Micron Wipes Out Debt and Stops Share Dilution -Model Financial Math?

By Jon C. Ogg Published Jan 27, 2:27PM EST

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Micron Technology, Inc. (NASDAQ: MU) has already had a handy turnaround, moving from being a DRAM-dependent commodity business into DRAM and flash. It has also participated in the consolidation phase of the sector. Now the company has a creative was of doing the same sort of move as a stock buyback and eliminating debt in what will sound a bit complicated if you are not a financial statement reader.

Micron has entered into privately negotiated transactions to repurchase convertible debt. Again, the effort lowers its debt and creates a scenario that prevent future dilution in shares. The company outlined its purchases specifically – repurchased $26 million of its 1.875% Convertible Senior Notes due 2031 for $65 million in cash, repurchased $100 million of its 2.375% Convertible Senior Notes due 2032 for $249 million, and repurchased $38 million of its 3.125% Convertible Senior Notes due 2032 for $93 million in cash.

After these purchases close, Micron will have the following convertible notes outstanding: $114 million of 2031B Notes, approximately $451 million of 2032C Notes, and $412 million 2032D Notes.

Micron also said that the company will record a charge in the second quarter of fiscal 2014 of approximately $10 million associated with the repurchases of these notes.

The long and short of the matter is that Micron reduced the dilutive effect of this portion of the convertible notes – approximately 10 million shares from its current dilutive share count based upon a $23 stock price. Micron also reduced the total amount of its debt by approximately $164 million. The company now claims that it has reduced the dilutive effects of convertible notes by approximately 52 million shares since last November, based on a $23 stock price.

If you look at the cumulative figure, this comes to almost $1.2 billion worth of stock that did not (or will not) dilute existing holders upon conversion and based upon current share prices. Micron’s market cap is $24.5 billion.

As of the end of November 2013, Micron had $3.65 billion in cash and cash equivalents, another $216 million in short-term securities, and another $1.03 billion in long-term securities. So another $407 million was spent here of close to $4.9 billion in liquidity. Micron’s long-term debt was $4.26 billion at the same time.

Maybe this is one of those instances where every little bit helps out. Micron shares were up 1% at $23.15 on a mixed day in Monday afternoon trading. Trading volume was also more than 21 million shares.

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.