On December 6, 2016, the company acquired the remaining 67% interest in Inotera Memories, Inc. ("Inotera") and began consolidating Inotera's operating results. Cash paid for the Inotera acquisition was funded, in part, with proceeds from the 2021 MSTW Term Loan (defined below) and the sale of shares of the company's common stock to Nanya (the "Micron Shares"). Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and sold such products exclusively to the company through supply agreements.
The aggregate fair value of consideration consisted of $3.11 billion of cash, $995 million for the fair value of the Micron Shares exchanged for Inotera shares, and $1.44 billion for the fair value of the company's previously-held equity interest in Inotera, net of $361 million for payments attributed to intercompany balances with Inotera. The provisional fair values of assets and liabilities acquired include, among other items, cash of $118 million; inventories of $285 million; property, plant, and equipment of $3.78 billion; goodwill of $1.09 billion; and accounts payable and accrued expenses of ($232) million, and could change as additional information becomes available. In connection with the acquisition, the company revalued its 33% interest in Inotera from its carrying value to its fair value and recognized a non-operating gain of $71 million in the second quarter of 2017.
(1) In the fourth quarter of fiscal 2016, the company initiated a restructure plan in response to business conditions and the need to accelerate focus on its key priorities. As a result, the company incurred charges of $33 million in the first six months of fiscal 2017 and $58 million in the fourth quarter of fiscal 2016 and does not expect to incur additional material charges.
(2) In connection with the Inotera acquisition, on December 6, 2016, the company drew $2.5 billion under a collateralized, five-year term loan that bears interest at a variable rate equal to the three-month or six-month TAIBOR, at the company's option, plus a margin of 2.05% per annum, payable monthly in arrears (the "2021 MSTW Term Loan"). Principal under the 2021 MSTW Term Loan is payable in six equal semi-annual installments, commencing in June 2019. The 2021 MSTW Term Loan is denominated in New Taiwan dollars.
On November 18, 2016, the company entered into a five-year variable-rate facility agreement to obtain up to $800 million of financing, collateralized by certain production equipment. On December 2, 2016, the company drew $450 million under the facility and may utilize the remaining facility in multiple draws until June 10, 2017. Interest is payable quarterly at a rate equal to the three-month LIBOR plus 2.4% per annum. Principal is payable in 16 equal quarterly installments beginning in March 2018.
(3) Income tax (provision) benefit consisted of the following:
2nd Qtr. | 1st Qtr. | 2nd Qtr. | Six Months Ended | |||||||||||||||||
March 2,
2017 |
December 1,
2016 |
March 3,
2016 |
March 2,
2017 |
March 3,
2016 | ||||||||||||||||
Utilization of and other changes in net
deferred tax assets of MMJ, MMT, and Inotera | $ | (8 | ) | $ | (13 | ) | $ | (10 | ) | $ | (21 | ) | $ | (32 | ) | |||||
U.S. valuation allowance release
resulting from business acquisition | — | — | — | — | 41 | |||||||||||||||
Other income tax (provision) benefit,
primarily other non-U.S. operations | (30 | ) | (18 | ) | 5 | (48 | ) | (10 | ) | |||||||||||
$ | (38 | ) | $ | (31 | ) | $ | (5 | ) | $ | (69 | ) | $ | (1 | ) |
The company has a full valuation allowance for its net deferred tax asset associated with its U.S. operations. The (provision) benefit for taxes on U.S. operations for fiscal 2017 and 2016 was substantially offset by changes in the valuation allowance.
(4) In connection with the company's acquisition of Inotera, in the second quarter of 2017, the company sold 58 million shares of its common stock to Nanya for $986 million, of which 54 million were issued from treasury stock. As a result, treasury stock decreased by $1.03 billion, which resulted in a decrease in retained earnings of $104 million for the difference between the carrying value of the treasury stock and its $925 million fair value. These shares were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, and are subject to certain restrictions on transfers.
MICRON TECHNOLOGY, INC. | ||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP RESULTS | ||||||||||||
(in millions except per share amounts)
| ||||||||||||
2nd Qtr. | 1st Qtr. | 2nd Qtr. | ||||||||||
March 2,
2017 |
December 1,
2016 |
March 3,
2016 | ||||||||||
GAAP net income (loss) attributable to Micron | $ | 894 | $ | 180 | $ | (97 | ) | |||||
Non-GAAP adjustments: | ||||||||||||
Flow-through of Inotera inventory step up | 60 | — | — | |||||||||
Stock-based compensation | 55 | 46 | 55 | |||||||||
Inotera acquisition costs | 12 | 1 | — | |||||||||
Restructure and asset impairments | 4 | 45 | 1 | |||||||||
Amortization of debt discount and other costs | 31 | 32 | 31 | |||||||||
(Gain) loss from changes in currency exchange rates | 28 | 12 | 5 | |||||||||
(Gain) loss from business acquisition activities | (71 | ) | — | — | ||||||||
Other | 11 | 5 | 4 | |||||||||
Estimated tax effects of above and non-cash changes in deferred taxes | 7 | 14 | 13 | |||||||||
Total non-GAAP adjustments | 137 | 155 | 109 | |||||||||
Non-GAAP net income attributable to Micron | $ | 1,031 | $ | 335 | $ | 12 | ||||||
Number of shares used in diluted per share calculations: | ||||||||||||
GAAP | 1,160 | 1,091 | 1,036 | |||||||||
Effect of capped calls and other adjustments | (14 | ) | (29 | ) | 12 | |||||||
Non-GAAP | 1,146 | 1,062 | 1,048 | |||||||||
Diluted earnings (loss) per share: | ||||||||||||
GAAP | $ | 0.77 | $ | 0.16 | $ | (0.09 | ) | |||||
Effects of above | 0.13 | 0.16 | 0.10 | |||||||||
Non-GAAP | $ | 0.90 | $ | 0.32 | $ | 0.01 |