FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-10658
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Micron Technology, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-1618004
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 S. Federal Way, P.O. Box 6, Boise, Idaho 83707-0006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (208) 368-4000
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of outstanding shares of the registrant's Common
Stock as of March 19, 1996 was 207,806,486.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MICRON TECHNOLOGY, INC.
Consolidated Balance Sheets
(Dollars in millions, except for par value amount)
(Unaudited)
February 29, August 31,
As of 1996 1995
- ----------------------------------------------------------------------
ASSETS
Cash and equivalents $ 387.2 $ 128.1
Liquid investments 10.5 427.7
Receivables 419.1 455.4
Inventories 294.2 204.8
Prepaid expenses 17.3 9.1
Deferred income taxes 85.0 49.0
-------- --------
Total current assets 1,213.3 1,274.1
Product and process technology, net 46.9 41.6
Property, plant, and equipment, net 2,319.1 1,385.6
Other assets 62.6 73.6
-------- --------
Total assets $3,641.9 $2,774.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 497.8 $ 502.3
Short-term debt 200.0 --
Deferred income 20.2 16.4
Equipment purchase contracts 98.7 59.6
Current portion of long-term debt 33.1 26.5
-------- --------
Total current liabilities 849.8 604.8
Long-term debt 143.7 129.4
Deferred income taxes 131.0 93.3
Long-term product and process technology 47.9 3.6
Other liabilities 55.8 47.6
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Total liabilities 1,228.2 878.7
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Commitments and contingencies
Common stock, $0.10 par value, authorized
1.0 billion shares, issued and outstanding
207.7 million and 206.4 million shares,
respectively 20.8 20.6
Additional capital 412.8 391.5
Retained earnings 1,980.1 1,484.1
-------- --------
Total shareholders' equity 2,413.7 1,896.2
-------- --------
Total liabilities and shareholders' equity $3,641.9 $2,774.9
======== ========
See accompanying notes to consolidated financial statements.
1
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Amounts in millions, except for per share data)
(Unaudited)
February 29, August 31,
For the quarter ended 1996 1995
- ----------------------------------------------------------------------
Net sales $ 996.5 $ 628.5
-------- --------
Costs and expenses:
Cost of goods sold 552.1 267.5
Selling, general, and administrative 70.4 39.0
Research and development 48.0 28.9
Restructuring charge 29.9 --
-------- --------
Total costs and expenses 700.4 335.4
-------- --------
Operating income 296.1 293.1
Interest income, net 4.4 6.5
-------- --------
Income before income taxes 300.5 299.6
Income tax provision 112.3 116.1
-------- --------
Net income $ 188.2 $ 183.5
======== ========
Earnings per share:
Primary $0.87 $0.86
Fully diluted 0.87 0.86
Number of shares used in per share calculations:
Primary 215.2 212.8
Fully diluted 215.2 214.3
Cash dividend declared per share $0.05 $0.025
See accompanying notes to consolidated financial statements.
2
MICRON TECHNOLOGY, INC.
Consolidated Statements of Operations
(Amounts in millions, except for per share data)
(Unaudited)
February 29, August 31,
For the six months ended 1996 1995
- ----------------------------------------------------------------------
Net sales $2,182.3 $1,163.5
-------- --------
Costs and expenses:
Cost of goods sold 1,090.2 492.0
Selling, general, and administrative 146.8 77.2
Research and development 94.6 55.9
Restructuring charge 29.9 --
-------- --------
Total costs and expenses 1,361.5 625.1
-------- --------
Operating income 820.8 538.4
Interest income, net 12.8 10.1
-------- --------
Income before income taxes 833.6 548.5
Income tax provision 316.9 205.7
-------- --------
Net income $ 516.7 $ 342.8
======== ========
Earnings per share:
Primary $2.39 $1.62
Fully diluted 2.39 1.61
Number of shares used in per share calculations:
Primary 216.4 211.6
Fully diluted 216.4 213.6
Cash dividend declared per share $0.10 $0.05
See accompanying notes to consolidated financial statements.
3
MICRON TECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)
February 29, March 2,
For the six months ended 1996 1995
- ----------------------------------------------------------------------
CASH FLOWS OF OPERATING ACTIVITIES
Net income $ 516.7 $ 342.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 163.5 86.6
Restructuring charge 29.9 --
Decrease (increase) in receivables 36.0 (30.4)
Increase in inventories (103.8) (41.7)
Increase in accounts payable and accrued
expenses 1.0 38.4
Increase in long-term product and
process rights 37.0 0.8
Other 13.2 15.8
-------- --------
Net cash provided by operating activities 693.5 412.3
-------- --------
CASH FLOWS OF INVESTING ACTIVITIES
Purchase of held to maturity securities (184.5) (420.6)
Proceeds from sales and maturities of
securities 603.4 281.8
Expenditures for property, plant, and equipment (950.1) (242.7)
Other (3.5) 9.2
-------- --------
Net cash used for investing activities (534.7) (372.3)
-------- --------
CASH FLOWS OF FINANCING ACTIVITIES
Payments on equipment purchase contracts (112.0) (71.1)
Proceeds from issuance of debt 233.1 59.7
Repayments of debt (14.0) (21.0)
Proceeds from issuance of common stock 13.3 8.6
Payment of dividends (20.7) (10.2)
Other 0.6 (2.9)
-------- --------
Net cash provided by (used for) financing
activities 100.3 (36.9)
-------- --------
Net increase in cash and equivalents 259.1 3.1
Cash and equivalents at beginning of period 128.1 78.4
-------- --------
Cash and equivalents at end of period $ 387.2 $ 81.5
======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid, net $ (416.7) $ (214.8)
Interest paid (4.1) (4.5)
Noncash investing and financing activities:
Equipment acquisitions on contracts payable
and capital leases 151.2 62.8
See accompanying notes to consolidated financial statements.
4
Notes to Consolidated Financial Statements
(All tabular dollar amounts are stated in millions)
1. Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
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. The
Company recognized a $29.9 million pre-tax restructuring charge
resulting from the decisions by its approximately 80% owned
subsidiary, Micron Electronics, Inc., to discontinue sales of
ZEOS brand PC systems and to close the related PC manufacturing
operations in Minneapolis, Minnesota in the second quarter of
1996.
The Company reclassified held-to-maturity liquid investment
securities with an amortized cost of $151 million to available-
for-sale concurrent with the Company's adoption of the Federal
Accounting Standards Board's special report on implementing
Statement 115 "Accounting for Certain Investments in Debt and
Equity Securities".
This report on Form 10-Q for the quarter ended February 29,
1996, should be read in conjunction with the Company's Annual
Report to Shareholders and/or Form 10-K for the year ended August
31, 1995.
2. Receivables February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Trade receivables $ 388.9 $ 457.4
Income taxes recoverable 51.3 --
Other 14.1 14.6
Allowance for returns and discounts (26.7) (9.2)
Allowance for doubtful accounts (8.5) (7.4)
-------- --------
$ 419.1 $ 455.4
======== ========
3. Inventories February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Finished goods $ 63.8 $ 17.8
Work in progress 135.9 99.1
Raw materials and supplies 94.5 87.9
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$ 294.2 $ 204.8
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4. Product and process technology, net February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Product and process technology, at cost $ 163.1 $ 152.3
Less accumulated amortization (116.2) (110.7)
-------- --------
$ 46.9 $ 41.6
======== ========
5. Property, plant, and equipment, net February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Land $ 36.2 $ 34.4
Buildings 540.6 392.0
Machinery and equipment 1,798.8 1,338.4
Construction in progress 663.3 259.2
-------- --------
3,038.9 2,024.0
Less accumulated depreciation and
amortization (719.8) (638.4)
-------- --------
$2,319.1 $1,385.6
======== ========
5
Notes to Consolidated Financial Statements, continued
6. Accounts payable and accrued expenses February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Accounts payable $ 227.0 $ 193.2
Salaries, wages, and benefits 92.6 103.2
Product and process technology 101.6 91.5
Income taxes payable 10.9 72.7
Other 65.7 41.7
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$ 497.8 $ 502.3
======== ========
7. Short-term debt
The Company has a temporary revolving credit facility expiring
on May 12, 1996 that provides for borrowings up to $250 million.
The interest rate on borrowed funds is based on various pricing
options and was 6.80% on the $200 million outstanding under the
facility as of February 29, 1996.
8. Long-term debt February 29, August 31,
1996 1995
- ----------------------------------------------------------------------
Notes payable in periodic installments
through July 2015, weighted average
interest rate of 6.65% and 6.82%,
respectively $ 107.9 $ 89.3
Noninterest bearing obligations, $19.8
million due June 1997, $3 million due
October 1997, and $20.5 million due
December 1997, weighted average imputed
interest rate of 6.86%, and 6.85%,
respectively. 39.1 37.8
Notes payable, due at maturity, ranging
from December 1996 to June 1998, weighted
average interest rate of 5.01% and 5.49%,
respectively 23.0 20.0
Capitalized lease obligations payable in
monthly installments through April 1998,
weighted average interest rate of 7.83%
and 8.94%, respectively 6.8 8.8
-------- --------
176.8 155.9
Less current portion (33.1) (26.5)
-------- --------
$ 143.7 $ 129.4
======== ========
9. Earnings per share
Earnings per share is computed using the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares result from the assumed exercise of
outstanding stock options and affect earnings per share when they
have a dilutive effect. Per share amounts for the second quarter
of fiscal 1995 have been restated to reflect retroactively a 2
for 1 stock split effected in the form of a stock dividend to
shareholders of record on May 4, 1995.
6
Notes to Consolidated Financial Statements, continued
10. Income taxes
The estimated effective income tax rate for fiscal year 1996 of
38.0% principally reflects the statutory federal corporate income
tax rate and the net effect of state taxation.
11. Commitments
As of February 29, 1996, the Company had commitments extending
into fiscal 1998 of approximately $505 million for equipment
purchases and $44 million for the construction of facilities.
Should the Company elect to cancel its outstanding equipment
purchase commitments, the Company could be subject to
cancellation fees in excess of $100 million.
12. Contingencies
Periodically, the Company is made aware that technology used by
the Company in the manufacture of some or all of its products may
infringe on product or process technology rights held by others.
The Company has accrued a liability and charged operations for
the estimated costs of settlement or adjudication of asserted and
unasserted claims for infringement prior to the balance sheet
date. Management can give no assurance that the amounts accrued
have been adequate and cannot estimate the range of additional
possible loss, if any, from resolution of these uncertainties.
Resolution of whether the Company's manufacture of products has
infringed on valid rights held by others may have a material
adverse effect on the Company's financial position or results of
operations, and may require material changes in production
processes and products. The Company had various product and
process technology agreements expire in calendar 1995 and is not
able to predict whether these license agreements can be renewed
on terms acceptable to the Company.
The Company is a party to various legal actions arising out of
the normal course of business, none of which is expected to have
a material effect on the Company's financial position or results
of operations.
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion contains trend information and other
forward looking statements that involve a number of risks and
uncertainties. The Company's actual results could differ
materially from the Company's historical results of operations
and those discussed in the forward looking statements. Factors
that could cause actual results to differ materially are
included, but are not limited to, those identified in "Certain
Factors".
Overview
All period references are to the Company's fiscal periods ended
February 29, 1996, November 30, 1995, and March 2, 1995, unless
otherwise indicated. Share and per share amounts for the first
quarter and first six months of 1995 have been restated to
reflect a 2 for 1 stock split effected in the form of a stock
dividend to shareholders of record on May 4, 1995. Quarterly
financial results may not be indicative of the financial results
for any future period. All tabular dollar amounts are stated in
millions.
Net income for the second quarter of 1996 was $188 million, or
$0.87 per fully diluted share, on net sales of $997 million
compared to net income of $184 million, or $0.86 per fully-
diluted share, on net sales of $629 million for the second
quarter of 1995. For the first six months of 1996, net income
was $517 million, or $2.39 per fully-diluted share, on net sales
of $2,182 million compared to net income of $343 million, or
$1.61 per fully-diluted share, on net sales of $1,164 million for
the first six months of 1995. The Company previously reported
net sales of $1,186 million and net income of $329, or $1.51
per fully diluted share, for its first quarter of 1996.
The principal cause of the decline in net sales and net income
for the second quarter compared to the first quarter of 1996 was
the significantly lower average selling prices of semiconductor
memory products, partially offset by the relatively higher level
of net sales of the Company's Micron brand PC systems. The
volume of semiconductor memory sold in the second quarter dropped
approximately 12% compared to the first quarter of 1996 as
finished goods inventory increased resulting in part from
changes in the Company's major customers' purchasing and
inventory management strategies, and due to a slight decrease in
production of semiconductor memory. The production decline was
principally a result of inefficiencies encountered in the
conversion of Fab III to 8-inch wafer processing. The Company
has completed the 8-inch wafer start conversion of Fab III and
recently began converting wafer starts in Fab I/II. While
completion of the conversion of Fab I/II is conditioned upon
market conditions for semiconductor memory products, such
completion is anticipated prior to the end of calendar 1996. Due
to customer demand, the Company has accelerated its transition
from the relatively mature 4 Meg DRAM to the 16 Meg DRAM.
Results of the second quarter were also adversely affected by a
one-time $29.9 million pre-tax restructuring charge resulting
from the decisions by its approximately 80% owned subsidiary,
Micron Electronics, Inc., to discontinue sales of ZEOS brand
PC systems and to close the related PC manufacturing operations
in Minneapolis, Minnesota. The restructuring charge reduced
second quarter fully diluted earnings per share by $0.09.
8
Results of Operations
Second Quarter Six Months Ended
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1996 Change 1995 1996 Change 1995
------------------------------- -----------------------------------
Net Sales $ 996.5 58.6% $ 628.5 $2,182.3 87.6% $1,163.5
Second Quarter Six Months Ended
------------------------------- -----------------------------------
1996 1995 1996 1995
-------------- -------------- ---------------- ----------------
Net Sales % Net Sales % Net Sales % Net Sales %
-------------- -------------- ---------------- ----------------
Semiconductor memory products $646.0 64.8% $523.7 83.3% $1,515.4 69.4% $ 988.0 84.9%
Personal computer systems 264.9 26.6% 73.1 11.6% 499.0 22.9% 117.4 10.1%
Other 85.6 8.6% 31.7 5.1% 167.9 7.7% 58.1 5.0%
------ ----- ------ ----- -------- ----- -------- -----
Total net sales $996.5 100.0% $628.5 100.0% $2,182.3 100.0% $1,163.5 100.0%
====== ===== ====== ===== ======== ===== ======== =====
The value of the Company's semiconductor memory products
included in PC systems and other products is included under
"Semiconductor memory products". "Other" includes revenue from
contract manufacturing and module assembly services, construction
management services, government contracts, and licensing fees.
The substantial increase in net sales in the second quarter of
1996 compared to the second quarter of 1995 was principally due
to a higher level of net sales of PC systems and the effects of a
higher level of production of semiconductor memory products
partially offset by generally lower average selling prices for
such products. The Company's sales of semiconductor memory
products in the second quarter of 1996 decreased approximately
12% compared to the first quarter of 1996.
The volume of semiconductor memory produced in the second
quarter decreased slightly compared to the first quarter of 1996
principally as a result of inefficiencies encountered in the
conversion of Fab III to process 8-inch wafers. The Company has
completed the 8-inch wafer start conversion of Fab III and
recently began converting wafer starts in Fab I/II. While 8-inch
wafers have approximately 84% greater usable surface area
compared to 6-inch wafers, the Company's yields on 8-inch wafers
were significantly lower in the second quarter of 1996 compared
to its 6-inch wafers. In addition, wafer fabrication throughput
decreased in the second quarter compared to the first quarter of
1996 principally due to the slightly increased processing time
required for 8-inch wafers.
The volume of semiconductor memory sold during the second
quarter dropped approximately 12% compared to the first quarter
of 1996 as finished goods inventory increased. During the second
quarter of 1996, certain of the Company's major customers
undertook efforts to reduce their component inventories. Such
practices resulted in increased downward pressure on pricing for
the Company's DRAM products due to the short-term shift in demand
relative to supply for such products.
The Company's average selling prices for semiconductor memory
products during the second quarter decreased approximately 16%
compared to the first quarter of 1996. Selling prices for the
Company's semiconductor memory products were substantially lower
in the latter portion of the second quarter compared to the
average for the quarter. See "Certain Factors".
The 4 Meg DRAM comprised approximately 91% of sales of
semiconductor memory products in the second quarter of 1996.
9
Sales of PC systems, excluding the value of the Company's
semiconductor memory included therein, increased to approximately
27% of the Company's total net sales for the second quarter of
1996 from approximately 12% in the second quarter of 1995. Sales
of PC systems were higher in 1996 primarily as a result of higher
unit sales of Micron brand PC systems and higher sales under
government contract, offset in part by a decline in the unit
sales of ZEOS brand PC systems. The increase in direct unit
sales of Micron brand PC systems was principally a result of
enhanced name recognition and market acceptance of such systems,
which the Company attributes to the receipt of a number of awards
from computer trade magazines relating to price and performance
characteristics of such systems and the Company's service and
support functions. In the event the Company is not successful in
winning such awards in the future, consumer interest in its PC
systems could decline materially. Slightly higher overall
average selling prices of the Company's PC systems in the second
quarter of 1996 compared to the second quarter of 1995 resulted
primarily from the increased sales of Pentium microprocessor
based PC systems.
Second Quarter Six Months Ended
------------------------------- ------------------------------
1996 Change 1995 1996 Change 1995
------------------------------- ------------------------------
Cost of goods sold $ 552.1 106.4% $ 267.5 $1,090.2 121.6% $ 492.0
Gross margin % 44.6% 57.4% 50.0% 57.7%
The Company's gross margin percentage was lower in the second
quarter of 1996 than in the second quarter of 1995 primarily as a
result of generally lower average selling prices on sales of
semiconductor memory products and the effect of increased
sales of PC systems which generally have a lower gross margin
percentage compared to the balance of the Company's products.
The Company's gross margin percentage on sales of semiconductor
memory products for the second quarter of 1996 was approximately
62% compared to approximately 64% in the second quarter of 1995,
and 70% in the first quarter of 1996.
The lower gross margin percentage on sales of the Company's
semiconductor memory products during the second quarter compared
to the first quarter of 1996 was principally due to a decrease in
average selling prices for such products and inefficiencies
encountered in the conversion of Fab III to process 8-inch
wafers both partially offset by the effect of the Company's on-
going transitions to shrink versions of existing memory products.
The Company is accelerating the transition of its primary
semiconductor memory products from the relatively mature 4 Meg
DRAM to the 16 Meg DRAM. To date, only limited quantities of 16
Meg products have been produced. The Company's transition to the
16 Meg DRAM as its principal memory product could have a negative
impact on the Company's results of operations. During prior
periods in which the Company transitioned to new generation
products, the Company's gross margin percentages were adversely
affected.
The Company's gross margin percentage on sales of PC systems
declined in the second quarter of 1996 compared to both the first
quarter of 1996 and the second quarter of 1995, primarily as a result
of price reductions for certain PC system products and loss on
disposition of certain excess component inventories. To a lesser
extent, the decline in the second quarter of 1996 compared to the
second quarter of 1995 was partially due to an increase in the
number of lower priced units shipped under government contract.
The Company continues to experience significant pressure on its
gross margin percentage realized for sales of PC systems as a
result of intense competition in the PC industry and consumer
expectations of more powerful PC systems at lower prices. Many
of the Company's competitors have substantial resources and
purchasing power relative to those which the Company has
dedicated to its PC operations. Although the Company has begun
to realize reduction in costs of components for PC systems in
recent periods, the Company's gross margin percentage on sales of
PC systems continues to be lower than those of the Company's
primary products. In the event that sales of PC systems continue
to increase as a percentage of total net sales, the Company's
overall gross margin percentage will be adversely affected.
10
Cost of goods sold includes estimated costs of settlement or
adjudication of asserted and unasserted claims for patent
infringement prior to the balance sheet date, and costs of
product and process technology licensing arrangements. Charges
for product and process technology remained relatively constant
as a percentage of net sales in the second quarter of 1996
compared to both the first quarter of 1996 and the second quarter
of 1995. Future product and process technology charges may
fluctuate in absolute dollars and as a percentage of net sales,
however, as a result of claims that may be asserted in the
future, and as a result of future license arrangement. See
"Certain Factors."
Second Quarter Six Months Ended
------------------------------- ------------------------------
1996 Change 1995 1996 Change 1995
------------------------------- ------------------------------
Selling, general, and
administrative $ 70.4 80.5% $ 39.0 $ 146.8 90.2% $ 77.2
as a % of net sales 7.1% 6.2% 6.7% 6.6%
The higher level of selling, general, and administrative
expenses during the second quarter and first six months of 1996
as compared to comparable periods of 1995 resulted primarily from
personnel costs and depreciation charges associated with the
administrative and information systems support for the Company's
ongoing expansion plans and the Company's profit sharing
programs, a higher level of legal fees, and a higher level of
advertising costs incurred in conjunction with the Company's
increase in sales of PC systems.
Second Quarter Six Months Ended
------------------------------- ------------------------------
1996 Change 1995 1996 Change 1995
------------------------------- ------------------------------
Research and development $ 48.0 66.1% $ 28.9 $ 94.6 69.2% $ 55.9
as a % of net sales 4.8% 4.6% 4.3% 4.8%
Research and development expenses vary primarily with the
number of wafers and personnel dedicated to new product and
process development. Research and development efforts in the
second quarter of 1996 were focused primarily on further
development of 16 Meg and 4 Meg DRAM shrinks, and design and
development of non-volatile semiconductor memory devices, the 34K
x 36 synchronous SRAM, and next generation DRAM densities. The
Company expects research and development expenses in the
remainder of 1996 to be higher than comparable periods in 1995 as
additional resources are dedicated to the development of 16 Meg
and 4 Meg DRAM shrinks, design and development of next generation
DRAM densities, and new technologies including radio frequency
identification systems, non-volatile semiconductor memory
devices, and field emission flat panel displays.
Second Quarter Six Months Ended
------------------------------- ------------------------------
1996 Change 1995 1996 Change 1995
------------------------------- ------------------------------
Income tax provision $ 112.3 (3.3)% $ 116.1 $ 316.9 54.1% $ 205.7
The effective income tax rate for the first six months of 1996
of 38.0% represents a slight increase compared to the 37.5% rate
for the prior fiscal year principally due to a change in the mix
of sales among taxing jurisdictions and the decreased effect of
state tax credits.
Liquidity and Capital Resources
The Company had cash and liquid investments of $398 million
as of February 29, 1996, representing a decrease of $158
million during the first six months of 1996. The Company's
principal sources of liquidity during the first six months of
1996 were cash flows from operations of $694 million,
borrowings under the Company's bank credit agreement of $200
million, and equipment financing of $151 million. The
principal uses of funds in the first six months of 1996 were
$1,101 million for property, plant, and equipment, $126
million for repayments of equipment contracts and long-term debt.
11
During the second quarter of 1996, the Company entered into a
temporary revolving credit facility expiring on May 12, 1996
which provides for borrowings up to $250 million. As of
February 29, 1996, the Company had borrowings outstanding under
the facility of $200 million. The Company is negotiating with a
syndicate of banks to provide a credit agreement with aggregate
borrowings of $500 million to replace the current $250 million
temporary credit facility. There can be no assurance the Company
will be able to negotiate terms of the financing agreement
acceptable to the Company, or that the Company will be able to
borrow the maximum amount available under the agreement due to
expected limitations on the borrowing base and certain financial
covenants. Depending on overall market conditions, the Company
may pursue debt or equity financing. The inability of the
Company to obtain financing on acceptable terms could
significantly delay or reduce in scope the Company's capacity
enhancement program and may necessitate changes in operations
which could have the effect of limiting production capacity.
The Company's ability to invest in its capacity enhancement
program is also largely dependent on the Company's ability to
generate cash flows from its operations. Cash flow from
operations for the second quarter of 1996 was lower than cash
flow from operations for the first quarter of 1996 resulting from
a combination of lower volumes of semiconductor memory sold, and
lower overall average selling prices for semiconductor memory
products. Cash flow from operations is primarily influenced by
average selling prices and variable cost per part for the
Company's semiconductor memory products. The semiconductor
memory industry has recently experienced, and may continue to
experience, downward pressure on selling prices for DRAM
products. Future declines in selling prices for DRAM products
will further erode the Company's ability to fund capital
expenditures.
Completion of the Company's semiconductor memory manufacturing
facility in Lehi, Utah, has been placed on indefinite hold
following completion of the exterior of the facility. The
Company's conversion of Fab I/II to process 8-inch wafers and
expansion of the Boise facility capacity beyond existing levels,
while currently proceeding, are conditioned upon future market
conditions which the Company cannot predict. The Company expects
capital expenditures in the remainder of 1996 to be between $600
million and $800 million.
As of February 29, 1996, the Company had contractual
commitments and order cancellation fees extending through
calendar 1998 of approximately $505 million for equipment
purchases and approximately $44 million for the construction of
facilities. Should the Company elect to cancel its outstanding
equipment purchase commitments, the Company could be subject to
cancellation fees in excess of $100 million. The Company
believes continuing investments in manufacturing technology,
facilities and equipment, research and development, and product
and process technology are necessary to support growth, achieve
operating efficiencies, and enhance product quality. However,
there can be no assurance the Company will have sufficient
sources of liquidity to fund additional investments to increase
production capacity, enhance or sustain production capacity at
its existing facilities, or develop new product and process
technologies.
Certain Factors
The following are important factors which could cause actual
results or events to differ materially from those contained in
any forward looking statements made by or on behalf of the
Company.
The semiconductor memory industry is characterized by rapid
technological change, frequent product introductions and
enhancements, difficult product transitions, relatively short
product life cycles, and volatile market conditions. These
characteristics historically have made the semiconductor industry
highly cyclical, particularly in the market for DRAMs, which are
the Company's primary products.
The Company's selling price for semiconductor memory products
fluctuates significantly with real and perceived changes in the
balance of supply and demand for these commodity products. As
has occurred in the past in response to favorable market
conditions for semiconductor memory products, many of the
Company's competitors have recently added, or are in the process
of adding, significant capacity for the production of
semiconductor memory components. The Company is unable to
estimate the amount of production capacity that is in various
stages of development world-wide. The amount of capacity to be
placed into production and future yield improvements by these
competitors could dramatically increase world-wide supply of
semiconductor memory.
12
DRAMs are the most widely used semiconductor memory component
in most PC systems. Approximately 64% of the Company's sales of
semiconductor memory products during the second quarter of 1996
were directly into the personal computer or peripheral markets.
Should demand for PC systems decrease, or fail to increase in
accordance with industry expectations, demand for semiconductor
memory would likely decrease placing downward pressure on selling
prices for the Company's semiconductor memory products. The
Company is unable to predict changes in industry supply, major
customer inventory management strategies, or end user demand,
which are primary factors influencing pricing for the Company's
semiconductor memory products. Based on discussions with major
customers, the Company believes pricing for its memory
semiconductor products delivered in the balance of 1996 is likely
to be lower than for deliveries of such products made in the
second quarter.
The manufacture of the Company's semiconductor memory products
is a complex process and involves a number of precise steps,
including wafer fabrication, assembly in a variety of packages,
burn-in, and final test. The Company has substantially completed
the conversion of Fab III to process 8-inch wafers and recently
began converting Fab I/II. While completion of the conversion of
Fab I/II is conditioned upon future market conditions for semiconductor
memory products, such completion is anticipated prior to the end of
calendar 1996. There can be no assurance that the Company will
not experience an interruption of its manufacturing process or
experience further decreases in manufacturing yields as a result
of the conversion.
From time to time, the Company has experienced volatility in
its manufacturing yields, as it is not unusual to encounter
difficulties in ramping shrink versions of existing devices or
new generation devices, such as the 16 Meg DRAM, to commercial
volumes. The Company is accelerating the transition of its
primary semiconductor memory products from the relatively mature
4 Meg DRAM to the 16 Meg DRAM. The Company's ability to reduce
costs per part of its semiconductor memory products is largely
dependent on its ability to design and develop new generation
products and shrink versions of existing products and its ability
to ramp such products at acceptable rates to acceptable yields of
which there can be no assurance. Should the Company be unable to
decrease costs per part for semiconductor memory products at a
rate equal to the rate of decline in selling prices for such
products, the Company's results of operations and cash flows will
be adversely materially impacted.
The Company's cash flow from operations is primarily influenced
by average selling prices and costs per part for the Company's
semiconductor memory products. Historically, the Company has
reinvested substantially all cash flows from operations in
capacity expansion and improvement programs. Uncertain market
conditions for the Company's semiconductor memory products led to
the decision to curtail development of the Lehi, Utah
manufacturing complex. Further decreases in average selling
prices would likely require further cutbacks in capital
expenditures and may necessitate changes to operations which
would have the effect of limiting production capacity.
Periodically, the Company is made aware that technology used by
the Company in the manufacture of some or all of its products may
infringe on product or process technology rights held by others.
The Company has accrued a liability and charged operations for
the estimated costs of settlement or adjudication of asserted and
unasserted claims for infringement prior to the balance sheet
date. Management can give no assurance that the amounts accrued
have been adequate and cannot estimate the range of additional
possible loss, if any, from resolution of these uncertainties.
Resolution of whether the Company's manufacture of products has
infringed on valid rights held by others may have a material
adverse effect on the Company's financial position or results of
operations, and may require material changes in production
processes and products. The Company had various product and
process technology license agreements expire in calendar 1995 and
is not able to predict whether these license agreements can be
renewed on terms acceptable to the Company.
13
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The registrant's 1995 Annual Meeting of Shareholders was held
on January 29, 1996 at the Boise Centre on the Grove. At the
meeting, the following items were submitted to a vote of the
shareholders. At the meeting, 206,970,339 shares were entitled
to vote.
(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.
Abstentions/
Votes Votes Broker
Name of Nominee Cast For Cast Against Non-Votes
--------------------- ----------- ------------ ------------
Steven R. Appleton 186,471,514 44,275 20,454,550
Jerry M. Hess 186,537,040 44,271 20,389,028
Robert A. Lothrop 186,478,833 86,994 20,404,512
Tyler A. Lowrey 186,554,899 34,624 20,380,816
Thomas T. Nicholson 186,503,612 67,748 20,398,979
Allen T. Noble 186,482,457 111,374 20,376,508
Don J. Simplot 186,460,827 156,336 20,353,176
John R. Simplot 186,375,157 156,336 20,438,846
Gordon C. Smith 186,388,732 137,834 20,443,773
Wilbur G. Stover, Jr. 186,523,834 35,606 20,410,899
(b) An amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock from
300,000,000 shares to 1,000,000,000 shares was approved with
142,592,773 votes in favor, 45,019,491 votes against, and
19,358,075 representing abstentions and broker non-votes.
(c) An amendment to the Company's 1994 Stock Option Plan
increasing the number of shares of Common Stock reserved for
future grant from 2,000,000 to 7,000,000 shares was approved with
148,951,891 votes in favor, 38,258,205 votes against, and
19,760,243 representing abstentions and broker non-votes.
(d) The ratification and appointment of Coopers & Lybrand
L.L.P. as independent public accountants of the Company for the
fiscal year ending August 29, 1996 was approved with 186,874,176
votes in favor, 1,104,607 votes against, and 18,991,556
representing abstentions and broker non-votes.
14
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as a part of this report:
Exhibit Page
Number Description of Exhibit Number
------- --------------------------------------------- ------
10.112 Forms of SeveranceAgreement
10.113 Revolving Credit Agreement Dated February 12,
1996 among the Registrant and several
financial institutions
11 Computation of per share earnings for the
quarters and six month periods ended
February 29, 1996 and March 2, 1995 17 & 18
(b) The registrant filed Reports on Form 8-K dated January 25,
1996, February 2, 1996, February 8, 1996, each announcing certain
changes in the directors and officers of the Company.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Micron Technology, Inc.
(Registrant)
Dated: March 26, 1996 /s/ Wilbur G. Stover, Jr.
------------------------------------
Wilbur G. Stover, Jr. Vice President
of Finance, and Chief Financial
Officer (Principal Financial and
Accounting Officer)
16