(1) The results for the first quarter of fiscal 2009 and the fourth and first quarters of fiscal 2008 include charges of $369 million, $205 million and $62 million, respectively, to write down the carrying value of work in process and finished goods inventories of memory products to their estimated market values. In addition, cost of goods sold in the fourth quarter of fiscal 2008 includes the effect of price adjustments for NAND products purchased from other suppliers in prior periods.
(2) In the first quarter of fiscal 2009, in response to a challenging global environment for technology products, the company announced a restructuring of its memory operations. As part of the restructure, IM Flash Technologies (“IMFT”), a joint venture between the company and Intel Corporation (“Intel”), terminated its agreement with the company to supply NAND flash memory from the company’s Boise facility, reducing IMFT’s NAND Flash production by approximately 35,000 200mm wafers per month. In addition, as part of the restructuring, the company plans to reduce its global workforce by approximately 15 percent through 2010. Through the end of the first quarter of fiscal 2009, approximately one half of these global workforce reductions occurred, the majority of which were effected through a voluntary program.
As a result of the these actions, the company recorded a net $66 million credit to restructure in the first quarter of fiscal 2009, attributable to the company’s memory segment, including an aggregate credit of $88 million related to the termination of the NAND Flash supply agreement net of related equipment losses and costs of $22 million for severance and other employee-related items.
(3) Other operating (income) expense for the first quarter of fiscal 2009 includes losses of $14 million on disposals of semiconductor equipment. Other operating (income) expense for the first quarter of fiscal 2008 includes $38 million in receipts from the U.S. government in connection with anti-dumping tariffs, losses of $27 million from changes in currency exchange rates and gains of $10 million on disposals of semiconductor equipment.
(4) 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.
(5) To supplement its consolidated financial statements presented on a GAAP basis, the company uses non-GAAP measures of gross margin, net income and earnings per share, which are adjusted to exclude inventory write-downs, restructure charges and price adjustments for NAND products purchased from other suppliers in prior periods. 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 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.
(6) In the first quarter of fiscal 2009, the company acquired from Qimonda AG (“Qimonda”) and its affiliates approximately 35.6% of the outstanding common stock of Inotera Memories, Inc. (“Inotera”) in a series of transactions for approximately $400 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 proceeds of which are to be used for general corporate purposes. The loans were recorded at their fair values and reflect an aggregate discount of $31 million from their face amounts. The discount was reflected as a reduction in the basis of the company’s investment in Inotera.
As a result of the above transactions, the carrying value of the company’s investment in Inotera is $378 million, which includes $10 million of costs and other fees incurred in connection with the transactions.
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