Crucial 2013 Annual Report Download - page 38

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To mitigate the risk from the effect of changes in foreign currency exchange rates on the proposed Elpida Acquisition, we
entered into a series of currency exchange contracts to hedge our exposure to yen and New Taiwan Dollar payments (the
"Elpida Hedges"). These currency exchange contracts were not designated for hedge accounting and were remeasured at fair
value each period with gains and losses recognized in other operating (income) expense. As a result of mark-to-market
adjustments for the Elpida Hedges, we recorded losses to other non-operating expense of $228 million in 2013. As of August
29, 2013, our cumulative loss on the Elpida Hedges was $220 million.
See "Item 8. Financial Statements - Notes to Consolidated Financial Statements - Acquisition of Elpida Memory, Inc." for
further details of the acquisition.
Inotera Memories, Inc.
On January 17, 2013, we entered into agreements with Nanya Technology Corporation ("Nanya") to amend the joint
venture relationship involving Inotera. The amendments included a new supply agreement (the "Inotera Supply Agreement"),
retroactively beginning on January 1, 2013, between us and Inotera under which we are obligated to purchase for an initial
three-year term substantially all of Inotera's output at a purchase price based on a discount from market prices for our
comparable components. The Inotera Supply Agreement contemplates annual negotiations with respect to potential successive
one-year extensions and if in any year the parties do not agree to an extension, the agreement will terminate following the end
of the then-existing term plus a subsequent three-year wind-down period. Our share of Inotera's capacity would decline over
the three year wind-down period. Effective through December 31, 2012, we had rights and obligations to purchase 50% of
Inotera's wafer production capacity based on a margin-sharing formula among Nanya, Inotera and us. Our cost for product
purchased from Inotera under the supply agreements was $1,260 million for 2013, $646 million for 2012 and $641 million for
2011.
Under a cost-sharing arrangement effective through December 31, 2012, we generally shared DRAM process and design
development costs with Nanya. As a result of the January 17, 2013 agreements, which were retroactively effective beginning
on January 1, 2013, Nanya no longer participates in the joint development program. Pursuant to this cost-sharing arrangement,
our R&D costs were reduced by $19 million for 2013, $138 million for 2012 and $141 million for 2011.
Results of Operations
Consolidated Results
For the year ended 2013 2012 2011
Net sales $ 9,073 100 % $ 8,234 100 % $ 8,788 100 %
Cost of goods sold 7,226 80 % 7,266 88 % 7,030 80 %
Gross margin 1,847 20 % 968 12 % 1,758 20 %
SG&A 562 6 % 620 8 % 592 7 %
R&D 931 10 % 918 11 % 791 9 %
Restructure and asset impairments 126 1 % 10 — % (75) (1)%
Other operating (income) expense, net (8) — % 32 — % (311) (4)%
Operating income (loss) 236 3 % (612) (7)% 761 9 %
Gain on acquisition of Elpida 1,484 16 % — — % — — %
Interest income (expense), net (217) (2)% (171) (2)% (101) (1)%
Other non-operating income (expense), net (218) (2)% 29 — % (109) (1)%
Income tax (provision) benefit (8) — % 17 — % (203) (2)%
Equity in net loss of equity method investees (83) (1)% (294) (4)% (158) (2)%
Net income attributable to noncontrolling interests (4) — % (1) — % (23) — %
Net income (loss) attributable to Micron $ 1,190 13 % $ (1,032) (13)% $ 167 2 %