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Acquisition of Inotera | 3 Months Ended
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Dec. 01, 2016
Inotera |
Acquisition of Inotera | Acquisition of Inotera On December 6, 2016, subsequent to the end of our first quarter of 2017, we acquired the 67% interest in Inotera not owned by us for an aggregate of $4.1 billion in cash (the "Inotera Acquisition"), funded with proceeds from the 2021 Term Loan (defined below), the sale of shares of our common stock to Nanya, and cash on hand. Prior to December 6, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest was publicly held. Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and sold such products exclusively to us through supply agreements. As a result of the Inotera Acquisition, we expect to experience greater operational flexibility to drive new technology in products manufactured by Inotera, optimize the deployment of the cash flows of Inotera across our operations, and enhance our ability to adapt our product offerings to changes in market conditions. We are evaluating the fair values of the accounting consideration transferred, assets acquired, and liabilities assumed. Our accounting for the Inotera Acquisition will include the fair value of our previously-held noncontrolling equity interest in Inotera as of the acquisition date as consideration, which differs from the per share amount paid to acquire the controlling interest in Inotera. We will recognize a gain or loss to the extent of the difference between the fair value and the carrying value as of the acquisition date. We expect to complete the provisional purchase price allocation for the Inotera Acquisition in our second quarter of 2017. Acquisition Financing 2021 Term Loan: On December 6, 2016, we drew 80 billion New Taiwan dollars (equivalent to $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 our option, plus a margin of 2.05% per annum (the "2021 Term Loan"). Principal under the 2021 Term Loan is payable in six equal semi-annual installments, commencing in June 2019, through December 2021. The 2021 Term Loan is collateralized by certain assets including a real estate mortgage on Inotera's main production facility and site, a chattel mortgage over certain equipment of Inotera, all of the stock of our MSTW subsidiary, and the 82% of stock of Inotera owned by MSTW. The 2021 Term Loan contains affirmative and negative covenants, including covenants that limit or restrict our ability to create liens in or dispose of collateral securing obligations under the 2021 Term Loan, mergers involving MSTW and/or Inotera, loans or guarantees to third parties by Inotera and/or MSTW, and MSTW's distribution of cash dividends (subject to satisfaction of certain financial conditions). The 2021 Term Loan also contains financial covenants as follows, which are tested semi-annually:
• | MSTW must maintain a consolidated ratio of total debt to adjusted EBITDA not higher than 5.5 x in 2017 and 2018, and not higher than 4.5 x in 2019 through 2021;
• | MSTW must maintain adjusted consolidated tangible net worth of not less than 4.0 billion New Taiwan dollars (equivalent to $125 million) in 2017 and 2018, not less than 6.5 billion New Taiwan dollars (equivalent to $203 million) in 2019 and 2020, and not less than 12.0 billion New Taiwan dollars (equivalent to $374 million) in 2021;
• | on a consolidated basis, we must maintain a ratio of total debt to adjusted EBITDA not higher than 3.5 x in 2017, not higher than 3.0 x in 2018 and 2019, and not higher than 2.5 x in 2020 and 2021; and
• | on a consolidated basis, we must maintain adjusted tangible net worth not less than $9.0 billion in 2017, not less than $12.5 billion in 2018 and 2019, and not less than $16.5 billion in 2020 and 2021.
If one or more of the required financial ratios is not maintained at the time the ratios are tested, the interest rate will be increased by 0.25% until such time as the required financial ratios are maintained. In addition, if MSTW fails to maintain a required financial ratio for two consecutive semi-annual periods, such failure will constitute an event of default that could result in all obligations owed under the 2021 Term Loan being accelerated to be immediately due and payable. Our failure to maintain a required consolidated financial ratio will only result in an increase to the interest rate and will not constitute an event of default. The 2021 Term Loan also contains customary events of default and is guaranteed by Micron. Micron Shares: In connection with the Inotera Acquisition, subsequent to the end of our first quarter of 2017, we sold 58 million shares of our common stock to Nanya for $981 million (the "Micron Shares"), of which 54 million were issued from treasury stock. The sale of the Micron Shares was exempt from the registration requirements of the Securities Act of 1933, as amended, and the Micron Shares are subject to certain restrictions on transfers. Our accounting for the Inotera Acquisition will include the fair value of the Micron Shares as of the acquisition date as consideration. Technology Transfer and License Agreements with Nanya Beginning effective December 6, 2016, under the terms of technology transfer and license agreements, Nanya has options to require us to transfer to Nanya for Nanya's use certain technology and deliverables related to the next DRAM process node generation after our 20nm process node (the "1X Process Node") and the next DRAM process node generation after the 1X Process Node. Under the terms of the agreements, Nanya would pay royalties to us for a license to the transferred technologies based on revenues from products utilizing the technologies, subject to specified caps, and we would also receive an equity interest in Nanya upon the achievement of certain milestones.

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- Definition The entire disclosure for pro forma information for significant acquisitions or disposals that occurred or are probable to occur after the balance sheet date. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 855 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6842918&loc=SL6314020-165662 + Details
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