Reports on Form 8-K
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__________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
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended
December 2, 1999November 30, 2000OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934Commission File Number: 1-10658
Micron Technology, Inc.
State or other jurisdiction of incorporation or organization: Delaware
________________Internal Revenue
Service - EmployerService-Employer Identification No. 75-16180048000 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/x/ No___ ---/ /The number of outstanding shares of the registrant's
Common Stockcommon stock as of January10, 2000,5, 2001, was254,422,506 shares of Common Stock and 15,810,277 shares of Class A Common Stock.Part593,340,331.Item 1. Financial Statements
- -----------------------------MICRON TECHNOLOGY, INC.
Consolidated Balance Sheets
(Dollars
(Amounts in millions exceptforparvalue)value amounts)
December 2, September 2, As of 1999 1999 - ---------------------------------------------------------------------------------------------------------- (Unaudited)ASSETS Cash and equivalents $ 441.6 $ 294.6 Liquid investments 1,444.8 1,318.9 Receivables 916.4 692.6 Inventories 504.1 365.7 Prepaid expenses 27.2 38.3 Deferred income taxes 93.4 119.9 -------- -------- Total current assets 3,427.5 2,830.0 Product and process technology, net 206.4 212.6 Property, plant and equipment, net 3,828.7 3,799.6 Other assets 118.8 123.0 -------- -------- Total assets $7,581.4 $6,965.2 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 883.6 $ 705.4 Deferred income 48.4 23.4 Equipment purchase contracts 64.2 81.5 Current portion of long-term debt 108.8 111.7 -------- -------- Total current liabilities 1,105.0 922.0 Long-term debt 1,501.5 1,527.5 Deferred income taxes 323.9 309.1 Other liabilities 81.4 74.2 -------- -------- Total liabilities 3,011.8 2,832.8 -------- -------- Minority interests 183.5 168.3 Commitments and contingencies Common Stock, $0.10 par value, authorized 1.0 billion shares, issued and outstanding 254.1 million and 252.2 million shares, respectively 25.4 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 1,973.6 1,894.0 Retained earnings 2,386.8 2,045.4 Accumulated other comprehensive loss (1.3) (2.1) -------- -------- Total shareholders' equity 4,386.1 3,964.1 -------- -------- Total liabilities and shareholders' equity $7,581.4 $6,965.2 ======== ========
As of November 30,
2000August 31,
2000(unaudited) ASSETS Cash and equivalents $ 568.7 $ 701.7 Liquid investments 1,894.8 1,764.7 Receivables 992.6 1,573.7 Inventories 1,026.4 704.8 Prepaid expenses 38.9 22.4 Deferred income taxes 188.7 137.1 Total current assets 4,710.1 4,904.4
Product and process technology, net
211.9
213.0Property, plant and equipment, net 4,508.5 4,257.6 Other assets 371.0 256.5 Total assets $ 9,801.5 $ 9,631.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,280.9 $ 1,465.8 Deferred income 58.2 87.9 Equipment purchase contracts 57.9 45.9 Current portion of long-term debt 50.2 47.9 Total current liabilities 1,447.2 1,647.5
Long-term debt
242.5
933.7Deferred income taxes 326.6 333.5 Other liabilities 88.6 85.5 Total liabilities 2,104.9 3,000.2
Commitments and contingencies
Minority interests
200.4
199.3
Common stock, $0.10 par value, authorized 3.0 billion shares, issued and outstanding 593.0 million and 567.3 million shares, respectively
59.3
56.7Additional capital 3,533.3 2,824.2 Retained earnings 3,901.9 3,549.6 Accumulated other comprehensive income 1.7 1.5 Total shareholders' equity 7,496.2 6,432.0 Total liabilities and shareholders' equity $ 9,801.5 $ 9,631.5 See accompanying notes to consolidated financial statements.
1
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Dollars
(Amounts in millions exceptforper sharedata)amounts)
(Unaudited)
December 2, December 3, For the quarter ended 1999 1998 - -----------------------------------------------------------------------------------------------------Net sales $1,584.4 $ 793.6 -------- ------- Costs and expenses: Cost of goods sold 770.7 677.7 Selling, general and administrative 167.6 103.0 Research and development 91.7 67.7 Other operating expense, net 22.4 7.8 -------- ------- Total costs and expenses 1,052.4 856.2 -------- ------- Operating income (loss) 532.0 (62.6) Interest income 23.2 -- Interest expense (31.7) (7.9) Other non-operating income, net 9.6 1.0 -------- ------- Income (loss) before income taxes and minority interests 533.1 (69.5) Income tax (provision) benefit (186.2) 27.6 Minority interests in net income (5.6) (4.3) -------- ------- Net income (loss) $ 341.3 $ (46.2) ======== ======= Earnings (loss) per share: Basic $ 1.27 $ (0.19) Diluted 1.19 (0.19) Number of shares used in per share calculations: Basic 269.2 245.7 Diluted 297.4 245.7
For the quarter ended November 30,
2000December 2,
1999Net sales $ 1,832.3 $ 1,584.4 Costs and expenses: Cost of goods sold 1,041.0 770.7 Selling, general and administrative 149.6 167.6 Research and development 139.5 91.7 Other operating (income) expense, net (1.8 ) 22.4 Total costs and expenses 1,328.3 1,052.4
Operating income
504.0
532.0
Interest income 44.2 23.2 Interest expense (10.5 ) (31.7 ) Other non-operating income, net 5.1 9.6 Income before income taxes and minority interests 542.8 533.1
Income tax provision
(189.9
)
(186.2
)
Minority interests in net income
(0.7
)
(5.6
)Net income $ 352.2 $ 341.3
Earnings per share:
Basic $ 0.61 $ 0.63 Diluted 0.58 0.60 Number of shares used in per share calculations: Basic 581.9 538.5 Diluted 609.4 595.1 See accompanying notes to consolidated financial statements.
2
Consolidated Statements of Cash Flows
(Dollars
(Amounts in millions)
(Unaudited)
December 2, December 3, For the three months ended 1999 1998 - ------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 341.3 $ (46.2) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 229.5 189.5 Change in assets and liabilities, net of effects of acquisition Decrease (increase) in receivables (212.7) 112.3 Increase in inventories (138.5) (36.4) Increase in accounts payable and accrued expenses, net of plant and equipment payables 219.7 65.8 Other 109.4 (29.4) ---------- ---------- Net cash provided by operating activities 548.7 255.6 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale and held-to-maturity securities (737.7) (1,273.5) Proceeds from sales and maturities of securities 623.0 211.5 Expenditures for property, plant and equipment (219.8) (117.5) Other 1.4 (1.5) ---------- ---------- Net cash used for investing activities (333.1) (1,181.0) CASH FLOWS FROM FINANCING ACTIVITIES Payments on equipment purchase contracts (86.5) (73.9) Proceeds from issuance of common stock 51.9 519.1 Repayments of debt (34.3) (28.3) Cash received in conjunction with acquisition -- 681.1 Proceeds from issuance of debt -- 34.0 Other 0.3 2.3 ---------- ---------- Net cash provided by (used for) financing activities (68.6) 1,134.3 ---------- ---------- Net increase in cash and equivalents 147.0 208.9 Cash and equivalents at beginning of period 294.6 558.8 ---------- ---------- Cash and equivalents at end of period $ 441.6 $ 767.7 ========== ========== SUPPLEMENTAL DISCLOSURES Interest paid, net of amounts capitalized $ (35.0) $ (6.9) Income taxes refunded, net 86.4 183.2 Noncash investing and financing activities: Equipment acquisitions on contracts payable and capital leases 71.1 18.3 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 ========== ==========
For the three months ended November 30,
2000December 2,
1999CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 352.2 $ 341.3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 274.5 229.5 Additional paid in capital tax effect from stock purchase plans 6.3 26.1 Change in assets and liabilities: Decrease (increase) in receivables, net of noncash reclassifications 581.1 (212.7 ) Increase in inventories (321.6 ) (138.5 ) Increase (decrease) in accounts payable and accrued expenses, net of plant and equipment purchases (158.2 ) 219.7 Other (117.6 ) 83.3 Net cash provided by operating activities 616.7 548.7
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (506.8 ) (219.8 ) Purchase of available-for-sale securities (791.9 ) (638.0 ) Proceeds from maturities of available-for-sale securities 621.5 564.7 Proceeds from sales of available-for-sale securities 10.0 24.6 Purchase of held-to-maturity securities (56.7 ) (99.7 ) Proceeds from maturities of held-to-maturity securities 36.0 33.7 Other (49.6 ) 1.4 Net cash used for investing activities (737.5 ) (333.1 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 19.5 51.9 Payments on equipment purchase contracts (25.3 ) (86.5 ) Repayments of debt (12.7 ) (34.3 ) Proceeds from issuance of debt 6.1 — Other 0.2 0.3 Net cash used for financing activities (12.2 ) (68.6 ) Net increase (decrease) in cash and equivalents (133.0 ) 147.0 Cash and equivalents at beginning of period 701.7 294.6 Cash and equivalents at end of period $ 568.7 $ 441.6 SUPPLEMENTAL DISCLOSURES Income taxes refunded (paid), net $ (258.3 ) $ 86.4 Interest paid, net of amounts capitalized (31.1 ) (35.0 ) Noncash investing and financing activities: Equipment acquisitions on contracts payable and capital leases 37.3 71.1 Net conversion of notes to equity 684.6 — See accompanying notes to consolidated financial statements.
3
MICRON TECHNOLOGY, INC.
Consolidated Statements of Comprehensive Income
(Loss) (Dollars
(Amounts in millions)
(Unaudited)
December 2, December 3, For the quarter ended 1999 1998 - ---------------------------------------------------------------------------------------Net income (loss) $ 341.3 $ (46.2) Foreign currency translation adjustment -- (0.2) Unrealized gain on investments 0.7 -- ------- ------- Total comprehensive income (loss) $ 342.0 $ (46.4) ======= =======
For the quarter ended November 30,
2000December 2,
1999Net income $ 352.2 $ 341.3 Unrealized gain on investments 0.3 0.7 Total comprehensive income, net of tax $ 352.5 $ 342.0 See accompanying notes to consolidated financial statements.
4
Notes to Consolidated Financial Statements
(All
(All tabulardollaramountsare statedinmillions)millions except per share amounts)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." The Company's PC operations are operated through Micron Electronics, Inc. ("MEI"),
an approximatelya 61% owned, publicly traded subsidiary ofthe Company, is hereinafter referred to as "MEI."MTI.Recently issued accounting standards include
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," issued by the AICPA in March 1998 andStatement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," issued by the FASB in June1998. SOP 98-1 requires companies to capitalize certain costs of computer software developed or obtained for internal use. The Company, which previously capitalized costs of purchased internal-use computer software1998 andexpensed costs of internally developed internal-use software as incurred, adoptedStaff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements," issued by thestandardSecurities and Exchange Commission inthe first quarter of 2000 for developmental costs incurred in that quarter and thereafter. The adoption did not have a material impact on the Company's results of operations.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,
thecertain 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.ImplementationThe Company adopted the standard in the first quarter ofSFAS2001. The adoption did not affect the Company's results of operations or financial position.SAB No.
133101 summarizes certain staff views in applying generally accepted accounting principles to revenue recognition in the financial statements. Adoption is required for the Company by thefirstfourth quarter of 2001. The implementation ofSFAS 133SAB No. 101 is not expected to have a significant impact on the Company's future results of operations or financial position.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.August 31, 2000.
2. Supplemental balance sheet information December 2, September 2, 1999 1999 - ---------------------------------------------------------------------------- Receivables - ----------------------------------------------------------------------------Trade receivables $ 854.4 $ 542.4 Income taxes receivable 11.6 100.8 Allowance for returns and discounts (31.0) (38.2) Allowance for doubtful accounts (12.4) (9.8) Other receivables 93.8 97.4 ------- ------- $ 916.4 $ 692.6 ======= =======5
Notes to Consolidated Financial Statements, continued
Inventories - ----------------------------------------------------------------------------Finished goods $ 197.3 $ 136.3 Work in progress 246.9 173.6 Raw materials and supplies 76.9 71.5 Allowance for obsolescence (17.0) (15.7) ------- ------- $ 504.1 $ 365.7 ======= =======
Product and process technology - ----------------------------------------------------------------------------Product and process technology, at cost $ 328.7 $ 325.2 Less accumulated amortization (122.3) (112.6) -------- -------- $ 206.4 $ 212.6 ======== ========
Property, plant and equipment - ------------------------------------------------------------------------------Land $ 41.8 $ 42.2 Buildings 1,193.1 1,172.4 Equipment 4,203.8 4,074.4 Construction in progress 767.7 726.0 --------- ---------- 6,206.4 6,015.0 Less accumulated depreciation and amortization (2,377.7) (2,215.4) --------- ---------- $ 3,828.7 $ 3,799.6 ========= ==========2. Supplemental balance sheet information
November 30,
2000August 31,
2000Receivables Trade receivables $ 868.3 $ 1,354.2 Receivables from joint ventures 30.2 79.4 Taxes receivable other than income 58.1 72.3 Interest receivable 24.4 18.9 Other receivables 42.5 87.5 Allowance for returns and discounts (18.2 ) (19.9 ) Allowance for doubtful accounts (12.7 ) (18.7 ) $ 992.6 $ 1,573.7 Inventories Finished goods $ 568.6 $ 290.0 Work in progress 343.9 331.1 Raw materials and supplies 124.5 96.3 Allowance for obsolescence (10.6 ) (12.6 ) $ 1,026.4 $ 704.8 Property, plant and equipment Land $ 46.3 $ 46.3 Buildings 1,372.1 1,360.6 Equipment 5,230.7 4,851.1 Construction in progress 666.4 627.4 Software 209.0 200.7 7,524.5 7,086.1 Less accumulated depreciation and amortization (3,016.0 ) (2,828.5 ) $ 4,508.5 $ 4,257.6 As of
December 2, 1999,November 30, 2000, property, plant and equipment included totalunamortizedcosts of$708.3$1,034.5 million for the Company's semiconductor memory manufacturing facility in Lehi, Utah, of which$647.6$575.6 million has not been placed in service and is not being depreciated. Timingof thefor completionof the remainderof the Lehi facility is dependent upon marketconditions. Marketconditions,which the Company expects to evaluate include,including, butarenot 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 ofDecember 2, 1999, itNovember 30, 2000, determined there wasdetermined to haveno impairment.Depreciation expense was
$213.6$256.6 million and$181.1$213.6 million for the first quarter of 2001 and 2000,and 1999,respectively.
December 2, September 2, 1999 1999 - ---------------------------------------------------------------------------- Accounts payable and accrued expenses - ----------------------------------------------------------------------------Accounts payable $465.6 $453.1 Salaries, wages and benefits 150.9 95.4 Interest payable 26.6 33.9 Taxes payable other than income 52.9 33.4 Product and process technology payable 17.8 24.0 Income taxes payable 126.2 13.7 Other 43.6 51.9 ------ ------ $883.6 $705.4 ====== ======6
Notes to Consolidated Financial Statements, continued
Debt - ----------------------------------------------------------------------------------------------------Convertible subordinated notes payable, due October 2005, with an effective yield to maturity of 8.4%, net of unamortized discount of $62.7 million $ 677.3 $ 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 $36.9 million 173.1 171.9 Notes payable in periodic installments through July 2015, weighted average interest rate of 7.35% and 7.37%, respectively 228.9 259.0 Capitalized lease obligations payable in monthly installments through August 2004, weighted average interest rate of 7.69% and 7.52%, respectively 31.0 33.1 -------- -------- 1,610.3 1,639.2 Less current portion (108.8) (111.7) -------- -------- $1,501.5 $1,527.5 ======== ========
November 30,
2000August 31,
2000Accounts payable and accrued expenses Accounts payable $ 712.1 $ 732.5 Income taxes payable 269.6 288.2 Salaries, wages and benefits 174.7 236.6 Taxes payable other than income 49.0 98.5 Product and process technology payable 21.1 22.8 Interest payable 4.5 27.6 Other 49.9 59.6 $ 1,280.9 $ 1,465.8 Debt Convertible subordinated notes payable, due October 2005, with an effective yield to maturity of 8.4%, net of unamortized discount of $56.2 million $ — $ 683.8 Subordinated notes payable, due October 2005, with an effective yield to maturity of 10.7%, net of unamortized discount of $32.0 million and $33.3 million, respectively 178.0 176.7 Notes payable in periodic installments through July 2015, weighted average interest rate of 7.2% and 7.3%, respectively 84.3 94.5 Capitalized lease obligations payable in monthly installments through August 2004, weighted average interest rate of 9.0% and 7.8%, respectively 30.4 26.6 292.7 981.6 Less current portion (50.2 ) (47.9 ) $ 242.5 $ 933.7 The convertible subordinated notes due October 2005
(the "Convertible Notes") with an effective yield to maturity of 8.4% have a face value of $740were converted into approximately 24.7 millionand a stated interest rate of 6.5%. The Convertible Notes are convertible intoshares of the Company's common stockat $60 per share. The Company may call for the early redemption of the Convertible Notes betweenon October2000 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 are convertible into shares of the Company's common stock at $67.44 per share. The Company may call for the early redemption of the notes through July 2001 if the price of the Company's common stock is at least $87.67 per share for a specified trading period. Subsequent to July 2001, the 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.10, 2000.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
December 2, 1999,November 30, 2000, MEI had no borrowings outstanding under the agreement.MTI terminated its secured revolving credit agreement effective December 2, 1999.3. Other operating (income) expense, net
Other operating income for the first quarter of 2001 primarily reflects the net pre-tax gain from sales of semiconductor operations equipment. Other operating expense for the first quarter of 2000
includes aprimarily reflects the netpre- taxpre-tax chargeof $18.2 millionfrom thewrite downwrite-down and disposal of semiconductor operations equipment.7Notes to Consolidated Financial Statements, continued4. Other non-operating income, net
Other non-operating income for the first quarter of 2001 reflects a gain of $4.5 million on the sale of MEI's remaining interest in MCMS, Inc., formerly Micron Custom Manufacturing Services, a wholly owned subsidiary of MEI. Other non-operating income for the first quarter of 2000 includes a $9.7 million gain on the contribution by MTI of 1.9 million shares of MEI
Common Stockcommon stock (the "Contribution") to the Micron Technology Foundation. The Contribution decreased MTI's ownership7
interest in MEI from approximately 63% to 61%. Selling, general and administrative expense in the first quarter of 2000 reflects an $18.7 million charge for the market value of the stock contributed.
5. Income tax provision
(benefit)The effective tax rate for the first quarter of
20002001 and19992000 approximated 35%and 40%, 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..6. Earnings
(loss)per shareBasic earnings per share is calculated using the weighted average number of
commonsharesoutstanding.outstanding during the period. Diluted earnings per shareis computed onincorporates thebasis ofadditional shares issued from theaverage number of common shares outstanding plus the effectassumed exercise of outstanding stock options using the "treasurystock method"stock" method and conversion of convertible debentures using the "if-converted"method. Dilutedmethod, when dilutive. Additional shares from the assumed conversion of convertible debentures are excluded from earnings per sharefurther assumes the conversion of MTI's convertible subordinated notes for the periods in which they were outstanding, unless such assumedcalculations when conversion wouldnotbedilutive.
December 2, December 3, For the quarter ended 1999 1998 - ----------------------------------------------------------------------------------------------------------------Net income (loss) available for common shareholders, Basic $341.3 $ (46.2) ====== ======= Net income (loss) available for common shareholders, Diluted $355.0 $ (46.2) ====== ======= Weighted average common stock outstanding - Basic 269.2 245.7 Net effect of dilutive stock options 8.4 -- Net effect of dilutive convertible subordinated notes 19.8 -- ------ ------- Adjusted weighted average common stock - Diluted 297.4 245.7 ====== ======= Basic income (loss) per share $ 1.27 $ (0.19) ====== ======= Diluted income (loss) per share $ 1.19 $ (0.19) ====== =======The averageantidilutive.
For the quarter ended November 30,
2000December 2,
1999Net income available for common shareholders, Basic $ 352.2 $ 341.3 Adjustments for effects of assumed conversions 3.1 13.7 Net income available for common shareholders, Diluted $ 355.3 $ 355.0 Weighted average common shares outstanding, Basic 581.9 538.5 Adjustments for effects of assumed exercises and conversions 27.5 56.6 Weighted average common shares and share equivalents outstanding, Diluted 609.4 595.1 Basic earnings per share $ 0.61 $ 0.63 Diluted earnings per share $ 0.58 $ 0.60 Average employee stock plan shares
listed belowof 3.7 million and 1.9 million for November 30, 2000, and December 2, 1999, respectively, were not included in the computation of diluted earnings per share because to do so would have beenantidilutive for the periods presented:
December 2, December 3, For the quarter ended 1999 1998 - --------------------------------------------------------------------------------------------------------------------Employee stock plans 0.9 27.4 8.4% convertible subordinated notes payable due 2005 -- 8.8 7.0% convertible subordinated notes payable due 2004 -- 7.48Notes to Consolidated Financial Statements, continuedantidilutive.7.
Acquisition On September 30, 1998,Joint venturesMTI
completed the acquisition (the "Acquisition") of substantially all of the memory operations of Texas Instruments Incorporated ("TI") for a net purchase price of approximately $832.8 million. The Acquisition was consummated through the issuance of debt and equity securities. In connection with the transaction, MTI issued 28.9 million shares of MTI common stock, $740 million principal amount of Convertible Notes and $210 million principal amount of subordinated notes. In addition to TI's net memory assets, MTI received $681.1 million in cash. The Acquisition was accounted for as a business combination using the purchase method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. MTI and TI also entered into a ten-year, royalty- free, life-of-patents, patent cross license that commenced on January 1, 1999. MTI made royalty payments to TI under a prior cross license agreement for operations through December 31, 1998. The following unaudited pro forma information presents the consolidated results of operations of the Company for the first quarter of 1999 as if the Acquisition had taken place at the beginning of fiscal 1999:
December 3, For the quarter ended 1998 - -------------------------------------------------------------------Net sales $ 848.9 Net loss (63.4) Basic loss per share (0.23) Diluted loss per share (0.23)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. 8. Equity investment On October 19, 1998, Intel Corporation ("Intel") invested $500 million in the Company and as a result holds approximately 15.8 million shares of MTI's non-voting Class A Common Stock. The Class A Common Stock represented approximately 6% of MTI's outstanding common stock as of December 2, 1999. The Class A Common Stock will automatically be converted into MTI's common stock, subject to certain adjustments, upon a transfer to a holder other than Intel or a 90% owned subsidiary of Intel. As of December 2, 1999, the Class A Common Stock was convertible into common stock on a one-to-one basis. The Class A Common Stock issued to Intel has not been registered under the Securities Act of 1933, as amended, and is therefore subject to certain restrictions on resale. MTI and Intel entered into a securities rights and restrictions agreement which provides Intel with certain registration rights and places certain restrictions on Intel's voting rights and other activities with respect to the shares of MTI Class A Common Stock or common stock. Intel also has the right to designate a director nominee, acceptable to MTI's Board of Directors. Pursuant to its agreement with Intel, MTI committed to the development of direct Rambus(R) DRAM ("RDRAM") and to make available to Intel a certain percentage of its semiconductor memory output over a five-year period, subject to certain limitations. 9. Joint Ventures MTI has interestsparticipates in two memory manufacturing jointventure wafer fabrication facilities:ventures: TECH Semiconductor Singapore Pte. Ltd. ("TECH") and KMT Semiconductor Limited ("KMT"). TECH, which operates in Singapore, is a joint ventureamongbetween MTI, the Singapore Economic Development Board, Canon Inc. and Hewlett-Packard Company. KMT,9Notes to Consolidated Financial Statements, continuedwhich operates in Japan, is a joint venture between MTI and Kobe Steel, Ltd. TECH and KMT are collectively referred to herein as the"JVs"."JVs."Subject to certain terms and conditions, MTI has agreed to purchase
the entire outputall of theJVs.JVs' production. MTI purchases semiconductor memory products from the JVs at prices generally determined quarterly based on a discount from MTI's average selling prices. MTI is a party to various agreements with the JVs whereby MTI provides technology, engineering support and trainingand information system supportto assist theJVs.JVs in operating advanced wafer fabrication facilities to produce MTI DRAM products. 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,includingamounting to $205.5 million for KMT and $404.0 million for TECH for theamortization on the valuefirst quarter ofthe JV supply agreements, amounted to2001 and $113.6 million for KMT and $62.1 million forKMT andTECHrespectively,for the first quarter of 2000,and $24.3 million and $8.5reflects all transactions with the JVs.8
MTI is amortizing the purchase price allocated to the JV supply arrangements on a straight-line basis over the remaining contractual life of the shareholder agreements. Amortization expense resulting from the JV supply arrangements, included in the cost of product purchased from the JVs, was $2.9 million for the first quarter of
1999.2001 and $0.6 million for the first quarter of 2000. Receivables from KMT and TECH were$15.1$12.1 million and$54.6$18.1 million and payables were$76.8$73.9 million and$36.1$134.3 million, respectively, as ofDecember 2, 1999.November 30, 2000. As ofSeptember 2, 1999,August 31, 2000, receivables from KMT and TECH were$19.1$12.6 million and$47.2$66.8 million and payables were$24.4$90.1 million and$32.0$89.3 million, respectively.10.On October 17, 2000, MTI and Kobe Steel, Ltd. ("Kobe Steel") entered into a non-binding term sheet providing for the purchase by MTI of all of Kobe Steel's equity interest in KMT. The transaction is expected to close in the first half of calendar 2001. In the event the transaction is completed KMT would become a wholly-owned subsidiary of MTI. The Consolidated Financial Statements do not reflect MTI's proposed transaction with Kobe Steel.
8. Operating Segment Information
The
Company has twoCompany's reportable segments have been determined based on the nature of its operations and products offered tocustomers: semiconductorcustomers. The Company's two reportable segments are Semiconductor operations and PC operations. ThesemiconductorSemiconductor operations segment's primary product is DRAM. The PC operations segment's primary products include desktop and notebook PC systemsmultiprocessorand networkserversservers. The PC operations segment also reflects the activity of the Company's "e-services" operations, which provide Internet access andhardwareweb hosting services.Segment operating results are measured based on operating income (loss). Intersegment sales are accounted for at prices offered to the Company's most favored customers. Intersegment sales primarily reflect sales of memory products from the
semiconductorSemiconductor operations segment to the PC operations segment and, to a lesser extent, sales of computers from the PC operations segment to thesemiconductorSemiconductor operations segment.Intersegment sales are measured based on contract prices as internally reported. Sales to two of the Company's major PC OEM customers each approximated 15% of the Company's net sales of semiconductor memory products in the first quarter of 2000.9
For the quarter ended November 30,
2000December 2,
1999Net Sales Semiconductor operations: External $ 1,545.8 $ 1,321.9 Intersegment 12.2 17.6 1,558.0 1,339.5 PC operations: External 286.3 262.4 Intersegment 1.0 1.2 287.3 263.6
All other — external
0.1
0.1
Total segments
1,845.4
1,603.2
Elimination of intersegment (13.1 ) (18.8 ) Total consolidated net sales $ 1,832.3 $ 1,584.4
Operating income November 30,
2000December 2,
1999Semiconductor operations $ 538.4 $ 564.9 PC operations (35.4 ) (31.2 ) All other (0.2 ) (1.8 ) Total segments 502.8 531.9
Elimination of intersegment
1.2
0.1
Total consolidated operating income $ 504.0 $ 532.0 10
Notes to Consolidated Financial Statements, continued
December 2, December 3, For the quarter ended 1999 1998 - ------------------------------------------------------------------------------- Net Sales - -------------------------------------------------------------------------------Semiconductor operations External $1,321.9 $426.8 Intersegment 17.6 10.7 -------- ------ $1,339.5 $437.5 PC operations External $ 262.4 $363.6 Intersegment 1.2 .6 -------- ------ $ 263.6 $364.2 All other - external $ 0.1 $ 3.2 Total segments $1,603.2 $804.9 Elimination of intersegment (18.8) (11.3) -------- ------ Total consolidated net sales $1,584.4 $793.6 ======== ======Operating income (loss) - -------------------------------------------------------------------------------Semiconductor operations $ 564.9 $ (57.0) PC operations (31.2) 2.0 All other (1.8) (7.4) ------- ------- Total segments $ 531.9 $ 62.4) Elimination of intersegment 0.1 (0.2) ------- ------- Total consolidated operating income (loss) $ 532.0 $ (62.6) ======= =======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.
December 2, September 2, Segment assets as of 1999 1999 - -----------------------------------------------------------------------------Semiconductor operations $6,704.2 $6,001.9 PC operations 510.0 533.9 All other 15.3 15.5 -------- -------- 7,229.5 6,551.3 Elimination of intersegment (87.0) (74.8) -------- -------- $7,142.5 $6,476.5 ======== ========Reconciliation to total assets - ------------------------------------------------------------------------------Total segment assets $7,142.5 $6,476.5 Prepaid expenses 27.2 38.3 Deferred taxes 93.4 119.9 Product and process technology 206.4 212.6 Other assets (net of segment assets) 111.9 117.9 -------- -------- Total consolidated assets $7,581.4 $6,965.2 ======== ========11Notes to Consolidated Financial Statements, continued 11.
Segment assets as of November 30,
2000August 31,
2000Semiconductor operations $ 8,813.8 $ 8,711.4 PC operations 319.9 379.7 All other 14.3 14.6 9,148.0 9,105.7 Elimination of intersegment (87.2 ) (97.0 ) $ 9,060.8 $ 9,008.7 Reconciliation to total assets: Total segment assets $ 9,060.8 $ 9,008.7 Prepaid expenses 38.9 22.4 Deferred income taxes 188.7 137.1 Product and process technology 211.9 213.0 Other assets (net of segment assets) 301.2 250.3 Total consolidated assets $ 9,801.5 $ 9,631.5 9. Commitments and contingencies
As of
December 2, 1999,November 30, 2000, the Company had commitments of approximately$911.1 million$1.3 billion for equipment purchases and$65.1software infrastructure and $238.2 million for the construction of buildings.The Company has fromFrom time to time,
received,others have asserted, and may in the futurereceive, communications allegingassert, thatitsthe Company's products or its processesmayinfringeontheir product or process technology rights. In this regard, the Company is currently engaged in litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents. Lawsuits between Rambus and the Company are pending in the United States, Germany, France, the United Kingdom and Italy. The Company is unable to predict the outcome of these suits. A determination that our manufacturing processes or products infringe the product or process rightsheld by others.of others could result in significant liability and/or require the Company to make material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse affect on our business, results of operations or financial condition.The Company has a number of patent and intellectual property license agreements. Some of these license agreements require us to make one-time or periodic royalty payments. The Company may need to obtain additional patent licenses or renew existing license agreements in the future. The Company is unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
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 whichareis expected to have a materialadverseeffect on the Company's financial position or results of operations.1211
Item 2. Management's Discussion and Analysis of Financial Condition and Results- --------------------------------------------------------------------------------of Operations- -------------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
containsmay contain trend information and otherforward- lookingforward-looking statements(including, for example, statements regarding future operating results, future capital expenditures and facility expansion, new product introductions, technological developments, acquisitions and the effect thereof and industry trends)that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements made in: "Gross Margin" regarding MTI's pending transaction to purchase Kobe Steel's equity interest in KMT; "Research and Development" regarding the transition to .15µ and .13µ line-width process technology; "Income Tax Provision (Benefit)" regarding the tax effect of certain foreign operations and domestic subsidiaries not consolidated for tax purposes; "Recently Issued Accounting Standards" regarding the impact of the implementation of SAB No. 101; and "Liquidity and Capital Resources" regarding capital spending in 2001 and MTI's pending transaction to purchase Kobe Steel's equity interest in KMT. 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 endedSeptember 2, 1999.August 31, 2000. All period references are to the Company's fiscal periods ended November 30, 2000, December 2, 1999,September 2, 1999,orDecember 3, 1998,August 31, 2000, unless otherwise indicated. All per share amounts are presented on a diluted basis unless otherwise stated.Results of Operations
First Quarter ---------------------------------------------------- 2000 1999 ---------------------------------------------------- (dollars in millions, except per share data)Net sales: Semiconductor operations $1,339.5 84.5% $ 437.5 55.1% PC operations 263.6 16.6% 364.2 45.9% All other 0.1 0.0% 3.2 0.4% Intersegment (18.8) (1.1)% (11.3) (1.4)% -------- ----- ------- ----- Consolidated net sales $1,584.4 100.0% $ 793.6 100.0% ======== ===== ======= ===== Operating income (loss): Semiconductor operations $ 564.9 $ (57.0) PC operations (31.2) 2.0 All other (1.8) (7.4) Intersegment 0.1 (0.2) -------- ------- Consolidated operating income (loss) $ 532.0 $ (62.6) ======== ======= Net income (loss) $ 341.3 $ (46.2) ======== ======= Earnings (loss) per share $ 1.19 $ (0.19) ======== =======The net loss for
First Quarter 2001 2000 (amounts in millions except per share amounts) Net sales: Semiconductor operations $ 1,558.0 85.0 % $ 1,339.5 84.5 % PC operations 287.3 15.7 % 263.6 16.6 % All other 0.1 0.0 % 0.1 0.0 % Intersegment (13.1 ) (0.7 )% (18.8 ) (1.1 )% Consolidated net sales $ 1,832.3 100.0 % $ 1,584.4 100.0 % Operating income: Semiconductor operations $ 538.4 $ 564.9 PC operations (35.4 ) (31.2 ) All other (0.2 ) (1.8 ) Intersegment 1.2 0.1 Consolidated operating income $ 504.0 $ 532.0 Net income $ 352.2 $ 341.3 Earnings per share $ 0.58 $ 0.60 For the fourth quarter of
19992000, net income was$17$726.7 million, or$0.07$1.20 per share, on consolidated net sales of$1,081$2,570.2 million.Intersegment sales represent sales between different segments of the Company and are eliminated to arrive at consolidated net sales. Intersegment sales
for the first quarter of 2000 and 1999are primarily comprised of sales from the Company'ssemiconductorSemiconductor operations segment to the Company's PC operations segment. (See "Notes12
to Consolidated Financial
Statements -Statements—Operating Segment and Geographic Information.")13Unless otherwise stated, all semiconductor production data reflects production of the Company and its joint ventures.
Net Sales
Consolidated net sales for the first quarter of
20002001 were higher by100%16% compared to the first quarter of1999, principally2000, primarily due to an increase inthe volume of megabits of memory sold. The increase innet sales from Semiconductor operations.Net sales from Semiconductor operations for the first quarter of
20002001 increased by 16% as compared to the first quarter of1999 was partially offset2000 and decreased bya decline in both the volume and average price per unit of PC systems sold. Average selling prices per megabit of semiconductor memory generally declined during the second half of 1999 but recovered during the first quarter of 2000 to reach average selling prices similar to those in the first quarter of 1999. Consolidated net sales for the first quarter of 2000 increased by 47%32% as compared to the fourth quarter of1999, principally due to a 70%2000. The increase inaverage selling prices per megabit of memory. Netnet sales fromsemiconductorSemiconductor operations for the first quarter of 2001 compared to the first quarter of 2000increasedwas primarily due to a 67% increase in total megabits of semiconductor memory sold, partially offset by206%a 31% decline in average selling prices. The Company achieved higher megabit sales in the first quarter of 2001 as compared to the first quarter of1999 due primarily to a 227% increase2000 through increases in totalmegabits of semiconductor memory sold. This increase in shipments was made possible by an increase in product available from continued improvements in manufacturing efficiencies throughwafer outs, ongoing transitions to successive reduced die size ("shrink") versions of existing memory products and shiftsin the Company's mix of semiconductor memory productsto higheraveragedensityproducts and additional output from the rampproducts. The increase in wafer outs was primarily due to increased capacity utilization of the Company's internationaloperationsand jointventures. Netventure facilities.The decrease in net sales from
semiconductorSemiconductor operationsincreased by 63% infor the first quarter of20002001 as compared to the fourth quarter of1999, primarily2000 was principally due toan approximate 70% increasea 25% decrease inthe average selling pricestotal megabits of semiconductor memoryproducts. The Company expectssold and a 9% decline in average sellingprices for semiconductor memory products to decreaseprices. The decline inthe second quarter of 2000 as compared to the first quarter. The level of megabitnet salesremained relatively constant comparing the first quarter of 2000 with the fourth quarter of 1999. The level of megabit sales achievedand average selling prices in the first quarter wasmade possible primarily by production gains whilethe result of a lower level ofmegabitsalesinto PC OEMs who built inventory during the Company's fourth quarterwas attributableinpartanticipation of heightened consumer demand which did not fully materialize. Subsequent toa reduction in finished goods inventory. Finished goods inventory levels atthe end of the first quarter, industry supply of2000 were higher than atsemiconductor memory has exceeded demand and as a result theend of the fourth quarter of 1999, but remained constant in terms of weeks of production.Company's inventory levels have continued to grow.The Company's primary memory product in the first quarter of
20002001 was the64128 Meg Synchronous DRAM ("SDRAM"), whichcomprisedconstituted approximately70%39% ofthenet salesof semiconductor memoryforthe period.Semiconductor operations. The64128 Meg SDRAM comprised approximately56%6% and70%43% ofthenet salesof semiconductor memoryfor Semiconductor operations for the first and fourth quarters of1999,2000, respectively.NetThe 64 Meg SDRAM comprised approximately 18% of net salesfromfor Semiconductor operations in the first quarter of 2001, and 70% and 28% of net sales for Semiconductor operations the first and fourth quarters of 2000, respectively. The Company'sPCprimary memory product comprised a smaller percentage of Semiconductor operations net sales for the first quarter of2000 decreased by approximately 28%2001 as compared to thefirstfourth quarter of1999 primarily due to a 26% decrease in unit sales and to a lesser extent due to a 9% decrease in overall2000 because average selling prices for the Company'sPC systems. The decrease in unit sales for128 Meg SDRAM product declined at a faster rate than thefirst quarter of 2000 as compared to the first quarter of 1999 is primarily due to lower consumer and government PC unit sales, together with a 44% reduction in notebook shipments. The significant decline in the consumer business was due in part to the Company's ongoing effort to focus its PC business resources on increasing the levels of sales in the small business, commercial and government sectors, which efforts have not yet resulted in the expected increase in sales. The decline in government sector sales reflects increased pricing competition and lower than usual purchases by federal government agencies. The decline in overallaverage selling pricesis primarily attributed to price competition in the market served byfor many of the Company'sdesktop product line.other memory products.Net sales from PC operations for the first quarter of 2001 were 9% higher compared to the first quarter of 2000
decreasedprimarily due to a 27% increase in unit sales of the Company's PC systems, partially offset byapproximately 2%a 17% decrease in overall average selling prices for PC systems. Average selling prices for desktop systems, which are the PC operations primary product, declined 18% for the first quarter of 2001 as compared to the first quarter of 2000. Desktop and notebook unit sales increased by 31% and 9%, respectively, comparing the first quarter of 2001 with the first quarter of 2000. Net sales from PC operations for the first quarter of 2001 were relatively flat as compared to the fourth quarter of1999 primarily due to a 4% decrease in unit sales.2000.
Gross Margin
First Quarter 2001 % Change 2000 Gross margin $ 791.3 2.8% $ 813.7 as a % of net sales 43.2 % 51.4 % 13
The decrease in
unit sales is primarily due to a 16% decrease in notebook shipments. Gross Margin
First Quarter ------------------------------ 2000 % Change 1999 ------------------------------Gross margin $813.7 602.1% $115.9 as a % of net sales 51.4% 14.6%14The increase in the Company's consolidatedoverall gross margin for the first quarter of20002001 as compared to the first quarter of19992000 is primarily attributable toreductionsa decline inthe Company's per megabit costsgross margin for Semiconductor operations and, to a lesser extent, to a decline inits semiconductorgross margin for PC operations. The Company's consolidated gross margin percentage for the fourth quarter of19992000 was21%53%. Theincreasedecrease in overall gross margin for the first quarter of20002001 as compared to the fourth quarter of1999 resulted2000 is primarilyfrom an approximate 70% increase in average selling prices for the Company's semiconductor memory products.attributable to Semiconductor operations.The gross margin percentage for the Company's
semiconductorSemiconductor operations for the first quarter of20002001 was58%49%, compared to14%58% for the first quarter of1999. The2000. This decrease in gross marginincreasepercentage for the Company's Semiconductor operations was due tocomparativethe 31% decrease in average selling prices per megabit of memory, partially offset by decreases in per megabit manufacturing costswhich were achieved primarily throughresulting from continued improvements in manufacturingefficiencies and improvedefficiency. Manufacturing coston products purchased from MTI's joint ventures. Decreases in per megabit manufacturing costsimprovements were achieved principally through transitions to shrink versions of existing products and shiftsin the Company's mix of semiconductor memory productstoahigher averagedensity.density products.The gross margin percentage on sales of semiconductor memory products for the fourth quarter of
19992000 was23%58%. Theincreasedecrease in gross margin percentage for semiconductor memory products sold in the first quarter of20002001 as compared to the fourth quarter of19992000 was primarily due to theresult of the 70% increase9% decrease in average selling prices per megabit ofmemory.memory, and to a lesser extent, due to increased costs for products purchased from MTI's joint ventures.Subject to
certainspecific terms and conditions, MTI has agreed to purchase all of theentire output fromproducts manufactured by two joint venture wafer fabricationfacilities,facilities: TECH Semiconductor Singapore Pte. Ltd. ("TECH") and KMT Semiconductor Limited ("KMT"). TECH and KMT are collectively referred to herein as the "JVs." ThecostJVs supplied in excess of 40% of the total megabits of memory produced by the Company in the first quarter of 2001. MTI purchases semiconductor memory productspurchasedfrom the JVsis subject to significant fluctuations,at prices generally determined quarterly and basedin parton a discount from MTI's average selling prices.The Company expects the cost of products purchased from the JVs to be higher in the second quarter of 2000 than in the first quarter. MTI is a party to various agreements with the JVs wherebyMTI provides certain technology, engineering supporttrainingandinformation systems supporttraining 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 purchased from theJVs and as such can impact the Company's gross margin percentage.JVs. The Companyexpects therealized lower grossmarginmargins on sales of JV productspurchased from the JVs to be lowerthan for products manufactured by its wholly-owned facilities inthe second quarter of 2000 than in the first quarter. The gross margin percentage for the Company's PC operations forthe first quarter of2000 was 14%, compared with 15%2001 and18%, respectively, inthe first and fourth quarters of1999.2000. MTI has pending a transaction to purchase Kobe Steel's equity interest in KMT. In the event the transaction is completed, KMT would become a wholly-owned subsidiary of MTI. (See "Liquidity and Capital Resources" and "Notes to Consolidated Financial Statements—Joint ventures.")The
decrease for the PC operationsgross margin percentagecomparingfor PC operations decreased to 11% in the first quarter of2000 to the first quarter of 1999 is due to the 9% decrease in average selling prices for the Company's PC systems. The decrease in PC operations gross margin percentage for the first quarter of 2000 as compared to the fourth quarter of 1999 is primarily due to increased costs for materials and increased pricing pressure in the government sector. Selling, General and Administrative
First Quarter ------------------------------ 2000 % Change 1999 ------------------------------Selling, general and administrative $167.6 62.7% $103.0 as a % of net sales 10.6% 13.0%Selling, general and administrative expenses increased2001 from 14% in the first quarter of 2000, primarily due to an increase in lower margin retail direct and government PC sales. Additionally, the Company continues to experience pricing pressure on its PC systems resulting in the 17% decline in overall average selling prices for PC systems for these comparative periods. The gross margin percentage for PC operations was 12% in the fourth quarter of 2000.
Selling, General and Administrative
First Quarter 2001 % Change 2000 Selling, general and administrative $ 149.6 10.7% $ 167.6 as a % of net sales 8.2 % 10.6 % Selling, general and administrative expenses decreased in the first quarter of 2001 as compared to the first
and fourth quartersquarter of19992000 primarily as a result of 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 and a14
decrease in advertising expense for the Company's PC operations. Selling, general and administrative expenses decreased in the first quarter of 2001 as compared to the fourth quarter of 2000 primarily as a
higher levelresult of lower levels of performance based compensation costs for the Company'ssemiconductorSemiconductor operations andincreased advertising expense for the Company's PC operations. Additionally, the increase in selling, general and administrative expense for the first quarter of 2000 as compared to the first quarter of 1999 reflects a higher level of personnel expense for an increased number of administrative 15employees associated with semiconductor and PC operations. Selling, general and administrative expenses for the first quarter of 2000 increased by 26% as compared to the fourth quarter of 1999. The Company expects selling, general and administrative expenses to remain at approximately the same level as the first quarter of 2000 for the remainder of the year.lower bad debt expense.
Research and Development
First Quarter ----------------------------- 2000 % Change 1999 ----------------------------- Research and development $91.7 35.5% $67.7 as a % of net sales 5.8% 8.5%
First Quarter 2001 % Change 2000 Research and development $ 139.5 52.1% $ 91.7 as a % of net sales 7.6 % 5.8 % Substantially all the Company's research and development efforts relate to its
semiconductorSemiconductor operations. Research and development expenses vary primarily with personnel costs, the number of development wafers processed and the cost of advanced equipment dedicated to new product and process development. The increase in research and developmentandexpenses in the first quarter of 2001 as compared to the first quarter of 2000 is primarily due to an increased number of development wafersprocessed. Researchprocessed and higher compensation expenses reflecting an increased number of personnel. Process technology research and development efforts are focused on.15 micron line widths.15µ and .13µ line-width processtechnology,technologies, whichiswill enable theprimary determinant in transitioningCompany to transition to next generationand futureproducts.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's64 Meg and128 Meg SDRAMs and on design and development of the Company's Flash, 256 Meg and 512 Meg SDRAMs,Rambus(R) DRAM ("RDRAM"), Double Data Rate ("DDR")DDR SDRAMFlashand SRAM memory products. Other research and development efforts are currently devoted to the design and development of embedded memory,products, system-on-a-chipRDRAM, and advanced DRAM technology ("SOC"ADT")solutions,products. The Company is also developing technology which enables customers to more rapidly adopt the Company's advanced memory architectures such as DDR andmemoryADT.The Company is transitioning its manufacturing operations to .15µ line-width process technology
enablement.and expects this transition to continue throughout 2001. The Company anticipates that it will move to .13µ line-width process technology in the next few years as needed for the development of future generation semiconductor products.
Other Operating Expense (Income), net
Other operating income for the first quarter of 2001 primarily reflects the net pre-tax gain from sales of semiconductor operations equipment. Other operating expense for the first quarter of 2000
includes aprimarily reflects the netpre- taxpre-tax chargeof $18 millionfrom thewrite downwrite-down and disposal of semiconductor operations equipment.
Other Non-Operating Income, net
Other non-operating income for the first quarter of 2001 reflects a gain of $5 million on the sale of MEI's remaining interest in MCMS, Inc. Other non-operating income for the first quarter of 2000 includes a $10 million gain on the contribution by MTI of 1.9 million shares of MEI
Common Stockcommon stock (the "Contribution") to the Micron Technology Foundation. The Contribution decreased MTI's ownership interest in MEI from approximately 63% to 61%. Selling, general and administrative expense in the first quarter of 2000 reflects a $19 million charge for the market value of the stock contributed.15
Income Tax Provision
(Benefit)The effective tax
ratesrate for the first quarter of20002001 and19992000 approximated 35%and 40%, 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.. 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 Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," issued by the AICPA in March 1998 andStatement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," issued by the FASB in June1998. 16SOP 98-1 requires companies to capitalize certain costs of computer software developed or obtained for internal use. The Company, which previously capitalized costs of purchased internal-use computer software1998 andexpensed costs of internally developed internal-use software as incurred, adoptedStaff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements," issued by thestandardSecurities and Exchange Commission inthe first quarter of 2000 for developmental costs incurred in that quarter and thereafter. The adoption did not have a material impact on the Company's results of operations.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,
thecertain 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.ImplementationThe Company adopted the standard in the first quarter ofSFAS2001. The adoption did not affect the Company's results of operations or financial position.SAB No.
133101 summarizes certain views of SEC staff in applying generally accepted accounting principles to revenue recognition in the financial statements. Adoption is required for the Company by thefirstfourth quarter of 2001. The implementation ofSFAS 133SAB No. 101 is not expected to have a significant impact on the Company's future results of operations or financial position.Liquidity and Capital Resources
As of
December 2, 1999,November 30, 2000, the Company had cash and liquid investments totaling$1.9 billion, representing an increase of $273 million during the first three months of 2000.$2.5 billion. The Company's principal source of liquidity during the first three months of20002001 was net cash flow from operations of$549$617 million.The principal use of funds duringDuring the first three months of2000 was $2202001 the Company made $507 millionforof property, plant and equipmentexpenditures.expenditures and incurred an increase of $322 million in inventory.In the first quarter of 2001, the Company's 6.5% convertible subordinated notes due October 2005, with a principal amount outstanding of $740 million, were converted into approximately 24.7 million shares of common stock, resulting in a reclassification of $685 million from debt to equity.
The Company believes that
in orderto 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 Companycurrently estimates it will spendcontinuously evaluates the financing of capital improvements, including the conversion of some of its operations to 300 millimeter wafer processing, and in this regard has a shelf registration statement in place pursuant to which the Company may from time to time issue debt or equity securities for up to $1 billion. The Company may seek to raise additional funds through issuing debt or equity securities beyond those covered by the existing shelf registration statement. The Company spent approximately$1.5 billion$544 million infiscal 2000the first quarter of 2001 for purchases of equipment andforconstruction and improvement of buildingsof which it has spent approximately $291 millionand expects capital spending todate.exceed $2 billion in 2001. As ofDecember 2, 1999,November 30, 2000, the Company hadentered into contractscommitments extending into fiscal2001 for2003 of approximately$911 million$1.3 billion for equipment purchases and software infrastructure and approximately$65$238 million for the construction of facilities.MTI has pending a transaction to purchase Kobe Steel's equity interest in KMT. In conjunction with the purchase transaction, it is anticipated that MTI will assume or repay all of KMT's debt,
16
projected to approximate $325 million at closing. Closing is expected to occur in the first half of calendar 2001. There can be no assurance, however, that the pending transaction with Kobe Steel will be consummated.
As of
December 2, 1999,November 30, 2000, approximately$363$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 ofMTI's semiconductor memorythe Company's Semiconductor 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 bythe Company.MEI. As ofDecember 2, 1999,November 30, 2000, MEI had no borrowings outstanding under the agreement.MTI terminated its secured revolving credit agreement effective December 2, 1999. Year 2000 The Company did not experience an interruption of its operations as a consequence of the transition from the year 1999 to the year 2000. The Company incurred aggregate incremental costs of approximately $6.4 million to complete its Year 2000 compliance programs.17
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,August 31, 2000, 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 memoryvolatile nature of the DRAM industry could adversely affect our future operating resultsThe DRAM 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 madehighly volatile. Due to thesemiconductor industry highly cyclical, particularly incommodity nature of DRAM products, when themarketsupply of DRAM products exceeds the demand forDRAMs, which are the Company's primary products. The semiconductor industry has a history of decliningsuch products, averagesales prices as products mature. Long-term average decreases in sales prices for semiconductor memory products have approximated 30% on an annualized basis; however, significant fluctuations from this rate have occurred from time to time, including in recent periods. Theselling prices for DRAM products decline, sometimes rapidly. In theCompany's semiconductor memory products fluctuate significantly with realpast, our operating results andperceived changes in the balance ofcash flows have been adversely affected by:
- •
- excess worldwide DRAM supply, and
demand for these commodity products. Growth in worldwide supply outpaced growth in worldwide demand in recent years, resulting in a significant decrease- •
- declines in average selling prices for DRAM products.
We are dependent on the
Company's semiconductorpersonal computer ("PC") market as most of the memoryproducts. The semiconductor industryproducts we sell are used ingeneral andPCs or peripherals. If either theDRAM marketgrowth rate of PCs sold or the amount of memory included inparticular, experienced a severe downturn from mid 1996 through 1999. Average per megabit prices declined approximately 37% comparing 1999each PC decreases, sales of our memory products could decreaseWe sold most of our memory products to
1998, following a 60% decline comparing 1998 to 1997 and a 75% decline comparing 1997 to 1996. Although the Company experienced improvements in average per megabit pricesPC or peripheral markets in the first quarter of2000 as compared to2001. DRAMs are thefourth quartermost widely used semiconductor memory component in PCs. The PC market has experienced a slower rate of1999,growth in recent periods and industry forecasts indicate that theCompany is unable to predict future prices for its products. Inamount of memory included in each PC will remain relatively stable in 2001. If either theevent that average selling prices decline at a fastergrowth ratethanof PCs sold or therate at which the Company is able toamount of memory included in each PC decreases, sales of our memory products could decreaseper unit manufacturing costs, the Company'sand our results of operations, cash flows and financial condition could be adversely affected.The CompanyWe have experienced dramatic declines in average selling prices for our memory products which have adversely affected our business
Average per megabit selling prices for memory products decreased by 9% in the first quarter of 2001 as compared to the fourth quarter of 2000 and
itshave decreased approximately 30% per year on a long-term basis. Further, significant fluctuations in average selling prices for our memory products have occurred, including periods when decreases exceeded the long-term 30% rate as shown in the following chart:
Fiscal year to year comparison Change in average price per megabit 2000 to 1999 3 % 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 per megabit manufacturing costs, our results of operations, cash flows and financial condition would be adversely affected.
Increased worldwide DRAM production could lead to further declines in average selling prices for DRAM
We and our competitors
are seeking improvedconstantly seek to improve yields,smallerreduce die size and use fewermask levels in their product designs.manufacturing steps. These improvementscould resultincrease worldwide supply of DRAM. In addition, we and several of our competitors are evaluating plans to manufacture semiconductors in facilities that process18
300-millimeter ("300mm") wafers as opposed to the current industry standard, 200mm wafers. 300mm wafers have approximately 130% greater usable surface area than 200mm wafers and their widespread use in the industry, which is expected to occur within the next two to five years, will lead to a significant increase in the worldwide supply of DRAM. Increases in worldwide supply of DRAM also result from DRAM capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor
memory devices whichproduction to DRAM production. We are currently evaluating several capacity expansion programs for our various fabrication facilities. Increases in worldwide supply of DRAM could lead to furtherdownward pressures on prices. The increasedeclines inworldwide semiconductor memory production resulting from the Company's full utilization of its international wafer fabrication operations and the transfer of its product and process technology to these operations may result in further downward pricing pressure on semiconductor memory products. In addition, consolidation by competitors in the semiconductor memory industry could provide competitors with greater capital resources and create the potential for greater worldwide investment in semiconductor memory capacity, which could exert further downward pressure on prices. Recent evidence of improved economic conditions in Asia could increase capital flows to that region and result in increased investment by Asian DRAM manufacturers to finance technology advancements and expansion projects, potentially increasing worldwide supply and leading to further downward pricing pressure. The PC market continues to consume the majority of the Company's semiconductor production. In the first quarter of 2000, approximately 87% of the Company's sales of semiconductor memory products were sold into the PC or peripheral markets. DRAMs are the most widely used semiconductor memory component in most PC systems. Should the rate of growth for PC industry units decrease 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 onaverage selling prices forthe Company's semiconductor memory products. The Company is unable to predict changes in industry supply,our products and adversely affect our results of operations and cash flows.If any one of our major
customer marketing or inventory management strategies or end user demand, which are significant factors that influence prices for the Company's semiconductor memory products. Over the past several years, the Company's productivity gains have continued to increasePC original equipment manufacturer ("OEM") customers significantly reduces itssemiconductor memory output. In recent periods, the Company has sold this additional semiconductor memory output by increasing its market share with severalpurchases ofits larger OEM customers and through sales to a broader customer base including accounts of lesser size and potentially lesser financial stability. In the event the Company is unable to further increase its market share with OEM customers, broaden its customer base, or if the Company experiences 18reductions in the level of OEM orders, the Company'sDRAM from us, our results of operations and cash flows could be adverselyaffected. The Company's semiconductor operations experience intense competition from a numberaffectedWe supply several major PC OEMs with more than 30% of
companies, including Hyundai Electronics Industries Co., Ltd., Infineon Technologies AG, NEC Corporation and Samsungtheir memory requirements. Sales to two of our PC OEM customers approximated 20% of our SemiconductorInc. Some of the Company's competitors are very large corporations or conglomerates which may have greater resources and a better ability to withstand downturnsoperation's net sales in thesemiconductor memory market. Additional mergers or consolidationfirst quarter of 2001. If any one of our major PC OEM customers significantly reduces its 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
To develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, we must invest significant capital in manufacturing technology, facilities and capital equipment, research and development, and product and process technology. We must make substantial capital investments to convert manufacturing operations to 300mm wafer processing over the next several years. We made $544 million in capital investments in the
industryfirst quarter of 2001 and currently estimate that our capital investments will exceed $2 billion for fiscal 2001. If we are unable to make adequate capital investments, our results of operations and cash flows couldput the Company at a further disadvantage with respect to such competitors. The semiconductor memory industry is characterized by frequent product introductions and enhancements. The Company's abilitybe adversely affected.If we are unable to reduce per
unitmegabit manufacturing costs ofits semiconductorour memory productsis largely dependent on its ability toat an acceptable rate, our results of operations could be adversely affectedTo reduce per megabit manufacturing costs we must:
- •
- design and develop new generation products,
and shrink versions- •
- reduce the die size of our existing products, and
its ability to ramp such- •
- increase the production of these products at acceptable rates to acceptable yields.
If these efforts are unsuccessful, we may be unable to sufficiently reduce per megabit manufacturing costs and our results of operations and cash flows could be adversely affected.
If our manufacturing process is interrupted, our results of operations and cash flows could be adversely affected
We manufacture products using highly complex processes that require technologically advanced and costly equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process can reduce yields or interrupt production and affect our ability to deliver products on time or cost-effectively. Additionally, if production at a fabrication facility is interrupted, we may be unable to meet demand and customers may purchase products from other suppliers. The resulting loss of
which there canrevenues and damage to customer relationships could beno assurance. As thesignificant.19
Our transition to higher bandwidth products and more diverse product offerings may adversely affect our manufacturing efficiency
The semiconductor memory industry
transitionsis currently transitioning to higher bandwidth products, including Double Data Rate Synchronous DRAM ("DDRSDRAMSDRAM") andRDRAM, the Companydirect Rambus® DRAM ("RDRAM®"). We mayencounter difficulties inhave trouble achieving thesemiconductorsame manufacturing efficienciesthat it has historically achieved. The Company's productivity levels, die per wafer yieldsin higher bandwidth products as other memory products. In addition, we have committed to make more Flash andin particular, backend assembly and test equipment requirements are expected to be affected by aSRAM products which may also hinder our manufacturing efficiencies. Our transition to higher bandwidth productslikely resulting inand more diverse product offerings may adversely impact our:
- •
- productivity levels,
- •
- die per wafer yields,
- •
- backend assembly, and
- •
- test equipment requirements.
Our transition to higher bandwidth products and more diverse product offerings could increase per megabit production
costs. There can be no assurance that the Company will successfully transition to these products or that it will be able tocosts and we may not achieveitsour historical rate of cost per megabit reductions.The Company is engagedWe increased megabit production in
ongoing effortsrecent years through improvement toenhance itsour manufacturing process, but we may not be able to increase production at the same rate in the futureIn recent years, we have increased our megabit production through improvements in our manufacturing processes,
to reduce per unit costs byincluding reducing the die size of our existing products.TheAs a result,of such efforts has generally led to significant increases inwe have decreased per megabit production costs and significantly increased our megabit production.There can be no assurance that the Company willHowever, we may not be able tomaintain or approximate the rate ofincreaseinmegabit production ata level approaching that experiencedhistorical rates inrecent years or thattheCompany will not experience decreasesfuture. Our ability to increase megabit production inmanufacturing yield or production as it attemptsfuture periods may be limited because of the following factors:
- •
- our substantial completion of product and process technology upgrades in our international and JV facilities;
- •
- our commitment of more wafer starts to our Flash and SRAM products;
- •
- our ability to implement
future technologies. Further, from timemore complex technologies without compromising our manufacturing yields; or- •
- our ability to
time,ramp theCompany experiences volatility in its manufacturing yields, as it is not unusual to encounter difficulties in rampinglatestshrinkreduced die size versions of existing devices or new generation devices to commercial volumes.The raw materials utilized byAn adverse determination that our products and processes infringe the
Company's semiconductor operations generally must meet exacting product specifications. The Company generally uses multiple sourcesintellectual property rights ofsupply, but the number of suppliers capable of delivering certain raw materials is very limited. The availability of raw materials, such as silicon wafers, photolithography reticles, certain chemicals, lead frames and molding compound, may decline due to the increase in worldwide semiconductor manufacturing. Although shortages have occurred from time to time and lead times in the industry have been extended on occasion, to date the Company has not experienced any significant interruption in operations as a result of a difficulty in obtaining raw materials for its semiconductor operations. Interruption of any one raw material sourceothers could adversely affectthe Company's operations. Moreover, interruption of manufacturing due to any cause could materially adversely affect the Company'sour business, results ofoperations. Subject to certain termsoperation andconditions, MTI has agreed to purchase the entire output of the JVs. Historically, the JVs have required external financing to fund operations and to transition to the latest generation technologies in a timely or efficient manner. The JVs are also dependent on certain key personnel and on a limited number of sources for certain raw materials. In the event either of the JVs are unable to secure required external financing, experience a loss of key personnel, or incur significant interruption in the delivery of raw materials, the Company would experience a reduction in supply of product from the JVs. Any reduction of supply, regardless of cause, could adversely affect the Company's results of operations and cash flows. The JVs also rely on Texas Instruments Incorporated ("TI") computer networks and information technology services purchased from TI. If unforeseen difficulties are encountered in transitioning the JVs away from TI's software, hardware or services or if TI fails to perform its service agreement with the JVs before the JVs are ready to transition to new systems, JV production could be impacted and the Company's results of operations could be adversely affected. The semiconductor and PC industries have experienced a substantial amount of litigation regarding patent and other intellectual property rights.financial conditionFrom time to time,
third partiesothers have asserted, and may in the future assert,19that the Company'sour products oritsour processes infringe their product or process technology rights. In this regard, we are currently engaged in litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents. Lawsuits between Rambus and us are pending in the United States, Germany, France, the United Kingdom and Italy. We are unable to predict the outcome of these suits. A determination that our manufacturing processes or products infringe the product or process rightsheld by such parties. The Company has entered intoof others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse affect on our business, results of operations or financial condition.We have a number of patent and intellectual property license agreements. Some of these license agreements
with third parties, some of whichrequire us to make one-time or periodic royalty payments.ItWe maybe necessary or advantageous in the future for the Companyneed to obtain20
additional patent licenses or
torenew existing licenseagreements. The Company isagreements in the future. We are unable to predict whether these license agreements can be obtained or renewed ontermsacceptable terms.If we are not able to
the Company. The Company is currently involved in litigation to enforce patents held by the Company and to defend the Company against claimed infringement of the rights of others. Adverse determinations that the Company'spurchase technologically-advanced semiconductor manufacturingprocesses or products have infringed 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,equipment, our results of operations could be harmedOur Semiconductor operations require highly advanced, complex, and
financial condition. The Company's PC operations, through MEI, participatecostly semiconductor equipment. If we want to continue to be a low-cost producer of semiconductor memory products, we will need to be able to replace obsolete equipment and purchase the most technologically-advanced semiconductor manufacturing equipment. However, there are only a limited number of suppliers capable of providing this critical equipment. Equipment shortages have occurred from time to time ina highly competitive industry characterized by intense pricing pressure, generally low gross margin percentages, rapid technological advancesthe past and lead times for ordering new equipment are typically 6 to 18 months. We often need to place orders for new equipment several months inhardware and software, frequent introductionadvance to ensure timely delivery, which may limit our ability to alter plans in response to changes in market conditions. Our supply of newproductsequipment could be significantly delayed if any shortages occur. Any equipment delays could limit our ability to use the most cost-effective processes andrapidly declining component costs. Manylimit our ability to expand our capacity.Interruptions in our supply of raw materials could adversely affect our results of operations
Our Semiconductor operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our raw materials, however, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. Various factors, including increases in worldwide semiconductor manufacturing, could reduce the
Company's PC competitorsavailability of raw materials such as silicon wafers, photomasks, chemicals, gases, lead frames and molding compound. Raw materials shortages haveexperienced greater growth rate, have greater brand name recognition and market share, offer broader product lines and have substantially greater financial, technical, marketing and other resources than the Company. The Company's PC competitors may also benefit from component volume purchasing and product and process technology license arrangements that are more favorable in terms of pricing and availability than the Company's arrangements. In addition, the Company may be at a relative cost disadvantage to certain of its competitors as a result of the Company's U.S. dollar denominated purchases of PC components during a period of relative weakening of the U.S. dollar. The failure of the Company to compete effectivelynot interrupted our operations in thePC market couldpast. Nevertheless, shortages may occur from time to time in the future. Also, lead times for the supply of raw materials havea material adverse effect onbeen extended in theCompany'spast. If our supply of raw materials is interrupted or our lead times extended, our results of operationsand financial position. The Company's PC operations compete with a number of PC manufacturers, which sell their products primarily through direct channels, including Dell Computer Corporation and Gateway 2000, Inc. The Company also competes with PC manufacturers, such as Apple Computer, Inc., Compaq Computer Corporation, Hewlett-Packard Company, International Business Machines Corporation ("IBM"), NEC Corporation and Toshiba Corporation among others. Several of these manufacturers, which have traditionally sold their products through national and regional distributors, dealers and value added resellers and retail stores now sell their products through the direct channel. In addition, the Company expectscould be adversely affected.If we are unable to
face increased competition in the U.S. direct sales market from foreign PC suppliers and from foreign and domestic suppliers of PC products that decide to implement,retain existing key employees ordevote additional resources to, a direct sales strategy. In order to gain an increased share of the United States PC direct sales market, these competitors may effect a pricing strategy that is more aggressive than the current pricing in the direct sales market or may have pricing strategies influenced by relative fluctuations in the U.S. dollar compared to other currencies. The Company continues to experience significant pressure on its PC operating results as a result of intense competition in the PC industry and consumer expectations of more powerful PC systems at lower prices. MEI's e-services initiatives are designed around four key areas: web hosting, e-commerce, connectivity and computer hardware and desktop management. The offering of e-services increases the complexity of the Company's PC operations and may place a significant strain on MEI's operating, financial and managerial resources. There can be no assurance that MEI's resources will be adequate to support these initiatives. Furthermore, web hosting and connectivity are areas that are extremely competitive and subject to rapid changes in technology. A large number of companies, including Verio Inc. and Concentric Network Corporation, offer e-services similar to those provided by the Company. Large diversified companies such as Intel Corporation ("Intel"), IBM and AT&T Corp. have indicated their intent to enter into the e-services market, which will intensify the competition. Many of these competitors have greater financial resources, strategic relationships, brand recognition and a larger customer base than MEI, any or all of which may prove critical for success in the e-service market. There can be no assurance that the Company will successfully compete in this market or that its efforts to succeed in this market will not diminish its ability to compete effectively in the PC market. 20MEI'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 and selling prices for its PC products, fluctuating market pricing for PCs, seasonal government purchasing cycles, inventory obsolescence, MEI's ability to effectively manage inventory levels, changes in product mix, manufacturing and production constraints, fluctuating component costs, the effects of product reviews and industry awards, critical component availability, seasonal cycles common in the PC industry, the timing ofhire qualified newproduct introductions by MEI and its competitors and global market and economic conditions. MEI'semployees, our operating results couldhave a material impactbe adversely affectedWe depend on
the Company's consolidated operating results. The Company is dependent upona limited number of key management and technical personnel.In addition, the Company'sOur future successwill dependdepends in partupon itson our ability to attract and retain highly qualified personnel initsour worldwide operations, particularly asit addswe add different producttypes to its product line, which require parallel design effortstypes. Competition for skilled management andsignificantly increase the need for highly skilledtechnicalpersonnel. The Company competes for such personnel with other companies, academic institutions and government entities. The Company has experienced, and expects to continue to experience,employees is intense within our industry. Other employers have increased recruitment ofitsour existingpersonnel by other employers. There can be no assurancepersonnel.We face risks associated with our international sales and operations 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 personnelcouldhave a material adverse effect on the Company's business andadversely affect our operating resultsof operations.International sales
comprised approximately 39% and 27%approximated 38% ofthe Company'sour consolidated net sales in the first quarter of2000 and 1999, respectively. The Company expects2001. We expect international sales tocontinue to increase as a result of increased production by itsincrease. In addition, we support manufacturing operations in Italy, Singapore, Japan and Scotland. Our internationaloperations. Internationalsales and international operations are subject to a variety of risks,including those arising fromincluding:
- •
- currency fluctuations,
in currency exchange rates, import tariffs andexport duties, changes to import and export regulationspossibleand restrictions on therepatriation and othertransfer of funds,- •
- employee turnover and labor unrest,
- •
- longer
customerpaymentterms,cycles and greater difficulty in collecting accounts receivable,the burdens and costs of- •
- compliance with a variety of international laws, and
regulations, and, in certain instances,21
- •
- political and economic instability.
While to date theseThese factors
have not had a significant adversemay adversely impacton the Company'sour business, results of operationsthere can be no assurance that there willand financial condition.If average selling prices of memory products decline, we may not be
such an impact in the future. The only portion of the Company's workforce subjectable tocollective bargaining agreements is based in Italy. The Company has experienced minimal interruptions in workgenerate sufficient cash flowas a result of union activity. Whiletodate such interruptionsfund our operationsHistorically, we have
not had a material impact on the Company's business or results of operations, there can be no assurance that a future interruption, if any, would not have an adverse effect on the Company's business or results of operations. Historically, the Company has reinvestedinvested substantially all cash flow fromits semiconductorSemiconductor operations in capacity expansion and enhancement programs.The Company'sOur cash flow from operations depends primarily on average selling prices and perunitmegabit manufacturing costs ofthe Company'sour semiconductor memory products. Iffor any extended period of timeaverage selling prices decline at a faster rate thanthe rate at which the Company is able to decreaseour perunitmegabit manufacturing costs,the Companywe may not be able to generate sufficient cash flowsfrom operationsto sustain our operations.There canWe may beno assurance that, if needed,unable to obtain other external sources of liquiditywill be availableto fundthe Company'sour operations oritsefforts to enhance our capacity and product and processtechnologytechnology. Without additional financing, we may be unable to invest sufficiently in capacity expansion and enhancementprograms. Failure to obtain financing could hinder the Company's ability to make continued investments in suchprograms, which could materially adversely affectthe Company'sour business, results of operations and financial condition.Cash generatedIf we fail to compete effectively in the highly competitive semiconductor memory industry, our results of operations and cash flows would be adversely affected
The semiconductor memory 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 large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor memory market, invest in technology and capitalize on growth opportunities. In addition, a number of these competitors have historically been able to introduce new products before we have. Consolidations in the semiconductor memory industry could weaken our position against competitors. If we fail to compete effectively, our results of operations and cash flows would be adversely affected.
Products that do not meet specifications or that contain, or are rumored to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise adversely affect our results of operations
Because the design and production process for semiconductor memory is highly complex, it is possible that we may produce products that do not comply with customer specifications, contain defects, or are otherwise incompatible with end uses. If, despite design review, quality control and product qualification procedures, problems with nonconforming, defective or incompatible products occur after we have shipped such products, we could be adversely affected in one or both of the following ways:
- •
- we may need to replace product or otherwise compensate customers for costs incurred or damages caused by defective or incompatible product.
- •
- we may encounter adverse publicity, which could cause a decrease in sales of our products.
If our supply of memory products from our joint ventures is interrupted, our results of operations could be adversely affected
We participate in two joint ventures that currently supply us with in excess of 40% of our total megabits of memory produced. We have agreements to purchase all of the production from the joint ventures subject to specific terms and conditions. The joint ventures have historically required and presently are required to seek additional financing to fund their ongoing operations and transition to next generation technologies. Our source of supply may be interrupted if either joint venture is unable
22
to repay or refinance existing debt or obtain required incremental financing. In addition, our supply from each joint venture may be interrupted if the joint venture's operations experience a disruption in its manufacturing process. Any reduction in supply could adversely affect our results of operations and cash flows.
We have a pending transaction to purchase all of the equity interest in our KMT joint venture. (See "Liquidity and Capital Resources" and "Notes to Consolidated Financial Statements—Joint Ventures.")
If our subsidiary, Micron Electronics, Inc., fails to compete effectively in the highly competitive PC and e-services industry, our consolidated results of operations could be adversely affected
Our results of operations are affected by, Micron Electronics, Inc. ("MEI"), our 61% owned subsidiary. In 2000, we reduced our ownership in MEI from 63% to 61% through contributions to the Micron Technology Foundation. We anticipate that we will further reduce our ownership share in MEI through contributions to the Foundation. MEI is
not readily availablea publicly traded PC and e-services business. MEI's results of operations, and the resulting effect upon our consolidated results of operations, are linked tofinanceconditions in the PC and e-services markets and to MEI's ability to compete effectively in these markets. The PC market has recently experienced reduced growth rates and severe pricing pressure. MEI's success depends on its 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,
- •
- effectively market PC products directly to end customers and gain market share, 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 compete effectively in the PC and e-services industry, our consolidated results of operations could be adversely affected.
If we are unable to successfully transition our Semiconductor operations to 300mm wafer manufacturing processes, the results of our operations and cash flows could be adversely affected
We have in the past reduced our per megabit manufacturing costs by transitioning to larger wafer sizes. By transitioning to larger wafers, we should be able to produce significantly more die for each wafer at only a slightly higher cost for each wafer, resulting in substantially reduced costs for each die. Several of our competitors have announced intentions to shift part or
other expendituresall ofMTI's semiconductor operations. As of December 2, 1999, TI and Intel held an aggregate of 44,743,369 shares of common stock, representing 17% oftheir memory manufacturing operations to 300mm wafers in theCompany's total outstanding common stock. These shares have not been registered with the Securities and Exchange Commission ("SEC"), however TI and Intel each have registration rights. Until such time as TI and Intel substantially reduce their holdings of Company common stock, the Company may be hindered in obtaining new equity capital. As of December 2, 1999, the Company also had outstanding $500 million of convertible subordinated notes that were issued in an SEC registered offering in June 1997 that are convertible into 7,413,997 shares of common stock. TI holds notes with a face value of $740 million which are convertible into 12,333,333 21shares of common stock. TI's resalenear future. Some of thesenotescompetitors have established pilot 300mm wafer lines. If these competitors are able to transition operations to 300mm wafers before us, we couldlimit the Company'sbe at a cost disadvantage. Our transition to 300mm wafer processing will require us to make substantial capital investments, which will depend on our ability to raisecapital throughfunds. We may also experience disruptions in manufacturing operations and reduced yields during our initial transition stage to larger wafer sizes. If we are unable to successfully transition to 300mm wafer processing, our results of operations and cash flows could be harmed.23
The DRAM market is expected to undergo considerable market segmentation in the
issuancenear future. If we fail to accurately predict and meet market demand for various products, the results ofadditional convertible debt instruments. 22our operations and cash flows could be harmed The DRAM market in the past has been characterized by production of large volumes of one dominant part type with the lowest possible megabit cost. We expect the DRAM market to partially transition its focus from the production of one dominant part type to a market with several different part types based on a variety of new technologies. These new technologies include PC133 SDRAM, Double Data Rate (DDR) DRAM, and Rambus® DRAM. We also expect to support a larger number of product densities in the future. This segmentation of the DRAM market is expected to continue in future periods, as our memory products are used in a wide variety of different products. If we are to maintain our large market share with major OEM customers we must offer a broader range of products to meet the memory requirements of these OEMs. It takes several months, or even years, to develop and qualify new products. If we are unable to accurately predict the demand for new products or the technologies on which these new products are based, our results of operations and cash flows could be adversely affected given the long lead times associated with product development.
New technologies could affect demand for our semiconductor memory products and have an adverse affect on our results of operations and cash flows
We and our competitors need to spend substantial resources to develop new semiconductor memory technologies. If our competitors introduce new products and processes before us, demand for our products could decrease and our results of operations could be harmed. We expect our competitors will continue to develop new products and processes in the future. While we will continue to invest substantially in our own research and development efforts, we cannot guarantee that our new products and processes will be competitive.
24
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, theThe Company believes that the market risk arising from its holdings offinancial instrumentsliquid investments isminimal. Asminimal as substantially all ofDecember 2, 1999,the Company's investments mature within one year. The carrying value of the Company's long-term debt was $293 million at November 30, 2000, and $1.0 billion at August 31, 2000. The Company held aggregate cash andreceivablesother assets in foreign currency valued at approximately US$164$74 million as of November 30, 2000, and US $97 million as of August 31, 2000. The Company also held aggregate foreign currency payables valued at approximately US$255$112 million as of November 30, 2000, and US $157 million as of August 31, 2000 (including long-term liabilities denominated in Euros valued at approximately US$129 million)$16 million for both dates). Foreign currency receivables and payables are comprised primarily of Japanese Yen, British Pounds, Euros and SingaporeDollars and British Pounds. 23PartDollars.25
On August 28, 2000, the Company filed suit against Rambus, Inc. ("Rambus") in U.S. District Court for the District of Delaware seeking (1) relief under the federal antitrust laws for violations of Section 2 of the Shearman Act; (2) a declaratory judgement (a) that certain Rambus patents are not infringed by the Company, are invalid, and/or are unenforceable due to, among other reasons, Rambus' fraudulent conduct in misusing and enforcing those patents, (b) that the Company has an implied license to those patents and (c) that Rambus is estopped from enforcing those patents against the Company, and (3) damages and declaratory relief for Rambus' breach of contract, fraud, deceptive trade practices, negligent misrepresentation, and conduct requiring the application of equitable estoppel. On September 1, 2000, Rambus filed suit against Micron Semiconductor GmbH in the District Court of Mannheim, Germany, alleging that certain SDRAM and DDR SDRAM products infringe German patent and utility model counterparts to European patent 525 068. On September 13, 2000, Rambus filed suit against Micron Europe Limited in the High Court of Justice, Chancery Division in London, England, alleging that certain SDRAM and DDR SDRAM products infringe the U.K. counterpart to European patent 525 068. On September 22, 2000, Rambus filed a complaint against the Company and Reptronic (a distributor of the Company's products) in Court of First Instance of Paris, France, alleging that certain SDRAM and DDR SDRAM products infringe the French counterpart to European patent 525 068. In its suits against the Company, Rambus is seeking monetary damages and injunctive relief. On September 29, 2000, the Company filed suit against Rambus in the Civil Court of Milan, Italy alleging invalidity and non-infringement of the Italian counterpart to European patent 525 068. On September 29, 2000, Rambus filed a preliminary proceeding against the Company and EBV (a distributor of the Company's products) in the Civil Court of Monza, Italy, alleging that certain SDRAM and DDR SDRAM products infringe the Italian counterpart to European patent 525 068, and seeking the seizure of certain materials and the entry of a preliminary injunction. On December 21, 2000, an appeals panel of the Court of Monza ordered that the seizure be revoked and held that the Monza court had no jurisdiction to adjudicate the matter. On December 29, 2000, the Company filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European patent 1 004 956. The Company is unable to predict the outcome of these suits.
Item 4. Submission of Matters to a Vote of ShareholdersThe registrant's 2000 Annual Meeting of Shareholders was held on November 28, 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.
Name of Nominee Votes Cast For Votes Cast Against/Withheld Steven R. Appleton 496,861,501 5,824,006 James W. Bagley 492,786,082 9,899,425 Robert A. Lothrop 496,762,831 5,922,676 Thomas T. Nicholson 496,827,698 5,857,809 Don J. Simplot 496,799,224 5,886,283 Gordon C. Smith 496,751,194 5,934,313 William P. Weber 496,637,744 6,047,763 26
(b) The amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock from 1,000,000,000 to 3,000,000,000 was approved with 324,418,658 votes in favor, 176,854,319 votes against, 1,412,530 abstentions and 0 broker non-votes.
(c) The amendment to the Company's Certificate of Incorporation eliminating the Company's authority to issue Class A Common Stock was approved with 500,256,547 votes in favor, 775,724 votes against, 1,653,236 abstentions and 0 broker non-votes.
(d) The ratification and appointment of PricewaterhouseCoopers LLP as independent public accountants of the Company for the fiscal year ending August 30, 2001, was approved with 500,917,329 votes in favor, 369,536 votes against, 1,398,642 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 ------ ------------------------------------------------------------ 3.7 By-laws of the Registrant, as amended 27 Financial Data Schedule
Exhibit
NumberDescription of Exhibit 3.1 Certificate of Incorporation of the Registrant, as amended (b) The registrant did not file any reports on Form 8-K during the fiscal quarter ended
December 2, 1999. 24November 30, 2000. 27
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: January 13, 2000 /s/ Wilbur G. Stover, Jr. -----------------------------------------------------
Micron Technology, Inc.
(Registrant)
Dated: January 11, 2001
/s/ Wilbur G. Stover, Jr.
Wilbur G. Stover, Jr., Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
Item 2. Management's Discussion and Analysis of
PART II. OTHER INFORMATIONFinanceFinancial Condition andChief Financial Officer (Principal FinancialResults of OperationsItem 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Shareholders
Item 6. Exhibits andAccounting Officer) 25