<PAGE>
FORM 10-Q
_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 2, 2000
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
April 5, 2000, was 261,602,148 shares of Common Stock and 15,810,277 shares of
Class A Common Stock.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
MICRON TECHNOLOGY, INC.
Consolidated Balance Sheets
(Dollars in millions, except for par value)
<TABLE>
<CAPTION>
March 2, September 2,
As of 2000 1999
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 429.9 $ 294.6
Liquid investments 1,248.5 1,318.9
Receivables 875.8 692.6
Inventories 690.1 365.7
Prepaid expenses 26.3 38.3
Deferred income taxes 89.8 119.9
-------- --------
Total current assets 3,360.4 2,830.0
Product and process technology, net 215.8 212.6
Property, plant and equipment, net 3,926.9 3,799.6
Other assets 231.7 123.0
-------- --------
Total assets $7,734.8 $6,965.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 789.8 $ 705.4
Deferred income 37.6 23.4
Equipment purchase contracts 65.9 81.5
Current portion of long-term debt 74.2 111.7
-------- --------
Total current liabilities 967.5 922.0
Long-term debt 1,464.5 1,527.5
Deferred income taxes 310.9 309.1
Other liabilities 72.3 74.2
-------- --------
Total liabilities 2,815.2 2,832.8
-------- --------
Commitments and contingencies
Minority interests 186.0 168.3
Common Stock, $0.10 par value, authorized 1.0 billion shares, issued
and outstanding 256.9 million and 252.2 million shares, respectively 25.7 25.2
Class A Common Stock, $0.10 par value, authorized 32 million shares,
issued and outstanding 15.8 million shares 1.6 1.6
Additional capital 2,120.8 1,894.0
Retained earnings 2,548.1 2,045.4
Accumulated other comprehensive income (loss) 37.4 (2.1)
-------- --------
Total shareholders' equity 4,733.6 3,964.1
-------- --------
Total liabilities and shareholders' equity $7,734.8 $6,965.2
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Dollars in millions, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 2, March 4,
For the quarter ended 2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,392.5 $1,025.8
-------- --------
Costs and expenses:
Cost of goods sold 881.4 745.1
Selling, general and administrative 142.7 125.5
Research and development 103.5 85.5
Other operating expense, net 10.5 18.4
-------- --------
Total costs and expenses 1,138.1 974.5
-------- --------
Operating income 254.4 51.3
Interest income 26.6 23.3
Interest expense (30.7) (35.0)
Other non-operating (loss) income, net (0.3) 0.4
-------- --------
Income before income taxes and minority interests 250.0 40.0
Income tax provision (86.4) (16.1)
Minority interests in net income (2.3) (1.5)
-------- --------
Net income $ 161.3 $ 22.4
======== ========
Earnings per share:
Basic $ 0.60 $ 0.08
Diluted 0.58 0.08
Number of shares used in per share calculations:
Basic 270.4 264.3
Diluted 278.6 272.9
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Dollars in millions, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 2, March 4,
For the six months ended 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,976.9 $1,819.4
-------- --------
Costs and expenses:
Cost of goods sold 1,652.1 1,422.8
Selling, general and administrative 310.3 228.5
Research and development 195.2 153.2
Other operating expense, net 32.9 26.1
-------- --------
Total costs and expenses 2,190.5 1,830.6
-------- --------
Operating income (loss) 786.4 (11.2)
Interest income 49.8 40.9
Interest expense (62.4) (60.5)
Other non-operating income, net 9.3 1.5
-------- --------
Income (loss) before income taxes and minority interests 783.1 (29.3)
Income tax (provision) benefit (272.6) 11.4
Minority interests in net income (7.9) (5.8)
-------- --------
Net income (loss) $ 502.6 $ (23.7)
======== ========
Earnings (loss) per share:
Basic $ 1.86 $ (0.09)
Diluted 1.77 (0.09)
Number of shares used in per share calculations:
Basic 269.8 255.0
Diluted 298.0 255.0
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
March 2, March 4,
For the six months ended 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 502.6 $ (23.7)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 471.5 408.9
Change in assets and liabilities, net of effects of acquisition
Decrease (increase) in receivables (183.0) 2.0
Increase in inventories (324.5) (40.9)
Increase in accounts payable and accrued
expenses, net of plant and equipment payables 61.0 15.5
Decrease (increase) in deferred income taxes 20.7 (1.1)
Additional capital tax effect from stock purchase plans 84.8 35.7
Other 73.4 (18.5)
---------- ----------
Net cash provided by operating activities 706.5 377.9
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities 1,310.9 655.5
Purchase of available-for-sale and held-to-maturity securities (1,247.7) (1,945.8)
Expenditures for property, plant and equipment (459.9) (306.2)
Acquisition of business (43.4) --
Other (7.8) 13.2
---------- ----------
Net cash used for investing activities (447.9) (1,583.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on equipment purchase contracts (150.7) (153.5)
Repayments of debt (111.4) (66.3)
Proceeds from issuance of common stock 138.4 576.7
Cash received in conjunction with acquisition -- 681.1
Proceeds from issuance of debt -- 34.0
Other 0.4 3.5
---------- ----------
Net cash provided by (used for) financing activities (123.3) 1,075.5
---------- ----------
Net increase (decrease) in cash and equivalents 135.3 (129.9)
Cash and equivalents at beginning of period 294.6 558.8
---------- ----------
Cash and equivalents at end of period $ 429.9 $ 428.9
========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid, net of amounts capitalized $ (54.9) $ (30.9)
Income taxes refunded, net 168.1 171.4
Noncash investing and financing activities:
Equipment acquisitions on contracts payable and capital leases 135.1 55.8
Cash received in conjunction with acquisition:
Fair value of assets acquired $ -- $ 949.3
Liabilities assumed -- (138.0)
Debt issued -- (836.0)
Stock issued -- (656.4)
---------- ----------
$ -- $ 681.1
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MICRON TECHNOLOGY, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)
(Unaudited)
March 2, March 4,
For the quarter ended 2000 1999
- --------------------------------------------------------------------------------
Net income $161.3 $ 22.4
Foreign currency translation adjustment -- 0.2
Unrealized gain (loss) on investments 38.8 (1.3)
------ ------
Total comprehensive income $200.1 $ 21.3
====== ======
March 2, March 4,
For the six months ended 2000 1999
- --------------------------------------------------------------------------------
Net income (loss) $502.6 $(23.7)
Foreign currency translation adjustment -- --
Unrealized gain (loss) on investments 39.5 (1.3)
------ ------
Total comprehensive income (loss) $542.1 $(25.0)
====== ======
See accompanying notes to consolidated financial statements.
5
<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"), and their
consolidated results of operations and cash flows. Micron Technology, Inc. and
its wholly-owned subsidiaries are collectively hereinafter referred to as "MTI."
Micron Electronics, Inc., an approximately 61% owned subsidiary of the Company,
is hereinafter referred to as "MEI."
Recently issued accounting standards include Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities," issued by the FASB in June 1998 and Staff Accounting
Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements," issued
by the Securities and Exchange Commission in December 1999.
SFAS No. 133 requires that all derivatives be recorded as either assets or
liabilities in the balance sheet and marked to market on an ongoing basis. SFAS
No. 133 applies to all derivatives including stand-alone instruments, such as
forward currency exchange contracts and interest rate swaps, or embedded
derivatives, such as call options contained in convertible debt investments.
Along with the derivatives, the underlying hedged items are also to be marked to
market on an ongoing basis. These market value adjustments are to be included
either in the statement of operations or as a component of comprehensive income,
depending on the nature of the transaction. Implementation of SFAS No. 133 is
required for the Company by the first quarter of 2001. The implementation of
SFAS 133 is not expected to have a significant impact on the Company's future
results of operations or financial position.
SAB No. 101 summarizes certain staff views in applying generally accepted
accounting principles to revenue recognition in the financial statements.
Adoption is required for the Company by the first quarter of fiscal 2001. The
implementation of SAB No. 101 is not expected to impact results of the Company's
semiconductor operations and the Company is currently evaluating the effect SAB
No. 101 will have on results of the Company's PC operations.
These unaudited interim financial statements should be read in conjunction
with the consolidated financial statements and accompanying notes included in
the Company's Form 10-K for the year ended September 2, 1999.
2. Supplemental balance sheet information
March 2, September 2,
As of 2000 1999
- -------------------------------------------------------------------------------
Receivables
- -------------------------------------------------------------------------------
Trade receivables $ 692.9 $ 542.4
Income taxes receivable 116.2 100.8
Allowance for returns and discounts (42.4) (38.2)
Allowance for doubtful accounts (10.7) (9.8)
Other receivables 119.8 97.4
------- -------
$ 875.8 $ 692.6
======= =======
6
<PAGE>
Notes to Consolidated Financial Statements, continued
Supplemental balance sheet information, continued
March 2, September 2,
As of 2000 1999
- --------------------------------------------------------------------------------
Inventories
- --------------------------------------------------------------------------------
Finished goods $ 331.0 $ 136.3
Work in progress 286.6 173.6
Raw materials and supplies 87.4 71.5
Allowance for obsolescence (14.9) (15.7)
--------- ---------
$ 690.1 $ 365.7
========= =========
Product and process technology
- --------------------------------------------------------------------------------
Product and process technology, at cost $ 348.9 $ 325.2
Less accumulated amortization (133.1) (112.6)
---------- ----------
$ 215.8 $ 212.6
========== ==========
Property, plant and equipment
- --------------------------------------------------------------------------------
Land $ 50.2 $ 42.2
Buildings 1,228.4 1,172.4
Equipment 4,402.0 4,074.4
Construction in progress 740.8 726.0
---------- ----------
6,421.4 6,015.0
Less accumulated depreciation and amortization (2,494.5) (2,215.4)
---------- ----------
$ 3,926.9 $ 3,799.6
========== ==========
As of March 2, 2000, property, plant and equipment included total unamortized
costs of $708.0 million for the Company's semiconductor memory manufacturing
facility in Lehi, Utah, of which $647.0 million has not been placed in service
and is not being depreciated. The Company expects to place in service
approximately $250 million of plant and equipment in the third quarter of 2000
in support of Lehi test operations. Timing of the completion of the remainder of
the Lehi facility is dependent upon market conditions. Market conditions which
the Company expects to evaluate include, but are not limited to, worldwide
market supply of and demand for semiconductor products and the Company's
operations, cash flows and alternative uses of capital. The Company continues to
evaluate the carrying value of the facility and as of March 2, 2000, it was
determined there was no impairment.
Depreciation expense was $224.8 million and $436.3 million, respectively, for
the second quarter and first six months of 2000, and $191.1 million and $372.2
million for the second quarter and first six months of 1999, respectively.
Accounts payable and accrued expenses
- --------------------------------------------------------------------------------
Accounts payable $496.9 $453.1
Salaries, wages and benefits 152.9 95.4
Taxes payable other than income 38.5 33.4
Interest payable 33.4 33.9
Income taxes payable 14.0 13.7
Other 54.1 75.9
------ ------
$789.8 $705.4
====== ======
7
<PAGE>
Notes to Consolidated Financial Statements, continued
Supplemental balance sheet information, continued
<TABLE>
<CAPTION>
March 2, September 2,
As of 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Debt
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible subordinated notes payable, due October 2005, with
an effective yield to maturity of 8.4%, net of unamortized discount of
$60.6 million $ 679.4 $ 675.2
Convertible subordinated notes payable, due July 2004, interest rate of 7.0% 500.0 500.0
Subordinated notes payable, due October 2005, with an effective
yield to maturity of 10.7%, net of unamortized discount of $35.7 million 174.3 171.9
Notes payable in periodic installments through July 2015,
weighted average interest rate of 7.29% and 7.37%, respectively 156.1 259.0
Capitalized lease obligations payable in monthly installments through August
2004, weighted average interest rate of 7.65% and 7.52%, respectively 28.9 33.1
-------- --------
1,538.7 1,639.2
Less current portion (74.2) (111.7)
-------- --------
$1,464.5 $1,527.5
======== ========
</TABLE>
The convertible subordinated notes due October 2005 (the "Convertible Notes")
with an effective yield to maturity of 8.4% have a face value of $740 million
and a stated interest rate of 6.5%. The Convertible Notes are convertible into
shares of the Company's common stock at $60 per share. The Company may call for
the early redemption of the Convertible Notes between October 2000 and October
2002 if the price of the Company's common stock is at least $78 per share for a
specified trading period. Subsequent to October 2002, the Convertible Notes are
redeemable by the Company at an initial price of 103% which declines to 100% of
the principal amount depending on the date of redemption. The Convertible Notes
have not been registered with the Securities and Exchange Commission, however
the holder has certain registration rights.
The 7.0% convertible subordinated notes due July 2004 (the "Notes") are
convertible into shares of the Company's common stock at $67.44 per share. On
March 27, 2000, the Company called for the redemption of the Notes, effective
April 17, 2000. Holders may convert their Notes into shares of Micron common
stock at a price of approximately $67.44 per share, or approximately 14.8272
shares of Micron common stock per $1,000 principal amount. Alternatively,
holders may have their Notes redeemed at a total redemption price of $1,070.61
per $1,000 principal amount.
The subordinated notes due October 2005 with a yield to maturity of 10.7% have
a face value of $210 million and a stated interest rate of 6.5%.
MEI has a $100 million unsecured credit agreement expiring in June 2001.
Under the credit agreement, MEI is subject to certain financial and other
covenants including certain financial ratios and limitations on the amount of
dividends paid by MEI. As of March 2, 2000, MEI had no borrowings outstanding
under the agreement. MTI terminated its secured revolving credit agreement
effective December 2, 1999.
8
<PAGE>
Notes to Consolidated Financial Statements, continued
3. Other operating expense, net
Other operating expense for the second quarter and first six months of 2000
includes net pre-tax losses of $7 million and $25 million, respectively, from
the write down and disposal of semiconductor operations equipment. Other
operating expense for the second quarter of 1999 includes a $15 million charge
to write down certain flat panel display assets.
4. Income tax provision (benefit)
The effective tax rate for the second quarter and first six months of 2000
was 35%. The effective tax rates for the second quarter and first six months of
1999 were 40% and 39%, respectively. The reduction in the effective tax rate is
principally a result of favorable tax treatment on permanently reinvested
earnings from certain of the Company's foreign operations.
5. Earnings (loss) 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
weighted 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. Diluted earnings per share further
assumes the conversion of MTI's convertible subordinated notes for the periods
in which they were outstanding, unless such assumed conversion would not be
dilutive.
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------------ ------------------------
March 2, March 4, March 2, March 4,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) available for common shareholders -
Basic $161.3 $ 22.4 $502.6 $ (23.7)
====== ====== ====== =======
Net income (loss) available for common shareholders -
Diluted $161.3 $ 22.4 $528.1 $ (23.7)
====== ====== ====== =======
Weighted average common stock outstanding - Basic 270.4 264.3 269.8 255.0
Net effect of dilutive stock options 8.2 8.6 8.5 --
Net effect of dilutive convertible subordinated notes -- -- 19.7 --
------ ------ ------ -------
Adjusted weighted average common stock - Diluted 278.6 272.9 298.0 255.0
====== ====== ====== =======
Basic income (loss) per share $ 0.60 $ 0.08 $ 1.86 $ (0.09)
====== ====== ====== =======
Diluted income (loss) per share $ 0.58 $ 0.08 $ 1.77 $ (0.09)
====== ====== ====== =======
</TABLE>
9
<PAGE>
Notes to Consolidated Financial Statements, continued
The average shares listed below were not included in the computation of
diluted earnings per share because to do so would have been antidilutive for the
periods presented:
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------- ------------------------
March 2, March 4, March 2, March 4,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee stock plans 2.0 0.2 1.5 26.3
8.4% convertible subordinated notes payable due 2005 12.3 12.3 -- 10.5
7.0% convertible subordinated notes payable due 2004 7.4 7.4 -- 7.4
</TABLE>
6. Stock split
On March 29, 2000, the Company's Board of Directors approved a 2-for-1
stock split to be effected in the form of a stock dividend for shareholders of
record on April 18, 2000. The additional shares resulting from the split will be
distributed on May 1, 2000. Share and per share data presented in this Form 10-Q
have not been retroactively adjusted to reflect this stock split.
The following unaudited pro forma information presents the consolidated
earnings per share information for the Company, adjusted to reflect the stock
split:
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------- ------------------------
March 2, March 4, March 2, March 4,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings (loss) per share:
Basic $ 0.30 $ 0.04 $ 0.93 $(0.05)
Diluted $ 0.29 $ 0.04 $ 0.89 $(0.05)
Number of shares used in per share calculation:
Basic 540.8 528.6 539.6 510.0
Diluted 557.2 545.7 596.0 510.0
</TABLE>
7. Acquisition
On September 30, 1998, MTI completed the acquisition (the "Acquisition") of
substantially all of the memory operations of Texas Instruments Incorporated.
The following unaudited pro forma information presents the consolidated results
of operations of the Company for the first six months of 1999 as if the
Acquisition had taken place at the beginning of fiscal 1999:
March 4,
For the six months ended 1999
- -----------------------------------------------------------------------------
Net sales $1,874.7
Net loss (39.5)
Basic loss per share (0.15)
Diluted loss per share (0.15)
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the Acquisition occurred on the dates
indicated, or which may result in the future.
10
<PAGE>
Notes to Consolidated Financial Statements, continued
8. Joint ventures
MTI participates in two joint ventures: TECH Semiconductor Singapore Pte.
Ltd. ("TECH") and KMT Semiconductor Limited ("KMT"). TECH, which operates in
Singapore, is a joint venture among MTI, the Singapore Economic Development
Board, Canon Inc. and Hewlett-Packard Company. KMT, which operates in Japan, is
a joint venture between MTI and Kobe Steel, Ltd. TECH and KMT are collectively
referred to herein as the "JVs".
Subject to certain terms and conditions, MTI has agreed to purchase the
entire output of the JVs. MTI is a party to various agreements with the JVs
whereby MTI provides technology, engineering support, training and information
system support to the JVs. MTI also performs assembly and test services on
product manufactured by the JVs. All transactions with the JVs are recognized as
part of the net cost of products obtained from the JVs. The net cost of products
purchased from the JVs, including the amortization on the value of the JV supply
agreements, amounted to $147.1 million and $187.3 million for KMT and TECH,
respectively, for the second quarter of 2000, and $260.7 million and $249.4
million for the first six months of 2000.
Receivables from KMT and TECH were $19.3 million and $64.6 million and
payables were $61.7 million and $81.3 million, respectively, as of March 2,
2000. As of September 2, 1999, receivables from KMT and TECH were $19.1 million
and $47.2 million and payables were $24.4 million and $32.0 million,
respectively.
9. Operating segment information
The Company has two reportable segments based on the nature of its
operations and products offered to customers: semiconductor operations and PC
operations. The semiconductor operations segment's primary product is DRAM. The
PC operations segment's primary products include desktop and notebook PC
systems, multiprocessor network servers, hardware services and e-services.
Intersegment sales for the second quarter and first six months of 2000 and
1999 are primarily comprised of sales from the Company's semiconductor
operations to the Company's PC operations segment. Intersegment sales are
eliminated to arrive at consolidated net sales.
11
<PAGE>
Notes to Consolidated Financial Statements, continued
Sales to two of the Company's major PC OEM customers each approximated 15%
of the Company's semiconductor operations net sales for the first six months of
2000.
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------------------ ------------------------------
March 2, March 4, March 2, March 4,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales
- -------------------------------------------------------------------------------------------------------------------------
Semiconductor operations
External $1,144.1 $ 703.2 $2,466.0 $1,130.0
Intersegment 7.9 15.0 25.5 25.7
-------- -------- -------- --------
$1,152.0 $ 718.2 $2,491.5 $1,155.7
PC operations
External $ 248.3 $ 321.7 $ 510.7 $ 685.3
Intersegment 2.0 1.8 3.2 2.4
-------- -------- -------- --------
$ 250.3 $ 323.5 $ 513.9 $ 687.7
All other - external $ 0.1 $ 0.9 $ 0.2 $ 4.1
Total segments $1,402.4 $1,042.6 $3,005.6 $1,847.5
Elimination of intersegment (9.9) (16.8) (28.7) (28.1)
-------- -------- -------- --------
Total consolidated net sales $1,392.5 $1,025.8 $2,976.9 $1,819.4
======== ======== ======== ========
Operating income (loss)
- -------------------------------------------------------------------------------------------------------------------------
Semiconductor operations $ 282.1 $ 91.3 $ 847.0 $ 34.3
PC operations (26.0) (15.6) (57.1) (13.5)
All other (2.0) (24.6) (3.9) (32.0)
------- ------- ------- -------
Total segments $ 254.1 $ 51.1 $ 786.0 $ (11.2)
Elimination of intersegment 0.3 0.2 0.4 --
------- ------- ------- -------
Total consolidated operating income (loss) $ 254.4 $ 51.3 $ 786.4 $ (11.2)
======= ======= ======= =======
</TABLE>
Segment assets consist of assets that are identified to reportable segments
and reviewed by the chief operating decision-makers. Included in segment assets
are cash, investments, accounts receivable, inventory and property, plant and
equipment.
<TABLE>
<CAPTION>
March 2, September 2,
Segment assets as of 2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Semiconductor operations $6,866.1 $6,001.9
PC operations 424.7 533.9
All other 14.5 15.5
-------- --------
7,305.3 6,551.3
Elimination of intersegment (91.6) (74.8)
-------- --------
$7,213.7 $6,476.5
======== ========
Reconciliation to total assets
- -----------------------------------------------------------------------------------------------------------------
Total segment assets $7,213.7 $6,476.5
Prepaid expenses 26.3 38.3
Deferred taxes 89.8 119.9
Product and process technology 215.7 212.6
Other assets (net of segment assets) 189.3 117.9
-------- --------
Total consolidated assets $7,734.8 $6,965.2
======== ========
</TABLE>
12
<PAGE>
Notes to Consolidated Financial Statements, continued
10. Commitments and contingencies
As of March 2, 2000, the Company had commitments of approximately $922.9
million for equipment purchases and $88.0 million for the construction of
buildings.
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 accrued a
liability and charged operations for the estimated costs of settlement or
adjudication of asserted and unasserted claims for alleged 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 a party to various other legal actions arising out of the
normal course of business, none of which are expected to have a material adverse
effect on the Company's financial position or results of operations.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
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Micron Technology, Inc. and its subsidiaries (hereinafter referred to
collectively as the "Company") principally design, develop, manufacture and
market semiconductor memory products and personal computer ("PC") systems.
Micron Technology, Inc. and its wholly-owned subsidiaries are hereinafter
referred to collectively as "MTI." The Company's PC operations are operated
through Micron Electronics, Inc. ("MEI"), a 61% owned, publicly-traded
subsidiary of MTI.
The following discussion contains trend information and other forward-
looking statements (including, for example, statements regarding future
operating results, future capital expenditures and facility expansion, new
product introductions, technological developments, and the effect thereof 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." This discussion should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
September 2, 1999. All period references are to the Company's fiscal periods
ended March 2, 2000, September 2, 1999, or March 4, 1999, unless otherwise
indicated. All per share amounts are presented on a diluted basis unless
otherwise stated.
Results of Operations
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Semiconductor operations $ 1,152.0 82.7% $ 718.2 70.0% $ 2,491.5 83.7% $ 1,155.7 63.5%
PC operations 250.3 18.0% 323.5 31.5% 513.9 17.3% 687.7 37.8%
All other 0.1 0.0% 0.9 0.1% 0.2 0.0% 4.1 0.2%
Intersegment (9.9) (0.7)% (16.8) (1.6)% (28.7) (1.0)% (28.1) (1.5)%
--------- ----- --------- ----- --------- ----- --------- -----
Consolidated net sales $ 1,392.5 100.0% $ 1,025.8 100.0% $ 2,976.9 100.0% $ 1,819.4 100.0%
========= ===== ========= ===== ========= ===== ========= =====
Operating income (loss):
Semiconductor operations $ 282.1 $ 91.3 $ 847.0 $ 34.3
PC operations (26.0) (15.6) (57.1) (13.5)
All other (2.0) (24.6) (3.9) (32.0)
Intersegment 0.3 0.2 0.4 0.0
--------- -------- --------- ---------
Consolidated operating income (loss) $ 254.4 $ 51.3 $ 786.4 $ (11.2)
========= ======== ========= =========
Net income (loss) $ 161.3 $ 22.4 $ 502.6 $ (23.7)
========= ======== ========= =========
Earnings (loss) per share $ 0.58 $ 0.08 $ 1.77 $ (0.09)
========= ======== ========= =========
</TABLE>
For the first quarter of 2000, net income was $341.3 million, or $1.19 per
share, on net sales of $1,584.4 million. Intersegment sales for the second
quarter and first six months of 2000 and 1999 are primarily comprised of sales
from the Company's semiconductor operations segment to the Company's PC
operations segment. Intersegment sales are eliminated to arrive at consolidated
net sales. (See "Notes to Consolidated Financial Statements - Operating Segment
Information.")
Net Sales
Consolidated net sales for the second quarter and first six months of 2000
increased by 36% and 64%, respectively, compared to the second quarter and first
six months of 1999, principally due to an increase in net sales from the
Company's semiconductor operations, partially offset by a decline in net sales
from the Company's PC
14
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operations. Consolidated net sales for the second quarter of 2000 decreased by
12% compared to the first quarter of 2000, principally due to a decrease in net
sales from the Company's semiconductor operations.
Net sales from semiconductor memory operations for the second quarter and
first six months of 2000 increased by 60% and 116%, respectively, as compared to
the corresponding periods of 1999. Notwithstanding lower average selling prices
for the Company's semiconductor memory products, in the second quarter and first
six months of 2000 the Company was able to achieve a higher level of net sales
as a result of increases in megabits produced. The increase in production was
attributable to continued improvements in manufacturing efficiencies through
ongoing transitions to successive reduced die size ("shrink") versions of
existing memory products, an increase in total wafer outs and shifts in the
Company's mix of semiconductor memory products to higher average density
products. Total megabits shipped increased by approximately 100% and 140% for
the second quarter and first six months of 2000, respectively, as compared to
the corresponding periods of 1999. Average selling prices per megabit of memory
declined 18% comparing the second quarter of 2000 to the second quarter of 1999
and declined 6% comparing the first six months of 2000 to the first six months
of 1999. The Company's primary memory product in the second quarter and first
six months of 2000 was the 64 Meg Synchronous DRAM ("SDRAM"), which comprised
approximately 62% and 66%, respectively, of the net sales of semiconductor
memory.
Net sales from semiconductor operations decreased by 14% in the second quarter
of 2000 as compared to the first quarter of 2000, primarily due to an
approximate 20% decrease in the average selling prices of semiconductor memory
products. The effect of this decrease in average selling prices was partially
offset by a slight increase in total megabits shipped.
Net sales from PC operations for the second quarter and first six months of
2000 decreased by 23% and 25% respectively, as compared to the corresponding
periods of 1999 primarily due to a decrease in unit sales and to a lesser extent
to a decrease in overall selling prices for the Company's PC systems. PC unit
sales for these comparative periods decreased by 28% and 27%, respectively, and
overall average selling prices decreased by 5% and 6%. The decrease in unit
sales for the second quarter and first six months of 2000 as compared to the
corresponding periods of 1999 is primarily due to lower consumer and commercial
sales, resulting in decreases in notebook shipments of 30% and 38% and
decreases in desktop shipments of 28% and 25%, respectively. Net sales from PC
operations for the second quarter of 2000 decreased by approximately 5% as
compared to the first quarter of 2000 primarily due to a 17% decrease in unit
sales. The decrease in unit sales is primarily due to a 19% decrease in desktop
unit shipments principally as a result of lower government sales.
Gross Margin
Second Quarter Six Months
----------------------- ---------------------------
2000 % Change 1999 2000 % Change 1999
----------------------- ---------------------------
Gross margin $511.1 82.1% $280.7 $1,324.8 234.0% $396.6
as a % of net sales 36.7% 27.4% 44.5% 21.8%
The increase in the Company's consolidated gross margin during the second
quarter and first six months of 2000, as compared to the corresponding periods
in 1999, are primarily attributable to the Company's semiconductor operations.
The Company's consolidated gross margin percentage for the first quarter of 2000
was 51%.
The Company's gross margin percentage from its semiconductor operations for
the second quarter and first six months of 2000 was 41% and 50%, respectively,
compared to 33% and 26% for the corresponding periods of 1999. The increase in
gross margin percentage for the Company's semiconductor operations for the
second quarter and first six months of 2000 compared to the corresponding
periods in 1999 resulted from decreases in per megabit manufacturing costs which
were partially offset by lower average selling prices. Decreases in per megabit
manufacturing costs were achieved principally through transitions to shrink
versions of existing products and shifts in the Company's mix of semiconductor
memory products to a higher average density.
The gross margin percentage for the Company's semiconductor operations for the
first quarter of 2000 was 58%. The decrease in gross margin percentage for the
Company's semiconductor operations in the second quarter of 2000
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<PAGE>
as compared to the first quarter of 2000 was primarily due to the approximate
20% decrease in average selling prices per megabit of memory and increased costs
for products purchased from MTI's joint ventures.
Subject to certain terms and conditions, MTI has agreed to purchase the
entire output from two joint venture wafer fabrication facilities, TECH
Semiconductor Singapore Pte. Ltd. ("TECH") and KMT Semiconductor Limited
("KMT"). TECH and KMT are collectively referred to herein as the "JVs." MTI is a
party to various agreements with the JVs whereby MTI provides technology,
engineering support, training and information systems support to the JVs. MTI
also performs assembly and test services on product manufactured by the JVs. The
cost of products purchased from the JVs is based in part on MTI's average
selling prices and is subject to significant fluctuations. All transactions with
the JVs are recognized as part of the net cost of products purchased from the
JVs and impact the Company's semiconductor operations gross margin percentage.
The Company's semiconductor operations gross margin percentage was negatively
impacted by a higher cost of products purchased from the JVs in the second
quarter of 2000.
The gross margin percentage for the Company's PC operations has remained
relatively flat for the second quarter and first six months of 2000 compared to
the corresponding periods of 1999 and for the second quarter of 2000 as compared
to the first quarter of 2000. The Company continues to experience pricing
pressure on sales of its PC systems. Additionally, the product sales mix during
the first six months of 2000 has been unfavorable due to the reduced shipments
of notebook products, which typically contribute higher gross margin
percentages.
Selling, General and Administrative
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------ ------------------------------
2000 % Change 1999 2000 % Change 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and administrative $142.7 13.7% $125.5 $310.3 35.8% $228.5
as a % of net sales 10.2% 12.2% 10.4% 12.6%
</TABLE>
The increase in selling, general and administrative expense for the second
quarter and first six months of 2000 as compared to the corresponding periods of
1999 reflects a higher level of personnel expense resulting from a higher level
of performance based compensation costs for the Company's semiconductor
operations and an increased number of administrative employees associated with
semiconductor and PC operations. Additionally, the increase in selling, general
and administrative expense for the first six months of 2000 as compared to the
first six months of 1999 reflects a $19 million charge in the first quarter of
2000 for the market value of MEI Common Stock contributed by MTI to the Micron
Technology Foundation (the "Foundation"). Selling, general and administrative
expenses for the second quarter of 2000 were approximately 15% lower than the
first quarter of 2000 primarily as a result of the contribution charge related
to the Foundation.
Research and Development
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------- ------------------------------
2000 % Change 1999 2000 % Change 1999
---------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research and development $103.5 21.1% $85.5 $195.2 27.4% $153.2
as a % of net sales 7.4% 8.3% 6.6% 8.4%
</TABLE>
Substantially all the Company's research and development efforts relate to its
semiconductor operations. Research and development expenses vary primarily with
personnel costs, the cost of advanced equipment dedicated to new product and
process development and the number of development wafers processed. Research and
development efforts are focused on .15(mu) and .13(mu) line width process
technologies, which are the primary determinants in transitioning to next
generation and future products. Simultaneous research and development efforts
across multiple products prepare the Company for future product introductions
and allow current products to utilize the advanced process technology to achieve
higher performance at lower production costs. Application of advanced process
technology currently is concentrated on design of shrink versions of the
Company's 128 Meg SDRAMs and on design and development of the Company's 256 Meg
and 512 Meg SDRAMs, direct Rambus(R) DRAM ("RDRAM"), Double Data Rate ("DDR")
SDRAM, Flash and SRAM memory products. Other research and development efforts
are currently devoted to the design and development of embedded memory products,
system-on-a-chip ("SOC") solutions, and memory technology enablement.
16
<PAGE>
Other Operating Expense, net
Other operating expense for the second quarter and first six months of 2000
includes net pre-tax losses of $7 million and $25 million, respectively, from
the write down and disposal of semiconductor operations equipment. Other
operating expense for the second quarter and first six months of 1999 includes a
$15 million charge to write down certain flat panel display assets, resulting in
an after tax loss of $0.03 and $0.04 per share, respectively.
Other Non-Operating Income, net
Other non-operating income for the first six months of 2000 includes a $10
million gain on the contribution by MTI of 1.9 million shares of MEI Common
Stock (the "Contribution") to the Foundation. The Contribution decreased MTI's
ownership interest in MEI from approximately 63% to 61%. Selling, general and
administrative expense in the first six months of 2000 reflects a $19 million
charge for the market value of the stock contributed.
Income Tax Provision (Benefit)
The effective tax rate for the second quarter and first six months of 2000
was 35%, compared to effective tax rates of 40% and 39%, respectively, for the
corresponding periods of 1999. The reduction in the effective tax rate is
principally a result of favorable tax treatment on permanently reinvested
earnings from certain of the Company's foreign operations. Taxes on earnings of
certain foreign operations and domestic subsidiaries not consolidated for tax
purposes may cause the effective tax rate to vary significantly from period to
period.
Recently Issued Accounting Standards
Recently issued accounting standards include Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities," issued by the FASB in June 1998 and Staff Accounting Bulletin
("SAB") No. 101 "Revenue Recognition in Financial Statements", issued by the
Securities and Exchange Commission in December 1999.
SFAS No. 133 requires that all derivatives be recorded as either assets or
liabilities in the balance sheet and marked to market on an ongoing basis. SFAS
No. 133 applies to all derivatives including stand-alone instruments, such as
forward currency exchange contracts and interest rate swaps, or embedded
derivatives, such as call options contained in convertible debt investments.
Along with the derivatives, the underlying hedged items are also to be marked to
market on an ongoing basis. These market value adjustments are to be included
either in the statement of operations or as a component of comprehensive income,
depending on the nature of the transaction. Implementation of SFAS No. 133 is
required for the Company by the first quarter of 2001. The implementation of
SFAS No. 133 is not expected to have a significant impact on the Company's
future results of operations or financial position.
SAB No. 101 summarizes certain staff views in applying generally accepted
accounting principles to revenue recognition in the financial statements.
Adoption is required for the Company by the first quarter of fiscal 2001. The
implementation of SAB No. 101 is not expected to impact results of the Company's
semiconductor operations and the Company is currently evaluating the effect SAB
No. 101 will have on results of the Company's PC operations.
Liquidity and Capital Resources
As of March 2, 2000, the Company had cash and liquid investments totaling $1.7
billion, representing an increase of $65 million during the first six months of
2000. The Company's principal source of liquidity during the first six months
of 2000 was net cash flow from operations of $707 million. The principal uses
of funds during the first six months of 2000 were $460 million for property,
plant and equipment expenditures and a $324 million increase in inventory. The
dollar value in inventory increased 89% comparing March 2, 2000, with September
2,
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1999, as production from the Company's semiconductor operations increased at a
faster pace than the demand for its products throughout most of the period.
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 continuously evaluates the financing of these
investments and in this regard has replaced its previous shelf registration
statement with an updated shelf registration statement pursuant to which the
Company may issue from time to time debt or equity securities for up to $1
billion. The Company currently estimates it will spend approximately $1.7
billion in fiscal 2000 for purchases of equipment and for construction and
improvement of buildings, of which it has spent approximately $595 million to
date. As of March 2, 2000, the Company had entered into contracts extending into
fiscal 2001 for approximately $923 million for equipment purchases and
approximately $88 million for the construction of facilities.
As of March 2, 2000, approximately $306 million of the Company's consolidated
cash and liquid investments were held by MEI. Cash generated by MEI is not
readily available to finance operations or other expenditures of the Company's
semiconductor memory operations. MEI has a $100 million unsecured credit
agreement, expiring June 2001 which contains certain restrictive covenants
pertaining to MEI, including certain financial ratios and limitations on the
amount of dividends declared or paid by the Company. As of March 2, 2000, MEI
had no borrowings outstanding under the agreement. MTI terminated its secured
revolving credit agreement effective December 2, 1999.
Subsequent Events
Call for Redemption of Notes
On March 27, 2000, the Company announced the call for redemption of all of its
7% Convertible Subordinated Notes due July 1, 2004 (the "Notes"). The aggregate
principal amount of the Notes outstanding as of March 2, 2000, was $500 million.
The redemption will be effective April 17, 2000. Holders may convert their
Notes into shares of Micron common stock at a price of approximately $67.44 per
share, or approximately 14.8272 shares of Micron common stock per $1,000
principal amount. Alternatively, holders may have their Notes redeemed at a
total redemption price of $1,070.61 per $1,000 principal amount.
Stock Split
On March 29, 2000, the Company's Board of Directors approved a 2-for-1 stock
split to be effected in the form of a stock dividend for shareholders of record
on April 18, 2000. The additional shares resulting from the split will be
distributed on May 1, 2000. Share and per share data presented in this Form 10-Q
have not been retroactively adjusted to reflect this stock split. (See "Notes to
Consolidated Financial Statements - 6. Stock Split.")
18
<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 September 2, 1999, 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 volatile nature of the DRAM industry could adversely affect our future
operating results
The DRAM industry is highly volatile. Due to the commodity nature of DRAM
products, when the supply of DRAM products exceeds the demand for such products,
average selling prices for DRAM products decline, sometimes quite rapidly. In
the past, our operating results have been adversely affected by:
. excess worldwide DRAM supply, and
. declines in average selling prices for DRAM products.
We have experienced dramatic declines in average selling prices for our memory
products which have adversely affected our business
Average selling prices for memory products have decreased approximately 30% on
a long-term, annualized basis. However, significant fluctuations in average
selling prices for our memory products, including DRAM, have occurred from time
to time, as shown in following chart:
Fiscal year to year comparison Average price per megabit decline
------------------------------ ---------------------------------
1999 to 1998 37%
1998 to 1997 60%
1997 to 1996 75%
1996 to 1995 46%
We are unable to predict pricing conditions for any future period. If average
selling prices for our memory products decrease faster than we are able to
decrease our per megabit manufacturing costs, our operations, cash flows and
financial condition would be adversely affected.
Increased worldwide DRAM production could lead to further declines in average
selling prices for memory products
We, like our competitors, are constantly seeking to improve yields, reduce die
size and use fewer manufacturing steps in our product design. These types of
improvements result in increases in worldwide supply of DRAM. Increases in
worldwide supply also result from DRAM capacity expansion, either by way of new
facilities or reallocating existing semiconductor production capacity to DRAM
production. Increases in worldwide supply of DRAM could lead to further
declines in average selling prices for our products and have an adverse affect
on our results of operations and cash flows.
We sell a majority of our memory products to the personal computer market and
are therefore dependent on the performance of personal computer ("PC") markets
We sold approximately 83% of our sales of memory products to PC or peripheral
markets for the second quarter of fiscal 2000 and approximately 85% of our sales
to PC or peripheral markets for the first six months of 2000. DRAMs are the
most widely used semiconductor memory component in most PCs. If the amount of
memory
19
<PAGE>
included in each PC decreases or if the growth rate in sales of PCs decreases,
sales of our memory products could also decrease. This could further decrease
average selling prices for our memory products.
If we are unable to continue to supply our customers with a large percentage of
their memory requirements, our results of operations and cash flows could be
adversely affected
We supply a number of major original equipment manufacturers with more than
30% of their memory requirements and aggregate sales to our five largest
customers comprised 44% of our semiconductor operations net sales for the first
six months of 2000. If any of these original equipment manufacturers reduce
their purchases of DRAM from us, our results of operations and cash flows could
be adversely affected.
If we are unable to make adequate capital investments, our results of operations
and cash flows could be adversely affected
In order to develop new product and process technologies, support future
growth, achieve operating efficiencies and maintain product quality, we must
invest significant amounts of capital in manufacturing technology, facilities
and capital equipment, research and development, and product and process
technology. We made approximately $1 billion in capital investments in fiscal
1999 and we expect to make $1.7 billion in capital investments in fiscal 2000.
If we are unable to make adequate capital investments, our results of operations
and cash flows could be adversely affected.
If we fail to effectively compete in the highly competitive semiconductor
industry, our results of operations and cash flows will be adversely affected
The semiconductor industry is highly competitive. We face intense competition
from a number of companies, including Hitachi, Ltd., Hyundai Electronics
Industries Co., Ltd., Infineon Technologies AG., NEC Corporation and Samsung
Semiconductor, Inc. Some of these competitors are very large corporations or
conglomerates that may have greater financial resources and a better ability to
withstand downturns in the semiconductor memory market. In addition, a number
of these competitors have historically been able to introduce new products more
quickly than we have. Consolidations in the semiconductor industry could put us
at a further disadvantage against these large competitors. If we fail to
effectively compete in the highly competitive semiconductor industry, our
results of operations and cash flows will be adversely affected.
If we are unable to reduce per megabit manufacturing costs, our results of
operations could be adversely affected
Our ability to reduce per megabit manufacturing costs of our memory products
depends on our ability to:
. design and develop new generation products,
. reduce the die size of our existing products, and
. increase the production of these products at acceptable rates to
acceptable yields.
If we are unable to address these factors, we may not be able to reduce our per
megabit manufacturing costs for our memory products and our results of
operations and cash flows could be adversely affected.
Our results of operations and cash flows could be adversely affected if our
manufacturing process is interrupted
We manufacture our products using processes that are highly complex, require
advanced and costly equipment and must continuously be modified to improve
yields and performance. Difficulties in the manufacturing process can reduce
yields or interrupt production. As a result, we may not be able to deliver
products on time or in a cost-
20
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effective manner. If production at a fabrication facility is interrupted, we
may not be able to shift production to other facilities on a timely basis or
customers may purchase products from other suppliers. In either case, the loss
of revenues and damage to the relationship with our customers could be
significant.
Our manufacturing efficiency may be adversely affected as we transition to
higher bandwidth products
The semiconductor industry is currently transitioning to higher bandwidth
products, including Double Data Rate Synchronous DRAM ("DDR SDRAM") and direct
Rambus DRAM ("RDRAM"). We may have trouble achieving the same manufacturing
efficiencies in higher bandwidth products that we have achieved in the past with
our other memory products. Our transition to higher bandwidth products may
adversely impact our:
. productivity levels,
. die per wafer yields,
. backend assembly, and
. test equipment requirements.
Our per megabit production costs may increase as a result of this transition to
higher bandwidth products. If we are unable to successfully transition to
higher bandwidth products, we may not be able to achieve our historical rate of
cost per megabit reductions.
We have enhanced our production processes in recent years which has led to an
increase in megabit production, but we may not be able to continue to increase
production at the same rate in the future
Historically, we have improved our production processes by reducing the die
size of our existing products. As a result, we have decreased our per megabit
production costs and significantly increased our megabit production. However,
we may not be able to maintain this historical rate of increase in megabit
production in the future. In addition, our manufacturing yield or production
may decrease as we implement future technologies. We may also from time to time
experience volatility in our manufacturing yields if we have problems ramping
the latest shrink versions of existing devices or new generation devices to
commercial volumes.
Third parties may assert that our products and processes infringe their
intellectual property rights. An adverse determination in this regard could
adversely affect our results of operation and financial condition.
From time to time third parties have asserted, and may in the future assert,
that our products or our processes may infringe product or process technology
rights held by others. If there was a determination that our manufacturing
processes or products infringed on the product or process rights held by others,
we could have significant liabilities to third parties or be required to make
material changes in our production processes. If our products infringed the
rights of others or we had to modify our production processes, our business,
results of operations or financial condition could be materially adversely
affected. We have also entered into a number of patent and intellectual
property license agreements with third parties. Some of these license
agreements require us to make one-time or periodic royalty payments. We may
also need to obtain additional patent licenses or to renew existing license
agreements in the future. We are unable to predict whether these license
agreements can be obtained or renewed on terms acceptable to us. If we are
unable to obtain or renew these license agreements on acceptable terms, our
business, results of operations or financial condition could be materially
adversely affected.
Interruptions in the availability of raw materials could adversely affect our
results of operations
Our semiconductor operations require raw materials that must meet exacting
standards. We generally have more than one source of supply for our raw
materials. However, there are only a limited number of suppliers capable of
delivering raw materials that meet our standards. If there is an increase in
worldwide semiconductor
21
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manufacturing, the availability of raw materials may decrease. For example,
silicon wafers, photomasks, chemicals, lead frames and molding compound may
become difficult to obtain if there is an increase in semiconductor
manufacturing. Our operations in the past have not been interrupted as a result
of raw materials shortages. However, shortages may occur from time to time in
the future. Lead times for the supply of raw materials have also been extended
in the past. If our supply of raw materials is interrupted, our results of
operations could be adversely affected.
If our supply of memory products from our joint ventures is interrupted, our
results of operations could be adversely affected
We are partners in two joint ventures that supply us with DRAMs. We have
agreed to purchase all of our joint ventures' production, subject to specified
terms and conditions. These joint ventures have historically required external
financing to fund their operations and to transition to next generation
technology. These joint ventures are also dependent on particular key personnel
and have a limited number of sources for raw materials. Our supply from these
joint ventures would be reduced if:
. they are unable to secure required external financing,
. they experience a loss of key personnel,
. they incur significant interruption in the delivery of raw materials,
or
. there are disruptions in their manufacturing process.
Any reduction of supply, regardless of cause, could adversely affect our results
of operations and cash flows.
If we are unable to retain existing key employees or are unable to hire new
qualified employees, our operating results could be adversely affected
We depend on a limited number of key management and technical personnel. Our
future success depends in part on our ability to attract and retain highly
qualified personnel in our worldwide operations, particularly as we add
different product types. Competition for skilled management and technical
employees is intense within our industry. Other employers have increased their
recruitment of our existing personnel.
We face risks associated with our international sales and operations that could
adversely affect our operating results
International sales comprised approximately 36% of our consolidated net sales
in the second quarter of fiscal 2000 and 37% of our consolidated net sales in
the first six months of fiscal 2000. We expect international sales to continue
to increase in the future. In addition, we have manufacturing operations in
Italy, Singapore, Japan and Scotland. Our international sales and international
operations are subject to a variety of risks, including:
. currency fluctuations, export duties, changes to import and export
regulations and restrictions on the transfer of funds,
. employee turnover and labor unrest,
. longer payment cycles and greater difficulty in collecting accounts
receivable, and
. the burdens and costs of compliance with a variety of international
laws, and political and economic instability.
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These factors may adversely impact our business, results of operations and
financial condition.
If our subsidiary Micron Electronics, Inc. fails to effectively compete in the
highly competitive PC and e-services industry, our results of operations could
be adversely affected
Historically, our operations have been affected by the operating results of
Micron Electronics, Inc. ("MEI"), a PC and e-services business. MEI is a
publicly traded company in which we own a majority of the common stock. MEI's
results of operations, and the potential effect upon our results of operations,
are linked to MEI's ability to effectively compete in the PC and e-services
market places. This success depends on many factors, including MEI's ability to:
. accurately forecast technology trends, design and introduce new PC
products and correctly identify demand for such products,
. effectively manage materials and finished goods inventories,
manufacturing constraints, and component costs,
. gain market share and effectively market PC products directly to end
customers relative to MEI's competitors, and
. identify value added e-services solutions, build an e-services
infrastructure to deliver such solutions and generate e-services
customers at acceptable margins.
If MEI fails to effectively compete in the PC and e-services industries, our
results of operations could be adversely affected.
We may not be able to generate sufficient cash flow to fund our operations if
average selling prices of memory products decline
Substantially all of our cash flow from semiconductor operations has
historically been invested in capacity expansion and enhancement programs. Our
cash flow from operations depends primarily on average selling prices and per
megabit manufacturing costs of our semiconductor memory products. If average
selling prices decline faster than the rate we are able to decrease our per
megabit manufacturing costs, we may not be able to generate sufficient cash
flows to sustain our operations. We may not be able to obtain other external
sources of liquidity to fund our operations or our capacity and product and
process technology enhancement programs. If we were unable to obtain additional
financing, we may not be able to make investments in the enhancement programs,
which could materially adversely affect our business, results of operations and
financial condition.
Two of our shareholders own a significant portion of our common stock that could
limit our ability to raise additional equity capital
As of March 2, 2000, Texas Instruments Incorporated and Intel Corporation held
an aggregate of 44,743,369 shares of common stock, representing 16% of our total
outstanding common stock. We have not registered these shares with the
Commission. However, Texas Instruments and Intel each have registration rights.
Until such time as Texas Instruments and Intel substantially reduce their common
stock holdings, we may be limited in raising additional financing through equity
or equity-linked offerings. Texas Instruments also holds notes with a face
value of $740 million which are convertible into 12,333,333 shares of our common
stock. Texas Instruments' resale of these notes could affect our ability to
raise capital through the issuance of additional convertible debt instruments.
23
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
Substantially all of the Company's liquid investments and long-term debt are
at fixed interest rates; therefore, the fair value of these instruments is
affected by changes in market interest rates. However, substantially all of the
Company's liquid investments mature within one year. As a result, the Company
believes that the market risk arising from its holdings of financial instruments
is minimal. As of March 2, 2000, the Company held aggregate cash and
receivables in foreign currency valued at approximately US $53 million and
aggregate foreign currency payables valued at approximately US $97 million
(including long-term liabilities denominated in Euros valued at approximately US
$17 million). Foreign currency receivables and payables are comprised primarily
of Euros, Singapore Dollars and British Pounds.
24
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
- --------------------------------------------------------
The registrant's 1999 Annual Meeting of Shareholders was held on January 18,
2000. At the meeting, the following items were submitted to a vote of the
shareholders:
(a) The following nominees for Directors were elected. Each person elected
as a Director will serve until the next annual meeting of shareholders or until
such person's successor is elected and qualified.
Votes Votes Cast
Name of Nominee Cast For Against/Withheld
- --------------------- ----------- ----------------
Steven R. Appleton 227,100,536 5,856,317
James W. Bagley 227,048,701 5,908,152
Robert A. Lothrop 227,075,638 5,881,215
Thomas T. Nicholson 227,089,568 5,867,285
Don J. Simplot 227,030,536 5,926,317
Gordon C. Smith 227,070,066 5,886,787
William P. Weber 227,108,056 5,848,797
(b) The renewal of the Company's current Executive Bonus Plan for purposes of
Section 162(m) of the Internal Revenue Code was approved with 207,090,272 votes
in favor, 24,960,562 votes against, 906,019 abstentions and 0 broker non-votes.
(c) The ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending August 31,
2000, was approved with 232,116,910 votes in favor, 219,423 votes against,
620,520 abstentions and 0 broker non-votes.
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
------ ----------------------------------------------------------------
27 Financial Data Schedule
(b) The registrant did not file any reports on Form 8-K during the fiscal
quarter ended March 2, 2000.
25
<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 10, 2000 /s/ Wilbur G. Stover, Jr.
------------------------------------------------
Wilbur G. Stover, Jr., Vice President of Finance
and Chief Financial Officer (Principal Financial
and Accounting Officer)
26
<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> AUG-31-2000
<PERIOD-START> SEP-03-1999
<PERIOD-END> MAR-02-2000
<CASH> 430
<SECURITIES> 1,249
<RECEIVABLES> 929
<ALLOWANCES> (53)
<INVENTORY> 690
<CURRENT-ASSETS> 3,360
<PP&E> 6,421
<DEPRECIATION> (2,494)
<TOTAL-ASSETS> 7,735
<CURRENT-LIABILITIES> 968
<BONDS> 1,464
0
0
<COMMON> 27
<OTHER-SE> 4,706
<TOTAL-LIABILITY-AND-EQUITY> 7,735
<SALES> 2,977
<TOTAL-REVENUES> 2,977
<CGS> 1,652
<TOTAL-COSTS> 2,191
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13)
<INCOME-PRETAX> 775
<INCOME-TAX> (273)
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<NET-INCOME> 503
<EPS-BASIC> 1.86
<EPS-DILUTED> 1.77
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