<PAGE>
FORM 10-Q
----------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 26, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
----------------
Commission File Number: 1-10658
Micron Technology, Inc.
State or other jurisdiction of incorporation or organization: Delaware
----------------
Internal Revenue Service -- Employer Identification No. 75-1618004
8000 S. Federal Way, Boise, Idaho 83716-9632
(208) 368-4000
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of the registrant's Common Stock as of
March 20, 1998 was 212,736,975.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
MICRON TECHNOLOGY, INC.
Consolidated Balance Sheets
(Dollars in millions, except for par value data)
<TABLE>
<CAPTION>
February 26, August 28,
As of 1998 1997
- --------------------------------------------------------------- ------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents $ 561.1 $ 619.5
Liquid investments 373.8 368.2
Receivables 353.7 458.9
Inventories 448.0 454.2
Prepaid expenses 10.9 9.4
Deferred income taxes 81.5 62.2
-------- --------
Total current assets 1,829.0 1,972.4
Product and process technology, net 92.0 51.1
Property, plant and equipment, net 2,848.3 2,761.2
Other assets 69.8 66.6
-------- --------
Total assets $4,839.1 $4,851.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 578.9 $ 546.1
Short-term debt 10.6 10.6
Deferred income 4.9 14.5
Equipment purchase contracts 45.5 62.7
Current portion of long-term debt 98.0 116.0
-------- --------
Total current liabilities 737.9 749.9
Long-term debt 740.7 762.3
Deferred income taxes 284.1 239.8
Non-current product and process technology 10.0 44.1
Other liabilities 48.7 35.6
-------- --------
Total liabilities 1,821.4 1,831.7
-------- --------
Minority interests 142.9 136.5
Commitments and contingencies
Common stock, $0.10 par value, authorized 1.0 billion shares,
issued and outstanding 212.6 million and 211.3 million
shares, respectively 21.3 21.1
Additional capital 513.4 483.8
Retained earnings 2,340.1 2,378.2
-------- --------
Total shareholders' equity 2,874.8 2,883.1
-------- --------
Total liabilities and shareholders' equity $4,839.1 $4,851.3
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Amounts in millions, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
For the quarter ended 1998 1997
- --------------------- ----- ----
<S> <C> <C>
Net sales $ 755.4 $ 876.2
------- -------
Costs and expenses:
Cost of goods sold 733.1 657.5
Selling, general and administrative 135.7 97.4
Research and development 69.9 46.8
Other operating expense (income) 24.2 (2.2)
------- -------
Total costs and expenses 962.9 799.5
------- -------
Operating (loss) income (207.5) 76.7
Gain on sale of investments and subsidiary stock, net 157.1 176.8
Gain on issuance of subsidiary stock, net 0.5 28.6
Interest income (expense), net 1.9 (1.8)
------- -------
Income (loss) before income taxes and minority interests (48.0) 280.3
Income tax benefit (provision) 8.9 (131.2)
Minority interests in net income (9.0) (6.4)
------- -------
Net (loss) income $ (48.1) $ 142.7
======= =======
Earnings (loss) per share:
Basic $ (0.23) $ 0.68
Diluted (0.23) 0.67
Number of shares used in per share calculations:
Basic 211.8 209.7
Diluted 211.8 213.4
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Amounts in millions, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
For the six months ended 1998 1997
- ----------------------------------------------------- ------------- -------------
<S> <C> <C>
Net sales $1,710.0 $1,604.3
-------- --------
Costs and expenses:
Cost of goods sold 1,477.2 1,230.3
Selling, general and administrative 260.2 173.9
Research and development 133.8 94.0
Other operating expense (income) 28.8 (2.0)
-------- --------
Total costs and expenses 1,900.0 1,496.2
-------- --------
Operating (loss) income (190.0) 108.1
Gain on sale of investments and subsidiary stock, net 157.1 187.7
Gain on issuance of subsidiary stock, net 0.6 27.7
Interest income (expense), net 0.7 (3.9)
-------- --------
Income (loss) before income taxes (31.6) 319.6
Income tax benefit (provision) 2.3 (146.8)
Minority interests in net income (9.2) (9.5)
-------- --------
Net (loss) income $ (38.5) $ 163.3
======== ========
Earnings (loss) per share:
Basic $ (0.18) $ 0.78
Diluted (0.18) 0.77
Number of shares used in per share calculations:
Basic 211.6 209.4
Diluted 211.6 212.9
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
For the six months ended 1998 1997
- ------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (38.5) $ 163.3
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 283.5 227.9
Gain on sale and issuance of subsidiary stock and investments (157.7) (215.4)
Change in assets and liabilities, net of effects of sale of MCMS:
Decrease in receivables 62.1 43.8
Increase in inventories (16.9) (80.3)
Increase in accounts payable and accrued expenses, net of
plant and equipment purchases 31.0 121.7
Increase in deferred income taxes 10.3 59.4
Increase (decrease) in long-term product and process
rights liability (34.1) 0.3
Other (13.8) 27.5
------- -------
Net cash provided by operating activities 125.9 348.2
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (381.3) (228.3)
Proceeds from sale of subsidiary stock, net of MCMS cash 235.9 199.9
Purchase of available-for-sale and held-to-maturity securities (482.4) (2.2)
Proceeds from sales and maturities of securities 490.5 32.7
Other 6.8 1.1
------- -------
Net cash provided by (used for) investing activities (130.5) 3.2
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on lines of credit (90.0)
Proceeds from issuance of debt 31.4 70.7
Repayments of debt (72.5) (57.6)
Payments on equipment purchase contracts (20.1) (32.3)
Proceeds from issuance of stock by subsidiary 1.4 49.0
Other 6.0 15.6
------- -------
Net cash used for financing activities (53.8) (44.6)
------- -------
Net increase (decrease) in cash and equivalents (58.4) 306.8
Cash and equivalents at beginning of period 619.5 276.1
------- -------
Cash and equivalents at end of period $ 561.1 $ 582.9
======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid $ (12.3) $ (15.4)
Income taxes refunded (paid) (3.4) 25.1
Noncash investing and financing activities:
Equipment acquisitions on contracts payable and capital leases 48.7 20.5
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Notes to Consolidated Financial Statements
(All tabular dollar amounts are stated in millions)
1. Unaudited interim financial statements
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the consolidated financial
position of Micron Technology, Inc., and subsidiaries (the "Company" or "MTI"),
and their consolidated results of operations and cash flows. Certain
reclassifications have been made, none of which affect the results of
operations, to present the financial statements on a consistent basis.
This report on Form 10-Q for the quarter ended February 26, 1998, should be
read in conjunction with the Company's Annual Report to Shareholders and/or Form
10-K for the year ended August 28, 1997.
2. Recently issued financial statements
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The adoption of SFAS No. 130 is effective for the Company in 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operation decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements is also to be provided. SFAS No. 131 is
effective for the Company in 1999.
<TABLE>
<CAPTION>
3. Supplemental balance sheet information February 26, August 28,
1998 1997
- ------------------------------------------------------ ------------ ----------
<S> <C> <C>
Receivables
- ------------------------------------------------------ ------------ ----------
Trade receivables $283.4 $447.2
Income taxes receivable 61.1 17.9
Allowance for returns and discounts (12.3) (29.3)
Allowance for doubtful accounts (7.5) (9.0)
Other receivables 29.0 32.1
------ ----------
$353.7 $458.9
====== ==========
Inventories
- ------------------------------------------------------ ------------ ----------
Finished goods $149.1 $128.6
Work in progress 219.5 195.7
Raw materials and supplies 79.4 129.9
------ ----------
$448.0 $454.2
====== ==========
Product and process technology
- ------------------------------------------------------ ------------ ----------
Product and process technology, at cost $158.8 $108.1
Less accumulated amortization (66.8) (57.0)
------ ----------
$ 92.0 $51.1
====== ==========
</TABLE>
5
<PAGE>
Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
3. Supplemental balance sheet information (continued) February 26, August 28,
1998 1997
<S> <C> <C>
Property, plant and equipment
- -------------------------------------------------- ------------ ------------
Land $ 35.2 $ 35.4
Buildings 861.7 817.9
Equipment 2,635.0 2,416.2
Construction in progress 681.8 681.9
-------- ----------
4,213.7 3,951.4
Less accumulated depreciation and amortization (1,365.4) (1,190.2)
-------- ----------
$2,848.3 $ 2,761.2
======== =========
</TABLE>
As of February 26, 1998 property, plant and equipment included unamortized
costs of $654.7 million for the Company's semiconductor memory manufacturing
facility in Lehi, Utah, of which $618.2 million has not been placed in service
and is not being depreciated. Test capacity is expected to be provided by the
Lehi facility in the summer of 1998. Completion of the remainder of the Lehi
production facilities is dependent upon market conditions. Market conditions
which the Company expects to evaluate include, but are not limited to, worldwide
market supply and demand of semiconductor products and the Company's operations,
cash flows and alternative uses of capital.
<TABLE>
<CAPTION>
Accounts payable and accrued expenses
- -----------------------------------------------------------------
<S> <C> <C>
Accounts payable $259.7 $ 277.0
Salaries, wages and benefits 81.9 93.7
Product and process technology payable 96.4 99.9
Taxes payable other than income 41.7 37.3
Interest payable 6.1 6.9
Other 93.1 31.3
------ -------
$578.9 $ 546.1
====== =======
Debt
- ----------------------------------------------------------------- ------ -------
Convertible Subordinated Notes payable, due July 2004,
interest rate of 7% $500.0 $ 500.0
Notes payable in periodic installments through July 2015,
weighted average interest rate of 7.43% and 7.33%,
respectively 297.5 331.3
Capitalized lease obligations payable in monthly installments
through August 2002, weighted average interest rate of
7.67% and 7.68%, respectively 36.1 40.7
Other 5.1 6.3
------ -------
838.7 878.3
Less current portion (98.0) (116.0)
------ -------
$740.7 $ 762.3
====== =======
</TABLE>
During the fourth quarter of 1997 the Company issued $500 million in 7%
convertible subordinated notes due July 1, 2004 which are convertible into
shares of the Company's common stock at $67.44 per share. The notes were
offered under a $1 billion shelf registration statement pursuant to which the
Company may issue from time to time up to $500 million of additional debt or
equity securities.
6
<PAGE>
Notes to Consolidated Financial Statements, continued
- -----------------------------------------------------
3. Supplemental balance sheet information (continued)
MTI has a $500 million unsecured revolving credit agreement expiring in May
2000. The agreement contains certain restrictive covenants pertaining to the
Company's semiconductor operations, including a minimum fixed charge coverage
ratio and a maximum operating loss covenant. As of February 26, 1998, MTI was in
compliance with all covenants under the facility and had no borrowings
outstanding under the agreement. There can be no assurance that MTI will
continue to be able to meet the terms of the covenants and conditions and be
able to borrow under the credit agreement.
Micron Electronics, Inc. ("MEI"), a subsidiary of the Company, has an
aggregate of $141.7 million in revolving credit agreements which contain certain
covenants pertaining to MEI's operations, including a minimum EBITDA covenant,
certain minimum financial ratios and limitations on the amount of dividends
declared or paid by MEI. For the quarter ended February 26, 1998, MEI was in
violation of its ratio of debt to EBITDA covenant, which excludes the effect of
the gain from the sale of MCMS. MEI obtained a waiver for the violation of the
covenant, and as a result was eligible to borrow approximately $42 million under
the credit lines, and had aggregate borrowings of approximately $8.6 million
outstanding under the agreements as of February 26, 1998.
The Company leases certain facilities and equipment under operating leases.
Total rental expense on all operating leases was $4.1 million and $1.5 million
for the second quarters of 1998 and 1997, respectively. Total rental expense in
the first six months of 1998 and 1997 was $7.0 and $2.9, respectively. Minimum
future rental commitments under operating leases aggregate $35.5 million as of
February 26, 1998 and are payable as follows (in millions): 1998, $5.8; 1999,
$7.5; 2000, $7.2; 2001, $6.0 and 2002 and thereafter, $9.0.
4. Gains on investments and subsidiary stock transactions
On February 26, 1998, MEI completed the sale of 90% of its interest in MCMS,
Inc. ("MCMS"), formerly Micron Custom Manufacturing Services, Inc. and formerly
a wholly-owned subsidiary of MEI, resulting in a consolidated pre-tax gain of
$157 million (approximately $38 million or $0.18 per share after taxes and
minority interests). In exchange for the 90% interest in MCMS, MEI received
$249.2 million in cash. The sale was structured as a recapitalization of MCMS,
whereby Cornerstone Equity Investors IV, L.P. ("Cornerstone"), other investors
and certain members of MCMS management, including Robert F. Subia, then a
director of MEI, acquired the 90% interest in MCMS.
In a public offering in February 1997, MTI sold 12.4 million shares of MEI
common stock for net proceeds of $200 million and MEI sold 3 million newly
issued shares for net proceeds of $48 million, resulting in consolidated pre-tax
gains of $164 million and $25 million, respectively, from these transactions
(for a total of approximately $94 million or $0.44 per share after taxes). The
sales reduced the Company's ownership of the outstanding MEI common stock from
approximately 79% to approximately 64%. The Company also recorded pre-tax gains
totaling $22 million for 1997 relating to sales of investments. The Company has
recognized a deferred tax liability on the resultant gain from the sale of MEI
common stock in the second quarter of 1997.
5. Other operating income (expense)
Other operating expense for the second quarter of 1998 includes charges of $13
million associated with PC operations resulting from employee termination
benefits and consolidation of domestic and international operations and a $3
million write-off of software development costs. In addition, other operating
expense includes $4 million related to the disposal and write-down of
semiconductor memory operations equipment.
7
<PAGE>
Notes to Consolidated Financial Statements, continued
6. Income taxes
The effective rate of the tax benefit in the second quarter and first six
months of 1998 was 19% and 7%, respectively. The effective rate for the
provision of income taxes was 47% and 46%, respectively, for the corresponding
periods of 1997. The effective tax rate primarily reflects (1) the statutory
corporate income tax rate and the net effect of state taxation, (2) the effect
of taxes on the parent of the earnings or loss by domestic subsidiaries not
consolidated with the Company for federal income tax purposes and (3) in the
second quarter of 1998, the impact of the write-off of a $4.1 million deferred
tax asset relating to the Company's consolidation of its NetFRAME enterprise
server operations. Because MTI must provide for tax on the earnings of domestic
subsidiaries not consolidated for tax purposes, the effective rate may vary
significantly from period to period.
7. Purchase of minority interests
In the second quarter of 1998 the Company purchased the 11% minority interest
in its subsidiary, Micron Quantum Devices, Inc., for $26.2 million in stock and
stock options. The cost of the acquired interest was allocated primarily to
intangible assets related to flash semiconductor technology, which is being
amortized over a three-year period.
In the first quarter of 1998 the Company purchased the 12% minority interest
in its subsidiary, Micron Display Technology, Inc., for $21 million in cash.
The cost of the acquired interest was allocated primarily to intangible assets
related to field emission flat panel display technology, which is being
amortized over a three-year period.
8. Earnings per share
Basic earnings per share is calculated using the average number of common
shares outstanding. Diluted earnings per share is computed on the basis of the
average number of common shares outstanding plus the effect of outstanding stock
options using the "treasury stock method" and convertible debentures using the
"if-converted" method.
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------------------- ----------------------------------
February 26, February 27, February 26, February 27,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) available for common shareholders,
Basic and Diluted $(48.1) $142.7 $ (38.5) $163.3
======= ====== ======= ======
Weighted average common stock outstanding Basic 211.8 209.7 211.6 209.4
Net effect of dilutive stock options -- 3.7 -- 3.5
------- ------ ------- ------
Weighted average common stock and common
stock equivalents Diluted 211.8 213.4 211.6 212.9
======= ====== ======= ======
Basic earnings per share $ (0.23) $ 0.68 $ (0.18) $ 0.78
======= ====== ======= ======
Diluted earnings per share $ (0.23) $ 0.67 $ (0.18) $ 0.77
======= ====== ======= ======
</TABLE>
Earnings per share computations exclude stock options and potential shares for
convertible debentures to the extent that their effect would have been
antidilutive.
8
<PAGE>
Notes to Consolidated Financial Statements, continued
9. Commitments
As of February 26, 1998, the Company had commitments of approximately $535.8
million for equipment purchases and $55.0 million for the construction of
buildings.
10. Contingencies
Periodically, the Company is made aware that technology used by the Company in
the manufacture of some or all of its products may infringe on product or
process technology rights held by others. The Company has accrued a liability
and charged operations for the estimated costs of settlement or adjudication of
asserted and unasserted claims for infringement prior to the balance sheet date.
Determination that the Company's manufacture of products has infringed on valid
rights held by others could have a material adverse effect on the Company's
financial position, results of operations or cash flows and could require
changes in production processes and products. The Company is currently party to
various other legal actions arising out of the normal course of business, none
of which are expected to have a material effect on the Company's financial
position or results of operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The following discussion contains trend information and other forward looking
statements (including statements regarding future operating results, future
capital expenditures and facility expansion, new product introductions,
technological developments and industry trends) that involve a number of risks
and uncertainties. The Company's actual results could differ materially from
the Company's historical results of operations and those discussed in the
forward looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those identified in "Certain
Factors." All period references are to the Company's fiscal periods ended
February 26, 1998, November 27, 1997, August 28, 1997, or February 27, 1997,
unless otherwise indicated. All per share amounts are presented on a diluted
basis unless otherwise stated.
Micron Technology, Inc. and its subsidiaries (collectively the "Company" or
"MTI") design, develop, manufacture and market semiconductor memory products,
primarily DRAM. The Company, through its approximately 64% owned subsidiary,
Micron Electronics, Inc. ("MEI"), develops, markets, manufactures and supports
PC systems.
RESULTS OF OPERATIONS
Net loss for the second quarter of 1998 was $48 million, or $0.23 per share,
on net sales of $755 million. Operating losses incurred in the Company's
semiconductor memory and PC operations in the second quarter of 1998 were
partially offset by a gain on the sale of a 90% interest in MEI's contract
manufacturing subsidiary. For the second quarter of 1997 net income was $143
million, or $0.67 per share, on net sales of $876 million. For the first six
months of 1998, net loss was $39 million, or $0.18 per share, on net sales of
$1,710 million compared to net income of $163 million, or $0.77 per share, on
net sales of $1,604 million for the first six months of 1997. The Company
reported net sales of $955 million and net income of $10 million, or $0.04 per
share, for its first quarter of 1998.
In the second quarter of fiscal 1998, the Company's semiconductor memory
operations incurred an operating loss in excess of $90 million on net sales of
$283 million, primarily due to continued sharp declines in average sales prices
for the Company's semiconductor memory products. The Company's PC operations
incurred an operating loss in excess of $100 million in the second quarter of
fiscal 1998 resulting primarily from the effect of significant price declines
for PC products, write-downs of inventories, a 10% decline in unit sales from
the prior quarter, and actions taken to reposition PC operations to more
efficiently and cost-effectively serve core markets.
Results of operations for the second quarter of 1998 included an aggregate
pretax gain of $157 million (approximately $38 million or $0.18 per share after
taxes and minority interests) on MEI's sale of a 90% interest in its contract
manufacturing subsidiary, Micron Custom Manufacturing Services, Inc. ("MCMS"),
for cash proceeds of $249 million.
Results of operations for the second quarter of 1997 included a pretax gain of
$190 million (approximately $94 million or $0.44 per share after taxes) on the
sale of a portion of the Company's holdings in MEI common stock, which decreased
the Company's ownership in MEI to approximately 64%. Results of operations for
the first six months of 1997 also included net after-tax gains of $20 million on
sales of other investments.
NET SALES
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------------------------- ----------------------------------------------
1998 1997 1998 1997
---------------------------------------------- ----------------------------------------------
Net sales % Net sales % Net sales % Net sales %
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Semiconductor memory products $283.4 37.5 $401.5 45.8 $ 723.5 42.3 $ 743.7 46.4
PC systems 396.5 52.5 395.4 45.1 841.6 49.2 729.2 45.4
Other 75.5 10.0 79.3 9.1 144.9 8.5 131.4 8.2
-------- ----- ------ ------ -------- ----- -------- ------
Total net sales $755.4 100.0 $876.2 100.0 $1,710.0 100.0 $1,604.3 100.0
====== ===== ====== ===== ======== ===== ======== =====
</TABLE>
Net sales of "Semiconductor memory products" include sales of MTI
semiconductor memory products incorporated in MEI products, which amounted to
$5.2 million and $12.6 million in the second quarters of 1998 and 1997,
respectively, and $17.6 million and $23.9 million in the first six months of
1998 and 1997, respectively. "Other" sales include revenue from MEI's contract
manufacturing services subsidiary, which was sold in February
10
<PAGE>
1998, of approximately $63.0 million and $123.6 million in the second quarter
and first six months of 1998, respectively.
Net sales in the second quarter of 1998 decreased by 14% as compared to the
second quarter of 1997 principally due to a sharp decline in average selling
prices of semiconductor memory products. Net sales for the first six months of
1998 increased by 7% as compared to the first six months of 1997 principally due
to an increase in unit sales of PC systems and an increase in non-system
revenue. Net sales for the second quarter of 1998 were 21% lower compared to
the $955 million of net sales for the first quarter of 1998.
Net sales of semiconductor memory products for the second quarter and first
six months of 1998 decreased by 29% and 3% as compared to the corresponding
periods of 1997, primarily due to the continued sharp decline in average selling
prices, which was partially offset by an increase in megabits of semiconductor
memory products sold. Average selling prices per megabit of memory declined
approximately 50% from the second quarter of 1997 to the second quarter of 1998
and 46% from the first six months of 1997 to the first six months of 1998. The
Company's principal memory product in the second quarter and first six months of
1998 was the 16 Meg DRAM, which comprised approximately 78% and 84% of the net
sales of semiconductor memory in the second quarter and first six months of
1998, respectively. The 16 Meg SDRAM comprised approximately 40% and 28% of the
total net sales of semiconductor memory in the second quarter and first six
months of 1998, respectively. Total megabits shipped increased by 47% and 85%,
respectively, for the second quarter and first six months of 1998 as compared to
the same periods in 1997, and total megabits produced increased by approximately
70% and 100%, respectively. These production increases were principally the
result of the transition to the 16 Meg DRAM as the Company's principal memory
product, ongoing transitions to successive reduced die size ("shrink") versions
of existing memory products, and enhanced yields on existing memory products.
Net sales of semiconductor memory products for the second quarter of 1998
decreased by 36% as compared to the first quarter of 1998 as a result of a 26%
decline in average selling prices per megabit of memory and a 13% decrease in
megabits shipped. The decrease in megabit shipments from the first quarter to
the second quarter of 1998 was principally due to constraints on the Company's
test capacity. These test capacity constraints were resolved in the last few
weeks of the second quarter, allowing for a 10% increase in megabit production
for the second quarter.
Net sales of PC systems were flat for the second quarter of 1998 compared to
the second quarter of 1997 and increased by 15% for the first six months of 1998
compared to the first six months of 1997. Unit sales of PC systems increased by
7% and 20%, respectively, comparing the second quarter and first six months of
1998 with the corresponding periods of 1997. Average per unit revenue for the
Company's PC systems declined, while non-system revenue increased for the second
quarter and first six months of 1998 compared to the corresponding periods of
1997. Non-system revenue is revenue received from the sale of PC related
products and services separate from the sale of a PC system. Net sales of PC
systems for the second quarter of 1998 were 11% lower than for the first quarter
of 1998 primarily due to a 10% decrease in unit sales of PC systems and a lower
level of non-system revenue.
GROSS MARGIN
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------------------- ------------------------------
1998 % Change 1997 1998 % Change 1997
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross margin $22.3 (89.8)% $218.7 $ 232.8 (37.7)% $373.9
as a % of net sales 3.0% 25.0% 13.6% 23.3%
</TABLE>
The Company's gross margin percentage for semiconductor memory products and PC
systems was lower in the second quarter and first six months of 1998 than in the
corresponding periods of 1997, primarily because of severe declines in average
sales prices and because of significant write-downs of the Company's notebook
inventory. The Company's gross margin percentage for the first quarter of 1998
was 22%.
The Company's gross margin percentage on sales of semiconductor memory
products for the second quarter and first six months of 1998 was 5% and 22%,
respectively, compared to 32% and 28% for the corresponding periods of 1997.
The decrease in gross margin percentage on sales of semiconductor memory
products for the second quarter and first six months of 1998 compared to the
corresponding periods in 1997 was primarily the result of a sharp decline in
average selling prices, partially offset by a decline in per unit manufacturing
costs. Decreases in per unit manufacturing costs for the second quarter and
first six months of 1998 compared to the same periods in 1997 were achieved
through transitions to shrink versions of existing products, shifts in the
Company's mix of semiconductor memory products to a higher average density, and
improved manufacturing yields. The gross margin percentage on
11
<PAGE>
the Company's semiconductor memory products for the first quarter of 1998 was
32%. The decline in gross margin percentage for semiconductor memory products
from the first quarter to the second quarter of 1998 was primarily the result of
the approximate 26% decline in average selling prices per megabit of memory.
The gross margin percentage for the Company's PC operations for the second
quarter and first six months of 1998 was (2)% and 6%, respectively compared to
18% and 19% for the corresponding periods of 1997. The gross margin for the
Company's PC operations was 13% for the first quarter of 1998. Gross margins in
the second quarter of fiscal 1998 were significantly affected by write-downs of
notebook product inventories and by intense price competition in the PC
industry.
SELLING, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------------------- -----------------------------
1998 % Change 1997 1998 % Change 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and administrative $135.7 39.3% $97.4 $ 260.2 49.6% $173.9
as a % of net sales 18.0% 11.1% 15.2% 10.8%
</TABLE>
The higher level of selling, general and administrative expenses during the
second quarter and first six months of 1998 as compared to the same periods of
1997 is primarily attributable to higher levels of personnel, advertising and
other costs associated with the Company's PC operations. Selling, general and
administrative expense for the second quarter and first six months of 1998
reflect a lower level of performance based compensation than in corresponding
periods of 1997. Selling, general and administrative expenses increased by 9%
in the second quarter as compared to the first quarter of 1998; this increase
was mainly attributable to an increase in personnel costs for the Company's PC
operations.
Research and Development
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------- ----------------------------
1998 % Change 1997 1998 % Change 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Research and development $69.9 49.4% $46.8 $ 133.8 42.3% $94.0
as a % of net sales 9.3% 5.3% 7.8% 5.9%
</TABLE>
Research and development expenses vary primarily with the number of wafers
processed, personnel costs, and the cost of advanced equipment dedicated to new
product and process development. Research and development efforts are focused
on advanced process technology, which is the primary determinant in
transitioning to next generation products. Application of advanced process
technology currently is concentrated on development of the Company's 64 Meg and
128 Meg SDRAMs, Double Data Rate (DDR), SynchLink and Rambus memory products.
The PC industry is in the process of transitioning from EDO to SDRAM. The
Company has transitioned to SDRAM as its primary DRAM technology, and is in the
process of increasing the ratio of 64 Meg DRAMs relative to 16 Meg DRAMs in its
product mix. Other research and development efforts are devoted to the design
and development of Flash, SRAM, embedded memory, RIC, flat panel display
products and PC systems.
The Company anticipates completion of the transition from .30 micron (u) to
.25 (u) in fiscal 1999 and anticipates that process technology will move to line
widths of .21 (u), .18 (u), and .15 (u) in the next few years as needed for the
development of future generation semiconductor products.
OTHER OPERATING EXPENSE (INCOME)
Other operating expense for the second quarter of 1998 includes charges of $13
million associated with PC operations resulting from employee termination
benefits and consolidation of domestic and international operations and $3
million for the write-off of abandoned in-development software projects. In
addition, other operating expense includes $4 million related to the disposal
and write-down of semiconductor memory operations equipment.
Income taxes
The effective rate of the tax benefit in the second quarter and first six
months of 1998 was 19% and 7%, respectively. The effective rate for the
provision of income taxes was 47% and 46%, respectively, for the corresponding
periods of 1997. The effective tax rate primarily reflects 1) the statutory
corporate income tax rate and the net effect of state taxation, 2) the effect of
taxes on the parent of the earnings or loss by domestic subsidiaries not
consolidated with the Company for federal income tax purposes and 3) in the
second quarter of 1998, the impact
12
<PAGE>
of the write-off of a $4.1 million deferred tax asset relating to the Company's
consolidation of its NetFRAME enterprise server operations. Because MTI must
provide for tax on the earnings of domestic subsidiaries not consolidated for
tax purposes, the effective rate may vary significantly from period to period.
Recently Issued Accounting Standards
Recently issued accounting standards include Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share," issued by the Financial
Accounting Standards Board ("FASB") in February 1997, SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," issued by the FASB in June 1997. SFAS No.
128 is first effective for the Company for its interim period ended February 26,
1998. Basic and diluted earnings per share pursuant to the requirements of SFAS
No. 128 are presented on the face of the income statement and in the notes to
the financial statements. Descriptions of SFAS No. 130 and SFAS No. 131 are
included in the notes to the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As of February 26, 1998, the Company had cash and liquid investments totaling
$935 million, representing a decrease of $53 million during the first six months
of 1998. Approximately $351 million of the Company's consolidated cash and
liquid investments was held by MEI. Cash generated by MEI is not readily
available or anticipated to be available to finance operations or other
expenditures of MTI.
The Company's principal sources of liquidity during the first six months of
1998 were net cash proceeds totaling $236 million from the sale of a 90%
interest in MEI's contract manufacturing subsidiary, MCMS, and net cash flow
from operations of $126 million. Cash flow from operations depends
significantly on average selling prices and variable cost per unit for the
Company's semiconductor memory products. The principal uses of funds in the
first six months of 1998 were $381 million for property, plant and equipment and
$93 million for repayments of equipment contracts and debt.
The Company believes that in order to develop new product and process
technologies, support future growth, achieve operating efficiencies and maintain
product quality, it must continue to invest in manufacturing technology,
facilities and capital equipment, research and development, and product and
process technology. The Company currently estimates it will spend approximately
$1 billion in fiscal 1998 for purchases of equipment and construction and
improvement of buildings. As of February 26, 1998, the Company had entered into
contracts extending into fiscal 2000 for approximately $536 million for
equipment purchases and approximately $55 million for the construction of
facilities. Should the Company elect to cancel its outstanding equipment
purchase commitments, the Company could be subject to cancellation fees in
excess of $135 million. Future capital expenditures will be used primarily to
enhance manufacturing efficiencies and product and process technology at the
Company's existing facilities. As the Company considers its product and process
technology enhancement programs and technology diversification objectives, the
Company has evaluated, and continues to evaluate, possible acquisitions and
strategic alliances. The Company has a $1 billion shelf registration statement
under which $500 million in convertible subordinated notes were issued in July
1997 and under which may be issued from time to time up to an additional $500
million in debt or equity securities.
MTI has a $500 million unsecured revolving credit agreement expiring in May
2000. The agreement contains certain restrictive covenants pertaining to the
Company's semiconductor operations, including a minimum fixed charge coverage
ratio and a maximum operating loss covenant. As of February 26, 1998, MTI was
in compliance with all covenants under the facility and had no borrowings
outstanding under the agreement. There can be no assurance that MTI will
continue to be able to meet the terms of the covenants and conditions and be
able to borrow under the credit agreement.
MEI has an aggregate of $142 million in revolving credit agreements which
contain certain restrictive covenants pertaining to MEI's operations, including
a minimum EBITDA covenant, certain minimum financial ratios and limitations on
the amount of dividends declared or paid by MEI. For the quarter ended February
26, 1998, MEI was in violation of its ratio of debt to EBITDA covenant, which
excludes the effect of the gain on the sale of MCMS. MEI obtained a waiver for
the violation of the covenant, and as a result was eligible to borrow
approximately $42 million under the credit lines, and had aggregate borrowings
of approximately $9 million outstanding under the agreements.
13
<PAGE>
CERTAIN FACTORS
In addition to the factors discussed elsewhere in this Form 10-Q and in the
Company's Form 10-K for the fiscal year ended August 28, 1997, the following are
important factors which could cause actual results or events to differ
materially from those contained in any forward looking statements made by or on
behalf of the Company.
The semiconductor memory industry is characterized by rapid technological
change, frequent product introductions and enhancements, difficult product
transitions, relatively short product life cycles, and volatile market
conditions. These characteristics historically have made the semiconductor
industry highly cyclical, particularly in the market for DRAMs, which are the
Company's primary semiconductor memory products. The semiconductor industry has
a history of declining average sales prices as products mature. Long-term
average decreases in sales prices for semiconductor memory products approximate
30% on an annualized basis; however, significant fluctuations from this rate
have occurred from time to time, as evidenced by the 75% decline in average
selling prices for the Company's semiconductor memory products for 1997 and the
subsequent 25% and 26% declines in average selling prices for the first and
second quarters of 1998 as compared to the preceding quarters.
The selling prices for the Company's semiconductor memory products fluctuate
significantly with real and perceived changes in the balance of supply and
demand for these commodity products. Growth in worldwide supply has outpaced
growth in worldwide demand in recent periods, resulting in a significant
decrease in average selling prices for the Company's semiconductor memory
products. For most of fiscal 1997 the rate at which the Company was able to
decrease per unit manufacturing costs exceeded the rate of decline in average
selling prices, due mainly to a transition to a higher density product.
However, in the fourth quarter of 1997 and the first six months of 1998 the
Company was unable to decrease per unit manufacturing costs at a rate
commensurate with the decline in average selling prices. In the event that
average selling prices continue to decline at a faster rate than that at which
the Company is able to decrease per unit manufacturing costs, the Company could
be materially adversely affected in its operations, cash flows and financial
condition. Although worldwide excess capacity exists, certain Asian competitors
continue to add capacity for the production of semiconductor memory products.
The amount of capacity to be placed into production and future yield
improvements by the Company's competitors could dramatically increase worldwide
supply of semiconductor memory and increase downward pressure on pricing.
Further, the Company has no firm information with which to determine inventory
levels of its competitors, or to determine the likelihood that substantial
inventory liquidation may occur and cause further downward pressure on pricing.
Worldwide semiconductor pricing is influenced by currency fluctuations. In
calendar 1997 the Korean Won, the New Taiwan Dollar and the Japanese Yen were
devalued significantly, dropping approximately 100%, 20% and 10%, respectively,
compared to the U.S. dollar. The devaluation of these currencies was
particularly severe in the fourth quarter of calendar 1997 and contributed to
the current South Korean credit crisis. South Korean semiconductor competitors
are likely to be particularly affected by the currency devaluations as a result
of substantial debt structures denominated in U.S. dollars. The currency
devaluations and the credit crisis could have a significant adverse impact on
DRAM pricing if the Company's Asian, and particularly Korean, competitors offer
products at significantly lower prices in an effort to maximize cash flows to
service near-term dollar denominated obligations. While the Company cannot
predict the overall impact of the Asian currency devaluations and the Korean
credit crisis, its products may be subject to further downward pricing pressure.
If average selling prices for semiconductor memory products continue to decline,
the Company's results of operations will continue to be adversely affected.
If pricing for the Company's semiconductor products remains at current levels
for an extended period of time or declines further, the Company may be required
to make changes in its operations, including but not limited to, reduction of
the amount or changes in timing of its capital expenditures, renegotiation of
existing debt agreements, reduction of production and workforce levels,
reduction of research and development, or changes in the products produced.
Approximately 70% of the Company's sales of semiconductor memory products
during the second quarter of 1998 were directly into the PC or peripheral
markets. DRAMs are the most widely used semiconductor memory component in most
PC systems. Should the rate of growth of sales of PC systems or the rate of
growth in the amount of memory per PC system decrease, the growth rate for sales
of semiconductor memory could also decrease, placing further downward pressure
on selling prices for the Company's semiconductor memory products. The Company
is unable to predict changes in industry supply, major customer inventory
management strategies, or end user demand, which are significant factors
influencing pricing for the Company's semiconductor memory products.
14
<PAGE>
In recent periods the PC industry has seen a shift in demand towards sub-$1000
PCs. While the Company cannot predict with any degree of accuracy the future
impact on the PC and semiconductor industry of this shift, possible effects
include, but are not limited to, further downward pricing pressure on PC systems
and further downward pricing pressure on semiconductor memory products.
The Company's operating results are significantly impacted by the operating
results of its consolidated subsidiaries, particularly MEI. MEI's past
operating results have been, and its future operating results may be, subject to
seasonality and other fluctuations, on a quarterly and an annual basis, as a
result of a wide variety of factors, including, but not limited to, industry
competition, MEI's ability to accurately forecast demand for its PC products,
fluctuating market pricing for PCs and semiconductor memory products, MEI's
ability to effectively manage inventory levels, the lead time and inventory
exposure from shipments of products from OEM suppliers, fluctuating component
costs, changes in product mix, inventory obsolescence, the timing of new product
introductions by MEI and its competitors, seasonal government purchasing cycles,
manufacturing and production constraints, the effects of product reviews and
industry awards, seasonal cycles common in the PC industry and critical
component availability. Changing circumstances, including but not limited to,
changes in the Company's core operations, uses of capital, strategic objectives
and market conditions, could result in the Company changing its ownership
interest in its subsidiaries.
The Company is engaged in ongoing efforts to enhance its semiconductor
production processes to reduce per unit costs by reducing the die size of
existing products. The result of such efforts has led to a significant increase
in megabit production. There can be no assurance that the Company will be able
to maintain or approximate increases in megabit production at a level
approaching that experienced in recent periods or that the Company will not
experience decreases in production volume as it attempts to implement future
technologies. Further, from time to time, the Company experiences volatility in
its manufacturing yields, as it is not unusual to encounter difficulties in
ramping latest shrink versions of existing devices or new generation devices to
commercial volumes. The Company's ability to reduce per unit manufacturing
costs of its semiconductor memory products is largely dependent on its ability
to design and develop new generation products and shrink versions of existing
products and its ability to ramp such products at acceptable rates to acceptable
yields, of which there can be no assurance.
The semiconductor memory industry is characterized by frequent product
introductions and enhancements. The Company's transition to SDRAM products
reached approximately 59% of DRAM wafer starts at the end of the second quarter
of 1998. The Company's transition from the 16 Meg to the 64 Meg SDRAM as its
primary memory product is expected to occur in late summer of 1998. It is not
unusual to encounter difficulties in manufacturing while transitioning to shrink
versions of existing products or new generation products. Future gross margins
will be adversely impacted if the Company is unable to efficiently transition to
shrink versions of the 64 Meg SDRAM.
Historically, the Company has reinvested substantially all cash flow from
semiconductor memory operations in capacity expansion and enhancement programs.
The Company's cash flow from operations depends primarily on average selling
prices and per unit manufacturing costs of the Company's semiconductor memory
products. If for any extended period of time average selling prices decline
faster than the rate at which the Company is able to decrease per unit
manufacturing costs, the Company may not be able to generate sufficient cash
flows from operations to sustain operations. The Company has a $500 million
unsecured revolving credit agreement which is available to finance its
semiconductor operations. However, the agreement contains certain restrictive
covenants, including a minimum fixed charge coverage ratio and a maximum
operating losses covenant, which the Company may not be able to meet if
semiconductor market conditions continue to deteriorate. In the event that the
Company does not comply with the covenants, there can be no assurance that the
Company would be able to successfully renegotiate the agreement or obtain a
waiver to the covenants of the existing agreement. In either event, the Company
may not be able to draw on the credit facility. Cash generated by, and credit
lines available to, MEI are not anticipated to be available to finance other MTI
operations.
Completion of the Company's semiconductor manufacturing facility in Lehi, Utah
was suspended in February 1996, as a result of the decline in average selling
prices for semiconductor memory products. As of February 26, 1998 the Company
had invested approximately $655 million in the Lehi facility. The cost to
complete the Lehi facility is estimated to approximate $1.6 billion. Although
additional test capacity for Boise production is anticipated to be provided in
Lehi in 1998, completion of the remainder of the Lehi production facilities is
dependent upon market conditions. Market conditions which the Company expects to
evaluate include, but are not limited to, worldwide market supply and demand of
semiconductor products and the Company's operations, cash flows and alternative
uses of capital. There can be no assurance that the Company will be able to fund
the completion of the Lehi manufacturing facility. The failure by the Company to
complete the facility would likely result in the Company
15
<PAGE>
being required to write off all or a portion of the facility's cost, which could
have a material adverse effect on the Company's business and results of
operations. In addition, in the event that market conditions improve, there can
be no assurance that the Company can commence manufacturing at the Lehi facility
in a timely, cost effective manner that enables it to take advantage of the
improved market conditions.
The semiconductor and PC industries have experienced a substantial amount of
litigation regarding patent and other intellectual property rights. In the
future, litigation may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, or to defend the Company
against claimed infringement of the rights of others. The Company has from time
to time received, and may in the future receive, communications alleging that
its products or its processes may infringe on product or process technology
rights held by others. The Company has entered into a number of patent and
intellectual property license agreements with third parties, some of which
require one-time or periodic royalty payments. It may be necessary or
advantageous in the future for the Company to obtain additional patent licenses
or to renew existing license agreements. The Company is unable to predict
whether these license agreements can be obtained or renewed on terms acceptable
to the Company. Adverse determinations that the Company's manufacturing
processes or products have infringed on the product or process rights held by
others could subject the Company to significant liabilities to third parties or
require material changes in production processes or products, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company is dependent upon a limited number of key management and technical
personnel. In addition, the Company's future success will depend in part upon
its ability to attract and retain highly qualified personnel, particularly as
the Company adds different product types to its product line, which will require
parallel design efforts and significantly increase the need for highly skilled
technical personnel. The Company competes for such personnel with other
companies, academic institutions, government entities and other organizations.
In recent periods, the Company has experienced increased recruitment of its
existing personnel by other employers. There can be no assurance that the
Company will be successful in hiring or retaining qualified personnel. Any loss
of key personnel or the inability to hire or retain qualified personnel could
have a material adverse effect on the Company's business and results of
operations.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) The following are filed as a part of this report:
Exhibit
Number Description of Exhibit
------ ------------------------------------
10.122 Second Amendment to First Amended & Restated Revolving Credit
Agreement dated February 26, 1998, among the Company and several
financial institutions
27 Financial Data Schedule
(b) The registrant did not file any reports on Form 8-K during the fiscal
quarter ended February 26, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Micron Technology, Inc.
-----------------------
(Registrant)
Dated: April 1, 1998 /s/ Wilbur G. Stover, Jr.
-------------------------
Wilbur G. Stover, Jr.
Vice President of Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 10.122
SECOND AMENDMENT TO
--------------------
FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------------------------
THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(the "Amendment"), dated as of February 26, 1998, is entered into by and among
---------
MICRON TECHNOLOGY, INC. (the "Company"), BANK OF AMERICA NATIONAL TRUST AND
-------
SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), and the
-----
several financial institutions party to the Credit Agreement (collectively, the
"Banks").
-----
RECITALS
--------
A. The Company, the Banks and the Agent are parties to a First Amended and
Restated Revolving Credit Agreement dated as of May 28, 1997, as amended by the
First Amendment to First Amended and Restated Revolving Credit Agreement dated
as of November 28, 1997 (the "Credit Agreement"), pursuant to which the Banks
----------------
have extended certain credit facilities to the Company.
B. The Company has requested that the Agent and the Banks agree to certain
amendments of the Credit Agreement.
C. The Agent and the Banks are willing to amend the Credit Agreement, subject
to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings assigned to them in the Credit Agreement.
2. Amendments to Credit Agreement.
------------------------------
(a) The following new definition shall be added to Article I of the Credit
Agreement:
"Combined EBIT Income" or "Combined EBIT Losses" means, for any period,
Combined Net Income or Combined Net Loss, as the case may be, for such period,
plus the sum of (a) interest expense and (b) income tax expense, which were
- ----
deductible in determining Combined Net Income or Combined Net Loss for such
period."
(b) Section 7.17 of the Credit Agreement shall be deleted in its entirety and
the following new Section 7.17 shall be substituted therefor:
"7.17 Maximum Operating Losses. The Company shall not permit Combined EBIT
------------------------
Losses to exceed (a) 2% of Combined Tangible Net Worth in any fiscal
quarter ending prior to the fiscal quarter ending February 26, 1998; 5% of
Combined Tangible Net Worth for the fiscal quarter ending February 26,
1998; and 2% of Combined Tangible Net Worth for any fiscal quarter ending
after February 26, 1998, or 5% of Combined Tangible Net Worth in any period
of four consecutive fiscal quarters."
(c) Item E. "Section 7.17: Maximum Combined Loss" to Schedule 2 of the
-----------------------------------
Compliance Certificate shall be deleted in its entirety and the following new
Item E. "Section 7.17: Maximum Operating Loss" to Schedule 2 of the Compliance
------------------------------------
Certificate shall be substituted therefor:
1
<PAGE>
"E. SECTION 7.17: MAXIMUM OPERATING LOSS.
------------------------------------
1. Combined EBIT Loss for quarter ending on above date: $_______
2. Combined EBIT Loss for Subject Period: $_______
3. Line B.3 (Combined Tangible Net Worth) $_______
a. 2.0% of Line 3.E. for any fiscal quarter ending prior to
February 26,1998;
5.0% of Line 3.E. for the fiscal quarter ending
February 26, 1998; and
2.0% of Line 3.E. for any fiscal quarter ending after
February 26, 1998. $_______
b. 5% of Line E.3. $_______
Line E.1 not to exceed Line E.3.a.
Line E.2 not to exceed Line E.3.b."
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms.
(c) The representations and warranties of the Company contained in
Article V of the Credit Agreement (except for the representations and warranties
contained in Sections 5.05 and 5.14) are true and correct, except to the extent
such representations and warranties relate to an earlier date, in which case
they were true and correct as of such earlier date.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of February
--------------
26, 1998 (the "Effective Date"), provided that the Agent has received from the
-------------- --------
Company and the Majority Banks a duly executed original (or, if elected by the
Agent, an executed facsimile copy) of this Amendment.
5. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
2
<PAGE>
6. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document may be delivered by any party thereto
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Agent of a facsimile transmitted document
purportedly bearing the signature of a Bank or the Company shall bind such Bank
or the Company, respectively, with the same force and effect as the delivery of
a hard copy original. Any failure by the Agent to receive the hard copy
executed original of such document shall not diminish the binding effect of
receipt of the facsimile transmitted executed original of such document of the
party whose hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
MICRON TECHNOLOGY, INC.
By:
--------------------------------------
Name:
Title:
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-03-1998
<PERIOD-END> FEB-26-1998
<CASH> 561
<SECURITIES> 374
<RECEIVABLES> 374
<ALLOWANCES> (20)
<INVENTORY> 448
<CURRENT-ASSETS> 1,829
<PP&E> 4,214
<DEPRECIATION> (1,365)
<TOTAL-ASSETS> 4,839
<CURRENT-LIABILITIES> 738
<BONDS> 741
0
0
<COMMON> 21
<OTHER-SE> 2,854
<TOTAL-LIABILITY-AND-EQUITY> 4,839
<SALES> 1,710
<TOTAL-REVENUES> 1,710
<CGS> 1,477
<TOTAL-COSTS> 1,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1)
<INCOME-PRETAX> (32)
<INCOME-TAX> (2)
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<CHANGES> 0
<NET-INCOME> (39)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
