Micron Technology, Inc., Reports Results for the Third Quarter of Fiscal 2017

Inotera Acquisition

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. In the third quarter of fiscal 2017, the company incorporated additional information in its analysis about facts and circumstances that existed as of the acquisition date and adjusted the provisional values. The provisional fair values of assets and liabilities acquired, as adjusted in the third quarter of fiscal 2017, include, among other items, cash of $118 million; inventories of $285 million; property, plant, and equipment of $3.72 billion; goodwill of $1.12 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 fiscal 2017.

(1) On April 14, 2017, the company entered into an agreement to sell its assembly and test facility located in Akita, Japan ("Akita") and its 40% ownership interest in Tera Probe for aggregate consideration of $60 million, substantially all in cash, subject to changes in working capital. The company completed the sale of its interest in Tera Probe in the third quarter of fiscal 2017 and expects to close the sale of the Akita facility in the fourth quarter of fiscal 2017. As a result, the company recognized a loss of $11 million in the third quarter of fiscal 2017 and does not expect to incur additional material charges.

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 nine 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 80 billion New Taiwan dollars 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.

In November 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 March 6, 2017 and December 2, 2016, the company drew $175 million and $450 million, respectively, under the facility. 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) On April 11, 2017, the company repurchased $952 million in aggregate principal of its 2025 Notes and 2026 Notes, which had a carrying value of $943 million. In connection with the transactions, the company recognized a non-operating loss of $60 million in the third quarter of fiscal 2017.

(4) Income tax (provision) benefit consisted of the following:

   3rd Qtr.  2nd Qtr.  3rd Qtr.  Nine months ended
   June 1,
 2017
  March 2,
 2017
  June 2,
 2016
  June 1, 2017  June 2, 2016
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and Inotera $(31) $(8) $(71) $(52) $(103)
U.S. valuation allowance release resulting from business acquisition         41 
Other income tax (provision) benefit, primarily other non-U.S. operations (61) (30) 56  (109) 46 
  $(92) $(38) $(15) $(161) $(16)
                     

Other income tax (provision) benefit for the third quarter and first nine months of fiscal 2016 included tax benefits of $52 million and $58 million, respectively, related to the favorable resolution of certain prior year tax matters, which were previously reserved as uncertain tax positions. 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.

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