Crucial 2013 Annual Report Download - page 15

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Our acquisitions of Elpida and Rexchip involve numerous risks.
On July 31, 2013, we completed the acquisition of Elpida, pursuant to the terms and conditions of the Sponsor Agreement
that we entered into on July 2, 2012, with the trustees of the Elpida Companies pursuant to and in connection with the Elpida
Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan. We paid $615
million for the acquisition of 100% of Elpida's equity. On July 31, 2013, we also acquired a 24% ownership interest in Rexchip
from the Powerchip Group pursuant to a share purchase agreement. We paid $334 million in cash for the shares. The Elpida
Group owns approximately 65% of Rexchip's outstanding common stock. Therefore, as a result of the consummation of our
acquisition of Elpida and the Rexchip shares from the Powerchip Group, we own approximately 89% of Rexchip's common
stock. The provisional fair values of assets and liabilities acquired include, among other items, cash and restricted cash
aggregating $1,618 million, inventories of $962 million; property, plant and equipment of $935 million; net deferred tax assets
of $917 million and debt of $2,134 million.
In addition to the acquisition risks described elsewhere, these acquisitions are expected to involve the following significant
risks:
• we may be unable to maintain customers, successfully execute our integration strategies, or achieve planned synergies;
• we may be unable to accurately forecast the anticipated financial results of the combined business;
• our consolidated financial condition may be adversely impacted by the increased leverage resulting from the
transactions;
• increased exposure to the DRAM market, which experienced significant declines in pricing during the first quarter of
2013 as well as 2012 and 2011;
• deterioration of Elpida's and Rexchip's operations and customer base following closing;
• increased exposure to operating costs denominated in yen and New Taiwan dollar;
• integration issues with Elpida's and Rexchip's primary manufacturing operations in Japan and Taiwan;
• integration issues of our product and process technology with Elpida and Rexchip;
• integration of business systems and processes; and
• an overlap in customers.
Our acquisitions of Elpida and Rexchip are inherently risky, may not be successful and may materially adversely affect our
business, results of operations or financial condition.
The operations of the Elpida Companies will be subject to continued oversight by the Japan Court during the pendency
of the corporate reorganization proceedings.
Because the plans of reorganization of the Elpida Companies provide for ongoing payments to creditors following the
closing of our acquisition of Elpida, the Japan Proceedings are continuing, and the Elpida Companies remain subject to the
oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee,
and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings.
The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under
the Elpida Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to
the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to
petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are
made, there can be no assurance that the Japan Court will grant any such petition.
During the pendency of the Japan Proceedings, the Elpida Companies are obligated to provide periodic financial reports to
the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions
relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or
guaranteeing material indebtedness, settling disputes or entering into certain material agreements. The consent of the legal
trustee may also be required for matters that would likely have a material impact on the operations or assets of the Elpida
Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be
expected to materially and adversely affect execution of the plans of reorganization of the Elpida Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the Elpida Companies as part of our global
operations or to cause the Elpida Companies to take certain actions that we deem advisable for their businesses could be
adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with
respect to the Elpida Companies.