Micron Technology, Inc., Reports Results for The Fourth Quarter and Full Year of 2017

Inotera Acquisition

On December 6, 2016, we 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 a term loan and the sale of shares of our common stock to Nanya. Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taiwan, and previously sold such products exclusively to us through supply agreements.

The aggregate fair value of consideration consisted of $3.11 billion of cash, $995 million for the fair value of Micron shares exchanged for Inotera shares, and $1.44 billion for the fair value of our 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 $3.72 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, we revalued our 33% interest in Inotera to its fair value and recognized a non-operating gain of $71 million in the second quarter of 2017.

In connection with our acquisition of Inotera, in the second quarter of 2017, we sold 58 million shares of our 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 subject to certain restrictions on transfers.

(1) In the fourth quarter of 2017, we recognized gains related to announced restructure and exit activities, primarily from the disposition of assets. In the third quarter of 2017, we recognized a loss of $11 million in connection with the disposition of our assembly and test facility located in Akita, Japan. In the fourth quarter of 2016, we initiated a restructure plan in response to business conditions and the need to accelerate focus on our key priorities. As a result, we incurred charges of $33 million in 2017 and $58 million in the fourth quarter of 2016.

(2) In connection with the Inotera acquisition, on December 6, 2016, we drew 80 billion New Taiwan dollars under a collateralized, five-year variable-rate term loan. Principal under the term loan is payable in six equal semi-annual installments, commencing in June 2019.

In November 2016, we entered into a five-year variable-rate facility agreement to obtain up to $800 million of financing, collateralized by certain production equipment and drew $800 million under the facility in 2017. Principal is payable in 16 equal quarterly installments beginning in March 2018.

On August 11, 2017, we redeemed our 2022 Notes with an aggregate carrying value of $592 million and recognized a non-operating loss of $34 million in the fourth quarter of 2017. On April 11, 2017, we repurchased $952 million in aggregate principal of our 2025 Notes and 2026 Notes, with an aggregate carrying value of $943 million, and recognized a non-operating loss of $60 million in the third quarter of 2017.

(3) Our income taxes reflect operations in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and the tax rates are significantly lower than the U.S. statutory rate; operations outside the U.S., including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates; and a valuation allowance against substantially all of our U.S. net deferred tax assets. Income tax (provision) benefit consisted of the following (in millions):

         
   4th Qtr.  3rd Qtr.  4th Qtr.  Year Ended
   August 31,
 2017
  June 1,
 2017
  September 1,
 2016
  August 31,
2017
  September 1,
2016
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and Inotera $106  $(31) $(12) $54  $(114)
U.S. valuation allowance release resulting from business acquisition         41 
Other income tax (provision) benefit, primarily other non-U.S. operations (59) (61) 9  (168) 54 
  $47  $(92) $(3) $(114) $(19)
 

Income taxes for the full year of 2017 and 2016 included tax benefits of $28 million and $58 million, respectively, related to the favorable resolution of certain tax matters, which were previously reserved as uncertain tax positions.

 
MICRON TECHNOLOGY, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(in millions, except per share amounts)
 
  4 th Qtr.   3 rd Qtr.   4 th Qtr.
  August 31, 2017   June 1, 2017   September 1, 2016
  GAAP Adj Non-GAAP   GAAP Adj Non-GAAP
  GAAP Adj Non-GAAP
Net sales $ 6,138   $   $ 6,138     $ 5,566   $   $ 5,566     $ 3,217   $   $ 3,217  
Cost of goods sold 3,026   (35 ) 2,991     2,957   (62 ) 2,895     2,638   (19 ) 2,619  
Gross margin 3,112   35   3,147     2,609   62   2,671     579   19   598  
percent of revenue 50.7 %     51.3 %     46.9 %     48.0 %     18.0 %     18.6 %  
                                   
Selling, general, and administrative 193   (22 ) 171     204   (20 ) 184     157   (15 ) 142  
Research and development 447   (14 ) 433     434   (14 ) 420     411   (13 ) 398  
Restructure and asset impairments (27 ) 27       12   (12 )     51   (51 )  
Other operating (income) expense, net (3 )   (3 )   (4 )   (4 )   (8 )   (8 )
Operating expenses 610   (9 ) 601     646   (46 ) 600     611   (79 ) 532  
Operating income (loss) 2,502   44   2,546     1,963   108   2,071     (32 ) 98   66  
percent of revenue 40.8 %     41.5 %     35.3 %     37.2 %     (1.0 )%     2.1 %  
                                   
Interest income (expense), net (132 ) 32   (100 )   (143 ) 30   (113 )   (126 ) 32   (94 )
Other non-operating income (expense), net (49 ) 49       (83 ) 83       (10 ) 11   1  
  2,321   125   2,446     1,737   221   1,958     (168 ) 141   (27 )
                       
Income tax (provision) benefit 47   (107 ) (60 )   (92 ) 28   (64 )   (3 ) 23   20  
Equity in net income (loss) of equity method investees 1     1     2     2     1   (3 ) (2 )
Net income (loss) 2,369   18   2,387     1,647   249   1,896     (170 ) 161   (9 )
                       
Net income (loss) attributable to noncontrolling interests (1 )   (1 )                
Net income (loss) attributable to Micron $ 2,368   $ 18   $ 2,386     $ 1,647   $ 249   $ 1,896     $ (170 ) $ 161   $ (9 )
                       
Shares used in calculations 1,187   (6 ) 1,181     1,177   (8 ) 1,169     1,037     1,037  
Diluted earnings (loss) per share $ 1.99   $ 0.03   $ 2.02     $ 1.40   $ 0.22   $ 1.62     $ (0.16 ) $ 0.15   $ (0.01 )

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