Crucial 2014 Annual Report Download - page 45

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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.