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Derivative Instruments | 3 Months Ended
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Nov. 28, 2013
Disclosure Text Block [Abstract] |
Derivative Financial Instruments | Derivative 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. 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 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 derivatives consist of interest rate swap agreements. These derivative instruments expose us to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. As of November 28, 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 entering into master netting arrangements with our counterparties (see "Master Netting Arrangements" below). We have the following risk management programs: Derivative Instruments 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). In connection with the currency exchange rate risk associated with our acquisition of Elpida and the Rexchip shares, we entered into currency exchange transactions (the "Elpida Hedges" and the "Rexchip Hedges" and, together, the "Elpida Acquisition Hedges"). The Elpida Acquisition Hedges were not designated for hedge accounting and were remeasured at fair value each period with gains and losses reflected in other non-operating income (expense). We recorded losses from the Elpida Acquisition Hedges of $62 million in the first quarter of 2013. To mitigate the risk that increases in exchange rates have on the payments due in 2014 and 2015, we entered into forward contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In connection with the Termination of Conversion Rights and Redemption Notice on November 7, 2013, our settlement obligations for the 2027 Notes and 2031A Notes were treated as derivative instruments without hedge accounting designation from November 7, 2013 through their settlement dates, which range between December 10, 2013 and January 9, 2014. The fair values of the underlying conversion options 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. Subsequent measurements through November 28, 2013 of our convertible notes settlement obligations were based on the value-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). We are party to interest rate swap contracts that mature in August 2017 to hedge against the variability of future interest payments due on $312 million of floating-rate debt, which effectively converts the floating-rate debt to fixed-rate debt. As of November 28, 2013, the principle balance on the floating-rate debt was $293 million. We designated 80% of the swaps as cash flow hedges and the remaining 20% were not designated for hedge accounting treatment. Changes in the fair value of the undesignated portion are included in interest income (expense). The fair values of the interest rate swaps are calculated by discounting the expected future cash flows based on inputs that are readily available in publicly quoted markets (Level 2 fair value measurements). Total gross notional amounts and fair values for derivative instruments without hedge accounting designation were as follows:
As of November 28, 2013 |  | Notional Amount(1) |  | Fair Value of
Current Assets(2) |  | Noncurrent Assets(3) |  | (Current Liabilities)(4) |  | (Noncurrent Liabilities)(5)
Currency forward contracts: |  |  |  |  |  |  |  |  |  |
Yen |  | $ | 496 |  |  | $ | — |  |  | $ | — |  |  | $ | (13 | ) |  | $ | (4 | )
Singapore dollar |  | 265 |  |  | — |  |  | — |  |  | (2 | ) |  | — |
Shekel |  | 81 |  |  | — |  |  | — |  |  | — |  |  | — |
Euro |  | 58 |  |  | — |  |  | — |  |  | (1 | ) |  | — |
Interest rate swap contracts |  | 59 |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 959 |  |  |  |  |  |  |  |  |
Convertible notes settlement obligations |  | 21 |  |  | — |  |  | — |  |  | (444 | ) |  | — |
|  |  |  | $ | — |  |  | $ | — |  |  | $ | (460 | ) |  | $ | (4 | )
As of August 29, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |
Forward contracts: |  |  |  |  |  |  |  |  |  |
Yen |  | $ | 336 |  |  | $ | 1 |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |
Singapore dollar |  | 218 |  |  | — |  |  | — |  |  | — |  |  | — |
Shekel |  | 78 |  |  | — |  |  | — |  |  | (1 | ) |  | — |
Euro |  | 217 |  |  | 1 |  |  | — |  |  | (1 | ) |  | — |
Interest rate swap contracts |  | 62 |  |  | — |  |  | — |  |  | — |  |  | — |
Currency options: |  |  |  |  |  |  |  |  |  |
New Taiwan dollar |  | 351 |  |  | — |  |  | — |  |  | — |  |  | — |
|  | $ | 1,262 |  |  | $ | 2 |  |  | $ | 3 |  |  | $ | (2 | ) |  | $ | — |
(1) | Notional amounts of forward, option and interest rate swap contracts in U.S. dollars and convertible notes settlement obligations in shares.
(2) | Included in receivables – other.
(3) | Included in other noncurrent assets.
(4) | Included in accounts payable and accrued expenses – other for forward, option and interest rate swap contracts and in current portion of long-term debt for convertible notes settlement obligations.
(5) | Included in other noncurrent liabilities.
For derivative instruments without hedge accounting designation, we recognized net losses in the first quarter of 2014 of $37 million for the convertible notes settlement obligations and $14 million for the foreign exchange contracts. We recognized net losses in the first quarter of 2013 of $51 million for foreign exchange contracts. Gains (losses) on foreign exchange contracts and convertible notes settlement obligations were included in other non-operating income (expense). Gains (losses) recognized from interest rate swap contracts in the first quarter of 2014 were not significant and were included in interest expense. Derivative Instruments with Cash Flow Hedge Accounting Designation We utilize currency forward contracts that generally mature within 12 months and currency options that generally mature from 12 to 18 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures and forecasted operating cash flows. Currency forward contracts are valued at their fair values based on market-based observable inputs including currency exchange spot and forward rates, interest rate and credit risk spread (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). We are party to interest rate swap contracts that mature in August 2017 to hedge against the variability in future interest payments due on $312 million of floating-rate debt and designated 80% of the swaps as cash flow hedges. As of November 28, 2013, the principle balance on the floating-rate debt was $293 million. The fair values of the interest rate swaps have been calculated by discounting the expected future cash flows based on inputs that are readily available in publicly quoted markets (Level 2 fair value measurements). 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). For derivative instruments hedging capital expenditures, the amounts in accumulated other comprehensive income (loss) for these cash flow hedges 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. Amounts in accumulated other comprehensive income (loss) for inventory purchases are reclassified to earnings when inventory is sold. Amounts in accumulated other comprehensive income (loss) for interest rate swaps are reclassified to earnings when the related interest payments 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:
As of November 28, 2013 |  | Notional Amount (in U.S. Dollars) |  | Fair Value of Current Liabilities (1)
Currency forward contracts: |  |  |  |
Euro |  | $ | 15 |  |  | $ | — |
Yen |  | 12 |  |  | — |
Currency options: |  |  |  |
Yen |  | 11 |  |  | (1 | )
Interest swap contracts: |  | 234 |  |  | (2 | )
|  | $ | 272 |  |  | $ | (3 | )
As of August 29, 2013 |  |  |  |  |  |
Currency forward contracts: |  |  |  |
Yen |  | $ | 6 |  |  | $ | (1 | )
Euro |  | 6 |  |  | — |
Currency options: |  |  |  |
Yen |  | 21 |  |  | (2 | )
Interest swap contracts: |  | 250 |  |  | — |
|  | $ | 283 |  |  | $ | (3 | )
(1) | Included in accounts payable and accrued expenses – other.
For the first quarters of 2014 and 2013, we recognized $2 million and $4 million, respectively, of net pre-tax losses in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income (expense) were not significant for the first quarters of 2014 and 2013. In the first quarter of 2013, $3 million of net gains for foreign exchange contracts were reclassified from accumulated other comprehensive income (loss) to cost of goods sold. As of November 28, 2013, the amount of pre-tax net cash flow hedge gains included in accumulated other accumulated comprehensive income (loss) expected to be reclassified into earnings in the next 12 months was $6 million. Master Netting Arrangements We 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 under these arrangements have been presented in our consolidated balance sheet on a net basis. The following table presents the gross amounts of our derivative assets and liabilities and the net amounts recorded in our consolidated balance sheet:
As of November 28, 2013 |  | Current Assets(1) |  | (Current Liabilities)(2) |  | (Noncurrent Liabilities)(3)
Gross amount |  | $ | 1 |  |  | $ | (463 | ) |  | $ | (4 | )
Gross amounts offset in the statement of financial position |  | (1 | ) |  | 1 |  |  | — |
Net amounts presented in the statement of financial position |  | $ | — |  |  | $ | (462 | ) |  | $ | (4 | )
(1) Included in receivables – other. (2) Included in current portion of long-term debt and accounts payable and accrued expenses – other. (3) Included in other noncurrent liabilities.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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