“Other” in the above table includes a gain of $38 million in the first quarter of fiscal 2008 for receipts from the U.S. government in connection with anti-dumping tariffs against memory products imported into the United States.
(5) Income taxes for fiscal 2009 and 2008 primarily reflect taxes on the company’s non-U.S. operations and U.S. alternative minimum tax. The company has a valuation allowance for its net deferred tax asset associated with its U.S. operations. Tax attributable to U.S. operations in fiscal 2009 and 2008 were substantially offset by changes in the valuation allowance.
(6) In the first quarter of fiscal 2009, the company acquired from Qimonda AG approximately 35.5% of the outstanding common stock of Inotera Memories, Inc. (“Inotera”) in a series of transactions for $398 million. The company’s results of operations for the fourth and third quarters of fiscal 2009 and for all of fiscal 2009 include charges of $31 million, $43 million and $130 million, respectively, for its share of the equity in net losses of Inotera. The carrying value of the company’s investment in Inotera as of September 3, 2009 was $229 million.
In connection with the acquisition, the company entered into a loan agreement with Nan Ya Plastics Corporation (“NPC”), pursuant to which NPC made a loan to the company in the principal amount of $200 million, the proceeds of which were used to pay for a portion of the purchase price of the shares in Inotera. In addition, the company entered into a loan agreement with Inotera, pursuant to which Inotera made a loan to the company in the principal amount of $85 million. The loan from Inotera was repaid in the third quarter of fiscal 2009 in accordance with its terms. The loans were recorded at their fair values and reflect an aggregate discount of $31 million from their face amounts. The aggregate discount was reflected as a reduction in the basis of the company’s investment in Inotera.
(7) To supplement its consolidated financial statements presented on a GAAP basis, the company uses non-GAAP measures of gross margin, which are adjusted to exclude idle capacity costs from Inotera and IM Flash Singapore and the effects of inventory write-downs. Management does not consider these charges in evaluating the core operational activities of the company. In addition, management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in the company’s gross margin and operating results across different time periods. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The non-GAAP financial measures presented by the company may be different than the non-GAAP financial measures presented by other companies.
(8) In the third and second quarters of fiscal 2009, the company received $104 million and $97 million, respectively, in proceeds from term loans from the Singapore Economic Development Board (“EDB”). The proceeds of the loans were used to make additional contributions into the company’s TECH Semiconductor joint venture subsidiary. The loan agreement requires that TECH use the proceeds from the company’s equity contributions to purchase production assets and meet certain production milestones related to the implementation of advanced process manufacturing. The loan contains a covenant that limits the amount of indebtedness TECH can incur without approval from the EDB. The loan is collateralized by the company’s shares in TECH up to a maximum of 66% of TECH’s outstanding shares.
In the third quarter of fiscal 2009, the company issued $230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “Senior Notes”). The initial conversion rate for the Senior Notes is 196.7052 shares of common stock per $1,000 principal amount of Senior Notes. This is equivalent to an initial conversion price of approximately $5.08 per share of common stock. Holders of the Senior Notes may convert the Senior Notes at any time prior to maturity, unless previously redeemed or repurchased. The company may redeem all or part of the Senior Notes at any time after April 19, 2012 if the last reported sale price of common stock has been at least 135% of the conversion price for a specified period of time.
Concurrent with the offering of the Senior Notes, the company entered into capped call transactions (the “Capped Calls”) that have an initial strike price of approximately $5.08 per share, subject to certain adjustments, which matches the initial conversion price of the Senior Notes. The Capped Calls have a cap price of $6.64 per share and cover, subject to anti-dilution adjustments similar to those contained in the Senior Notes, an approximate combined total of 45.2 million shares of common stock. The Capped Calls are intended to reduce the potential dilution upon conversion of the Senior Notes. If, however, the market value per share of the common stock, as measured under the terms of the Capped Calls, exceeds the applicable cap price of the Capped Calls, there would be dilution to the extent that the then market value per share of the common stock exceeds the cap price. The company paid approximately $25 million from the net proceeds from the issuance and sale of the Senior Notes to purchase the Capped Calls. The Capped Calls expire in October and November 2012.
