cash flow hedges are recognized in other non-operating income (expense) and were not significant in the first quarters of 2015 or 2014 .  For the first quarter of 2015 , we reclassified gains of $2 million from accumulated other comprehensive income (loss) to earnings. As of December 4, 2014 , $5 million of gains from cash flow hedges included in accumulated other comprehensive income (loss) is expected to be reclassified into earnings in the next 12 months.

Derivative Counterparty Credit Risk and Master Netting Arrangements

Our derivative instruments expose us to credit risk to the extent counterparties may be unable to meet the terms of the contracts.  As of December 4, 2014 , our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts was generally equal to the fair value of our assets for these contracts as listed in the tables above.  We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple financial institutions.

We also 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. As of December 4, 2014 and August 28, 2014, amounts netted were not significant.


Fair Value Measurements

Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).


23



Fair Value Measurements on a Recurring Basis

All of our marketable debt and equity investments were classified as available-for-sale and carried at fair value. Assets measured at fair value on a recurring basis were as follows:

 
 
December 4, 2014
 
August 28, 2014
 
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
866

 
$

 
$
866

 
$
1,281

 
$

 
$
1,281

Certificates of deposit
 

 
528

 
528

 

 
402

 
402

Government securities
 

 
31

 
31

 

 

 

Commercial paper
 

 
7

 
7

 

 
22

 
22

Corporate bonds
 

 
1

 
1

 

 

 

 
 
866

 
567

 
1,433

 
1,281

 
424

 
1,705

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 

 
217

 
217

 

 
154

 
154

Government securities
 

 
136

 
136

 

 
136

 
136

Commercial paper
 

 
86

 
86

 

 
85

 
85

Certificates of deposit
 

 
24

 
24

 

 
8

 
8

Asset-backed securities
 

 
3

 
3

 

 
1

 
1

 
 

 
466

 
466

 

 
384

 
384

Long-term marketable investments:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 

 
581

 
581

 

 
407

 
407

Government securities
 

 
273

 
273

 

 
284

 
284

Asset-backed securities
 

 
217

 
217

 

 
127

 
127

Certificates of deposit
 

 
5

 
5

 

 

 

Marketable equity securities
 
1

 

 
1

 
1

 

 
1

 
 
1

 
1,076

 
1,077

 
1

 
818

 
819

Restricted cash: