Crucial 2013 Annual Report Download - page 87

86
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), net of tax, attributable to Micron shareholders at the
end of each year, as well as other comprehensive income for the year ended August 29, 2013, were as follows:
As of
August 30,
2012
Other
Comprehensive
Income (Loss)
As of
August 29,
2013
Cumulative foreign currency translation adjustments $ 49 $ (5) $ 44
Gain (loss) on derivatives, net 31 (10) 21
Gain (loss) on investments, net 1 (1) —
Pension liability adjustments (1)(1)(2)
Accumulated other comprehensive income $ 80 $ (17) $ 63
Derivative Financial Instruments
We are exposed to currency exchange rate risk for monetary assets and liabilities held or denominated in foreign
currencies, primarily the euro, shekel, Singapore dollar and yen. We are also exposed to currency exchange rate risk for capital
expenditures and operating cash flows, primarily denominated in the euro and yen. In connection with the Elpida Installment
Payments, we are exposed to significant currency exchange rate risk for the yen. Additionally, we are exposed to interest rate
fluctuation risk on our four-year note payable, under which we borrowed $312 million on August 27, 2013 at a variable interest
rate. We use derivative instruments to manage a portion of our exposures to changes in currency exchange rates and variable
interest rates. For exposures associated with our monetary assets and liabilities, our primary objective in entering into currency
derivatives is to reduce the volatility that changes in currency exchange rates have on our earnings. For exposures associated
with our capital expenditures and operating cash flows, our primary objective of entering into currency derivatives is to reduce
the volatility that changes in currency exchange rates have on future cash flows. For exposures associated with our yen-
denominated Elpida Installment Payments, our primary objective for entering into currency derivatives is to mitigate risks if
those currencies strengthen relative to the U.S. dollar, while preserving some ability for us to benefit if those currencies
weaken. For exposures associated with our variable-rate debt, our primary objective is to reduce the volatility that changes in
interest rates have on interest expense.
Our currency derivatives consist primarily of forward contracts and currency options and our interest rate derivative
consists of interest rate swap agreements. These derivatives expose us to credit risk to the extent the counterparties may be
unable to meet the terms of the derivative instrument. As of August 29, 2013, our maximum exposure to loss due to credit risk
if counterparties fail completely to perform according to the terms of the contracts, was generally equal to the fair value of our
assets for these contracts as listed in the tables below. We seek to mitigate such risk by limiting our counterparties to major
financial institutions and by spreading risk across multiple major financial institutions. In addition, we monitor the potential
risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis. We also seek to mitigate risk
through master netting arrangements (see "Master Netting Arrangements" below).
We have the following risk management programs:
Derivatives without Hedge Accounting Designation
We utilize a rolling hedge strategy with currency forward contracts that generally mature within 35 days to hedge our
exposure to changes in currency exchange rates from our monetary assets and liabilities. At the end of each reporting period,
monetary assets and liabilities held or denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and
the associated outstanding forward contracts are marked-to-market. Currency forward contracts are valued at fair values based
on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). Currency options are
valued at their fair value using a modified Black-Scholes option valuation model using inputs of the current spot rate, strike
price, risk-free interest rate, maturity, volatility and credit-risk spread (Level 2 fair value measurements). These options are
marked-to-market at the end of each reporting period. Realized and unrealized gains and losses on derivative instruments
without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in
currency exchange rates are included in other non-operating income (expense).