SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
MICRON TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 001-10658 75-1618004
--------------- ---------------------- ------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
8000 SOUTH FEDERAL WAY
BOISE, IDAHO 83716-9632
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(208) 368-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired.
-----------------------------------------
Financial Statements
MMP Business
of Texas Instruments Incorporated
Years Ended December 31, 1997 and 1996
with Report of Independent Auditors
and Six Months Ended June 30, 1998 and 1997 (unaudited)
CONTENTS
Report of Independent Auditors............................ 2
Statements of Net Assets Acquired......................... 3
Statements of Operations.................................. 4
Statements of Cash Flows.................................. 5
Notes to Statements....................................... 6
1
Report of Independent Auditors
The Board of Directors
Texas Instruments Incorporated
We have audited the accompanying statements of net assets acquired by Micron
Technology, Inc. of the MMP Business of Texas Instruments Incorporated ("MMP" as
defined in Note 1) as of December 31, 1997 and 1996, prepared pursuant to the
Agreement as defined in Note 1, and the related statements of operations and
cash flows for the years then ended. These statements are the responsibility of
the management of Texas Instruments Incorporated. Our responsibility is to
express an opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of net assets acquired and the related
statements of operations and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in these statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of these statements. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the net assets acquired by Micron Technology, Inc. of MMP at December
31, 1997 and 1996, pursuant to the Agreement as defined in Note 1, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
October 5, 1998
Dallas, Texas
2
MMP Business
of Texas Instruments Incorporated
Statements of Net Assets Acquired
(In thousands of dollars)
JUNE 30 DECEMBER 31
1998 1997 1996
-----------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Receivables $ 111,508 $ 267,391 $ 172,168
Inventories 79,933 116,154 67,781
Prepaid expenses 2,384 943 1,898
-----------------------------------------------------------------
Total current assets 193,825 384,488 241,847
Property, plant and equipment, at cost 1,030,376 874,806 730,822
Less accumulated depreciation (420,560) (376,364) (272,963)
-----------------------------------------------------------------
Net property, plant and equipment 609,816 498,442 457,859
Other assets 61,602 14,916 62,465
-----------------------------------------------------------------
Total assets $ 865,243 $ 897,846 $ 762,171
-----------------------------------------------------------------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses 137,849 185,050 187,945
Accrued retirement 17,230 17,679 17,447
-----------------------------------------------------------------
Total liabilities 155,079 202,729 205,392
-----------------------------------------------------------------
Net assets acquired $ 710,164 $ 695,117 $ 556,779
=================================================================
See accompanying notes.
3
MMP Business
of Texas Instruments Incorporated
Statements of Operations
(In thousands of dollars)
SIX MONTHS Years
ENDED ENDED
June 30 December 31
1998 1997 1997 1996
----------------------------------------------------------------------------------------
(Unaudited)
Net revenues 409,290 819,765 $1,594,551 $1,969,674
Operating costs and expenses:
Costs of revenues 834,784 716,657 1,443,392 1,873,094
Marketing, general, and administrative 63,291 75,186 166,931 204,500
Research and development 126,876 98,637 195,650 162,575
----------------------------------------------------------------------------------------
Total 1,024,951 890,480 1,805,973 2,240,169
----------------------------------------------------------------------------------------
Loss from operations (615,661) (70,715) (211,422) (270,495)
Interest expense 5,215 5,536 11,526 9,663
---------------------------------------------------------------------------------------
Loss before provision for income taxes (620,876) (76,251) (222,948) (280,158)
Income tax expense 10,610 12,081 29,702 32,527
---------------------------------------------------------------------------------------
Net loss $ (631,486) $(88,332) $ (252,650) $ (312,685)
=======================================================================================
See accompanying notes.
4
MMP Business
of Texas Instruments Incorporated
Statements of Cash Flows
(In thousands of dollars)
SIX MONTHS
ENDED YEARS ENDED
JUNE 30 DECEMBER 31
1998 1997 1997 1996
-----------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net loss $(631,486) $ (88,332) $(252,650) $(312,685)
Depreciation 84,685 68,206 148,259 139,408
Amortization expense and equity losses 30,312 46,005 88,294 33,172
(Increase) decrease in working capital:
Receivables 155,883 (73,265) (95,223) 124,501
Inventories 36,221 (15,051) (48,373) 48,284
Prepaid expenses (1,441) (2) 955 1,692
Accounts payable and accrued expenses
(47,201) 63,383 (2,895) (135,190)
Accrued Retirement (449) 1,141 232 4,184
Other - 2,980 - -
-----------------------------------------------
Net cash used in operating activities (373,476) (5,065) (161,401) (96,634)
Cash flows from investing activities:
Additions to property, plant and equipment
(196,059) (80,657) (188,842) (138,966)
Equity contributions to joint ventures (78,572) (25,000) (50,000) (23,099)
-----------------------------------------------
Net cash used in investing activities (274,631) (105,657) (238,842) (162,065)
Cash flows from financing activities:
Net transfers from Texas
Instruments 648,107 110,722 400,243 258,699
-----------------------------------------------
Net cash provided by financing activities 648,107 110,722 400,243 258,699
Net increase (decrease) in cash and cash
equivalents - - - -
-----------------------------------------------
Cash and cash equivalents at beginning of
period $ - $ - $ - $ -
===============================================
Cash and cash equivalents at end of period $ - $ - $ - $ -
===============================================
5
1. BASIS OF PRESENTATION
Texas Instruments Incorporated ("TI") and Micron Technology, Inc. ("Micron")
entered into an acquisition agreement on June 18, 1998 under which Micron
acquired substantially all of TI's MOS memory products business ("MMP"). The
transaction closed on September 30, 1998 (the "Closing"). The accompanying
statements present the assets acquired and liabilities assumed ("Statements of
Net Assets Acquired") based upon the structure of the transaction as described
in the June 18, 1998 Acquisition Agreement and the First and Second Amendments
to the Acquisition Agreement executed on July 31, 1998 and September 30, 1998,
respectively. The Acquisition Agreement and amendments are together referred to
as the "Agreement," and this transaction is herein referred to as the
"Acquisition." The statements of operations present the MMP business as it
historically operated within TI.
The Statements of Net Assets Acquired exclude significant assets and liabilities
of MMP as it historically operated within TI. Under the terms of the Agreement,
certain assets of MMP are excluded from the Acquisition, including but not
limited to cash; intercompany receivables; selected equipment; tax assets;
receivables and inventory related to all 1 Meg DRAM, 4 Meg DRAM, EPROM, and
Flash product lines; and receivables related to grants from the Italian
government (see Note 13). The Agreement also excludes certain liabilities of
MMP, including but not limited to long-term debt and related interest; tax
liabilities; obligations related to U.S. pension and retiree health care benefit
plans; and liabilities related to the Italian grant program (see Note 13).
MMP has experienced significant operating losses since 1995 and has been
dependent on TI for financial support in the form of working capital, equipment
and joint venture investment financings.
The statements have been prepared in accordance with generally accepted
accounting principles which require management to make estimates and assumptions
(including estimates of the net realizability of inventories and receivables,
useful lives of fixed assets, and the realizability of investments in joint
ventures) that affect the amounts reported in the statements. Actual results
could differ from those estimates. The statements are not intended to be a
complete presentation of the financial position, results of operations and cash
flows as if MMP had operated as a stand-alone company. The Statement of Net
Assets Acquired at June 30, 1998 and the statements of operations and cash flows
for the six months ended June 30, 1998 and 1997 are unaudited and reflect all
adjustments which are of a normal recurring nature (except as disclosed in the
notes to statements herein) and are, in the opinion of management, necessary to
present fairly the net assets acquired and the results of operations for the
periods shown. Intercompany balances and transactions within MMP have been
eliminated.
MMP engages in research, development, manufacture, assembly, test, sales, and
distribution of MOS memory semiconductor devices. The business supplies a
broad family of memory products, primarily dynamic random access memory ("DRAM")
devices and to a lesser extent erasable, programmable, read-only memory
("EPROM") and Flash devices, on a worldwide basis to manufacturers of computers,
telecommunications equipment, and automotive systems.
Micron did not acquire receivables or inventory related to EPROM and Flash
product lines. Accordingly, the accompanying Statements of Net Assets Acquired
exclude receivables and inventory for these product lines. During 1997 and
1996, revenues from these product lines were $157 million and $ 194 million,
respectively, which are included in the statements of operations.
TI provides various services to MMP including, but not limited to, facilities
management, data processing, security, payroll and employee benefits
administration, insurance administration, duplicating and telecommunications
services. TI allocates these expenses and all other centrally managed operating
costs, first on the basis of direct usage when identifiable, with the remainder
allocated among TI's businesses on the basis of their respective revenues,
headcount, or other measures. In the opinion of management of TI, these methods
of allocating costs are reasonable. These expenses totaled $150 million and
$199 million in 1997 and 1996, respectively.
Revenues are recorded upon shipment of products to distributors and original
equipment manufacturers. The revenue for shipments to distributors is reduced
for estimated returns, price protection and allowance rights. Revenues from
products sold by MMP to affiliates of TI (excluding joint ventures--see Note 12)
are insignificant. During 1997, a customer terminated a long-term purchase
agreement with MMP. As a result of such termination, both 1997 revenues and
gross margins increased by approximately $34 million due to the accelerated
recognition of a previously received non-refundable deposit from the customer.
6
MMP participates in a centralized cash management system wherein cash receipts
are transferred to and cash disbursements are funded by TI. Since cash and cash
equivalents related to MMP operations will not be acquired by Micron, they are
excluded from the Statements of Net Assets Acquired.
MMP operations are included in the consolidated income tax returns of TI.
Pursuant to the Agreement, TI retained income, as well as other tax liabilities
and rights to any tax refunds relating to operations prior to the Closing.
Accordingly, the Statements of Net Assets Acquired do not reflect current or
prior period income or other tax receivables or payables. The income tax
provisions included in the statements of operations have been determined on a
hypothetical basis as if MMP were a separate taxpayer. The tax provision
consists of hypothetical current foreign taxes on foreign income resulting from
intercompany transfer pricing requirements. No hypothetical tax benefit for
U.S. losses has been reflected in the provision due to the uncertainty of
realization.
The U.S. dollar is the functional currency for financial reporting. With regard
to accounts recorded in currencies other than U.S. dollars, current assets
(except inventories), other assets, current liabilities, and long-term
liabilities are remeasured at exchange rates in effect at year end.
Inventories, property, plant and equipment and depreciation thereon are
remeasured at historic exchange rates. Revenue and expense accounts other than
depreciation for each month are remeasured at the appropriate month-end rate of
exchange. Transaction gains and losses are not significant and have been
excluded from the statements of operations.
During the second quarter of 1998, MMP terminated certain purchase contracts
resulting in charges against operations of approximately $42 million. In
connection with these terminations, MMP committed to purchase $18 million of
certain test equipment during the second half of 1998.
Upon execution of the acquisition agreement on June 18, 1998, MMP discontinued
certain product research and development efforts.
Other significant accounting policies are described below as an integral part of
the notes to financial statements to which the policies relate.
2. RECEIVABLES
(In Thousands)
JUNE 30 DECEMBER 31
1998 1997 1996
----------------------------------------------------
(Unaudited)
Trade receivables $ 53,746 $132,796 $127,953
Amounts due from joint ventures (see Note 12) 57,762 134,595 44,215
----------------------------------------------------
$111,508 $267,391 $172,168
====================================================
Certain trade accounts receivable have been allocated by TI to MMP, primarily
those in Singapore and Europe. At December 31, 1997 and 1996, such allocated
receivables were $61 million and $38 million, respectively. TI allocated these
amounts based upon net revenues.
3. INVENTORIES
(In Thousands)
JUNE 30 DECEMBER 31
1998 1997 1996
----------------------------------------------------------
(Unaudited)
Raw materials $ 4,990 $ 10,934 $ 9,332
Work in process 17,306 46,896 53,500
Finished goods 57,637 58,323 4,948
----------------------------------------------------------
Total $79,933 $116,154 $67,781
==========================================================
7
Inventories are stated at the lower of cost or estimated realizable value. Cost
is generally computed on a currently adjusted standard, which approximates
current average costs. Average selling prices of 16 Meg DRAM products declined
approximately 84% in 1996 and 55% in 1997. Subsequent to December 31, 1997,
average prices continued to decline 42% through June 30, 1998, then average
prices declined a further 20% through August 31, 1998. While the realizability
of inventories are affected by changes in average selling prices, the direct
risk from such changes has partially been mitigated by inventory supply
arrangements with joint ventures whereby inventory costs of MMP are determined
based upon discounts from MMP's average selling prices (see Note 12).
As discussed in Note 12, MMP amended pricing terms with certain joint ventures
in the second quarter of 1998 effectively resulting in fixed prices to be paid
by MMP to the joint ventures generally exceeding average selling prices.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost less accumulated depreciation.
Depreciation is computed primarily using the sum-of-the-years-digits method for
buildings and improvements and the 150% declining-balance method for machinery
and equipment. Fully depreciated assets are written off against accumulated
depreciation. Maintenance and repairs are charged to expense.
DEPRECIABLE DECEMBER 31
LIVES 1997 1996
-----------------------------------------------------------------
(In Thousands)
Land 40 years $ 9,997 $ 9,465
Buildings and improvements 9-40 years 207,895 199,571
Machinery and equipment 5-20 years 656,914 521,786
-----------------------------------------------------------------
Total 874,806 730,822
Less accumulated depreciation (376,364) (272,963)
-----------------------------------------------------------------
Net property, plant, and
equipment $ 498,442 $ 457,859
=================================================================
Pursuant to the Agreement, MMP facilities owned by TI which are located in
Avezzano, Italy; Richardson, Texas; and Singapore were purchased by the Buyer,
and the cost and related accumulated depreciation of such facilities are
included in the Statements of Net Assets Acquired. As of December 31, 1997,
outstanding commitments for the acquisition of property, plant and equipment
amounted to $141 million.
5. OTHER ASSETS
December 31
1997 1996
-------------------------------------------
(In Thousands)
Investments in joint ventures (Note 12) $13,243 $60,398
Other assets 1,673 2,067
-------------------------------------------
$14,916 $62,465
===========================================
8
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31
1997 1996
-------------------------------------------
(In Thousands)
Trade payables 73,026 39,374
Amounts due to joint ventures (see Note 12) 68,984 66,102
Advance from customers 258 53,651
Accrued payroll and benefits 9,358 18,293
Accrued profit sharing (non-U.S.) 6,560 --
Other 26,864 10,525
-------------------------------------------
$185,050 $187,945
===========================================
7. LONG-TERM DEBT
Certain long-term debt and the related interest expense of TI is attributed to
MMP. This debt relates to Italian lira mortgage notes (of an Italian subsidiary
of TI) collateralized by real estate and building equipment at the Avezzano
wafer fabrication facility. TI has provided certain guarantees on the full
amount of this outstanding debt. The carrying amount of the collateral was $114
million at December 31, 1997. Outstanding Italian lira notes amounted to $198
million and $209 million, respectively, at December 31, 1997 and 1996. Interest
paid on loans was $10 million in 1997 and $7 million in 1996. Under the terms of
the Agreement, Micron did not assume long-term debt or related accrued interest
of MMP.
8. RISK CONCENTRATION
Financial instruments which potentially subject MMP to concentrations of credit
risk primarily include accounts receivable. Concentrations of credit risk with
respect to the receivables are limited due to the large number of customers in
MMP's customer base, and their dispersion across different geographic areas
(U.S., Europe, and Asia). MMP conducts ongoing credit evaluations of customers
and generally does not require collateral or other security. MMP maintains an
allowance for losses based upon the expected collectibility of accounts
receivable. Historically, MMP has not incurred any significant credit-related
losses.
9. STOCK OPTIONS
Stock options have been granted to MMP employees under the Texas Instruments
1996 Long-Term Incentive Plan, approved by TI stockholders on April 18, 1996.
Options have also been granted under the 1984 and 1988 Stock Option Plans and
the Texas Instruments Long-Term Incentive Plan; however, no further options may
be granted under these plans. Under all these stockholder-approved plans, the
option price per share may not be less than 100 percent of the fair market value
on the date of the grant. Substantially all of the options have a 10-year term.
Options granted in 1997 generally vest ratably over four years. Options granted
prior to that are either fully vested or will vest within one year.
MMP employees also have stock options outstanding under an Employee Stock
Purchase Plan approved by TI stockholders in 1997. The plan provides for
options to be offered semiannually to all eligible employees in amounts based on
a percentage of the employee's compensation. The option price per share may not
be less than 85 percent of the fair market value on the date of grant. If the
optionee authorizes and does not cancel payroll deductions, options granted
become exercisable after 7 months, and expire not more than 13 months, from the
date of grant. Options are also outstanding under the 1988 Employees Stock
Option Purchase Plan; however, no further options may be granted under this
plan.
In connection with the Acquisition, vested options in TI stock under the Long-
Term Incentive Plans (for TI employees who accept employment offers with Micron)
will continue to exist based upon the original terms of the option grants. Upon
termination from Micron, employees will have 30-90 days to exercise the options.
Unvested options in TI stock will be substituted with Micron stock. All options
of the Employee Stock and Stock Option Purchase Plans were exercised at Closing
unless employees chose to cancel the options prior to Closing.
9
Stock option transactions related to MMP were as follows:
LONG-TERM WEIGHTED- EMPLOYEE STOCK WEIGHTED-
INCENTIVE AND AVERAGE AND STOCK AVERAGE
STOCK OPTION EXERCISE OPTION EXERCISE
PLANS PRICE PURCHASE PLANS PRICE
-------------------------------------------------------------------------------
Balance at Dec. 31, 1995 477,858 $15.42 147,508 $28.36
Granted 191,550 22.68 135,210 28.13
Forfeited (6,752) 20.38 (59,980) 29.11
Expired -- -- -- --
Exercised (30,800) 11.04 (31,512) 24.45
-------------------------------------------------------------------------------
Balance at Dec. 31, 1996 631,856 17.79 191,226 28.61
Granted 442,800 37.58 113,715 48.30
Forfeited (29,800) 30.75 (11,814) 29.74
Expired -- -- -- --
Exercised (95,500) 12.63 (160,424) 28.68
-------------------------------------------------------------------------------
Balance at Dec. 31, 1997 949,356 $27.14 132,703 $45.29
===============================================================================
In accordance with the terms of APB No. 25, MMP has not recorded compensation
expense for TI stock option awards to employees of the MMP Business. As
required by SFAS No. 123, the following disclosures of hypothetical values for
stock option awards are provided below.
The weighted-average grant-date value of options granted during 1997 and 1996
was estimated to be $15.72 and $9.24 under the Long-Term Incentive Plans (Long-
Term Plans) and $13.47 and $6.05 under the Employee Stock and Stock Option
Purchase Plans (Employee Plans). These values were estimated using the Black-
Scholes option-pricing model with the following weighted-average assumptions for
1997 and 1996: expected dividend yields of .93% and 1.48% (Long-Term Plans) and
.70% and 1.21% (Employee Plans); expected volatility of 39%; risk-free interest
rates of 5.76% and 5.42% (Long-Term Plans) and 5.69% and 6.15% (Employee Plans);
and expected lives of 6 years (Long-Term Plans) and .8 years and 1.5 years
(Employee Plans). Compensation expense based on these hypothetical values would
not have been material in 1997 and 1996.
Summarized information about stock options outstanding under the Long-Term Plans
and 1984 and 1988 Stock Option Plans at December 31, 1997 for employees of MMP,
is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------- ----------------------------------
WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
NUMBER AVERAGE AVERAGE Exercisable AVERAGE
Range of OUTSTANDING REMAINING EXERCISE AT DEC. 31, EXERCISE
Exercise Prices AT DEC. 31, 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
- ---------------------------------------------------------------------------- ----------------------------------
$8.21-$13.69 47,400 4.7 $11.22 47,400 $11.22
$13.69-$25.85 477,556 7.2 $19.39 250,956 $17.05
$33.85-$67.00 424,400 9.2 $37.63 - -
- ---------------------------------------------------------------------------- ----------------------------------
$8.21-$67.00 949,356 7.9 $27.14 298,356 $16.12
============================================================================ ==================================
10. CONTINGENCIES AND COMMITMENTS
Contingencies: TI is subject to various lawsuits, claims and proceedings
arising out of the normal conduct of the MMP business. TI management believes
the disposition of matters which are pending or asserted will not have a
material adverse effect on the financial statements of MMP.
Commitments: MMP occupies various facilities which are either owned or leased
by TI. The statements of operations include occupancy charges from TI which
include depreciation, rent, and taxes (as applicable) incurred by TI and charged
to MMP based on facilities occupied. These charges do not necessarily represent
current market rates to lease such facilities. TI has executed lease agreements
with Micron at agreed-upon rates in connection with TI-owned facilities that
will be utilized by Micron after the Closing. The rent expense associated with
these agreements is immaterial.
10
MMP also directly leases certain facilities and equipment from third parties
under operating leases, many of which contain renewal options and escalation
clauses. Total rental expense on such operating leases amounted to $3 million
in 1997 and 1996. Future rental commitments under leases at December 31, 1997
were immaterial.
11. PROFIT SHARING AND RETIREMENT PLANS
MMP participates in various incentive plans provided by TI for its employees,
including general profit sharing and savings programs as well as annual
performance awards. It also participates in TI pension and retiree health care
benefit plans in the U.S. and pension plans in certain non-U.S. locations.
Pursuant to the Agreement, no liabilities pertaining to U.S. pension and retiree
medical plans for employees of MMP were assumed by Micron; therefore, no
obligations related to these plans are reflected in the statements of net assets
acquired.
PROFIT SHARING
Profit sharing expense has been allocated to MMP by TI based on relative payroll
costs. Profit sharing expense was $9 million in 1997. There was no profit
sharing expense in 1996. Profit sharing liabilities attributed to non-U.S. MMP
employees have been included in the statements of net assets acquired.
SAVINGS PROGRAM
In the U.S., MMP employees participate in the TI matched savings program whereby
employees' contributions of up to 4% of their salary are matched by TI at the
rate of 50 cents per dollar. Contributions are subject to statutory
limitations. The contributions may be invested in several investment funds
including TI common stock. The expense under this program charged by TI to MMP
was immaterial in 1997 and 1996.
PENSION PLANS
In the U.S., TI has a defined benefit plan which covers MMP employees and
provides benefits based on years of service and employee's compensation. The
plan is a career-average-pay plan which has been amended periodically in the
past to produce approximately the same results as a final-pay type plan. TI's
funding policy is to contribute to the plan at least the minimum amount required
by ERISA. Pension expense for MMP in the U.S. was immaterial in 1997 and 1996.
Retirement coverage for non-U.S. MMP employees is provided through separate
plans. Retirement benefits are based on years of service and employee's
compensation, generally during a fixed number of years immediately prior to
retirement. Funding policy is based on local statutes. Pension expense of the
non-U.S. plans covering MMP employees was $4 million in 1997 and $5 million in
1996. The non-U.S. plans are not funded. The accrued pension as well as the
vested, accumulated, and projected benefited obligations for the non-U.S. plans
amounted to approximately $17 Million at December 31, 1997 and 1996.
12. JOINT VENTURES
The following is a discussion of TI's interests in certain joint ventures
("JV's") which are ascribed to MMP. The JV agreements do not provide for
transference of an investor's interest without approval of the other investors.
MMP has held minority ownership in, and long-term inventory purchase commitments
with, four JV's, each formed to construct and operate advanced wafer fabrication
facilities for the manufacture of DRAM products. Three of the JV's are located
outside the U.S. Under the JV agreements, TI purchases and takes delivery of
the output of the JV's at prices based upon percentage discounts from TI's
average selling prices. Although these pricing arrangements were designed to
help reduce the effect of market volatility on MMP, their effectiveness has
been limited due to the sharp declines in average unit prices experienced since
1995. Certain co-venturers have had the right to buy a portion of the output
from MMP.
MMP accounts for its investments in non-U.S. JV's as inventory supply
arrangements. The purpose of the non-U.S. JV's is to provide 100% of their
semiconductor output to MMP (certain co-venturers have the right to purchase
such output from TI). As a result, MMP expects to recover its cost of the non-
U.S. JV's through sale of the semiconductor output, and is amortizing its cost
of the ventures over the expected initial output period of 3 to 5 years, and
recognizing its share of any cumulative JV net losses in excess of amortization.
The related expense for
11
such amortization charged to operations for the non-U.S. JV's was $21 million in
1997 and $14 million in 1996. MMP accounts for its investment in the U.S. JV
(see Twinstar below), which is operationally different from the non-U.S. JV's,
under the equity method of accounting (on a one-quarter lag basis). MMP
recognized $67 million in 1997 and $19 million in 1996 for its share of the U.S.
JV's net losses under the equity method.
Under various bank financing arrangements, TI has provided certain guarantees of
JV obligations. Under the joint venture agreements, certain organizational and
operational decisions can only be made by super-majority agreement of the
ventures. In addition, MMP has agreements to receive payments from each of the
joint ventures to provide certain engineering support, training, and technology
transfers to assist in the establishment and maintenance of advanced wafer
fabrication facilities.
Inventory purchases from the JV's aggregated $977 million in 1997 and $1176
million in 1996. MMP's assembly/test facility in Singapore performs
manufacturing activities for the JV's. Revenues from these activities were $203
million and $323 million in 1996 and 1997 and are included as credits to cost of
revenues in the statements of operations. A significant decline in revenues and
margins generated from the assembly/test facility is anticipated for 1998 due to
tighter market conditions and reduced operating plans commensurate with the
decline in assembly/test purchase commitments from the Twinstar and TI-Acer
JV's. Receivables from and payables to the JV's were $135 million and $69
million at December 31, 1997, and $44 million and $66 million at December 31,
1996.
Each DRAM joint venture arrangement is described below. Under the terms of the
Agreement, Micron acquired all of TI's capital stock in the TECH and KTI joint
ventures.
TECH
- ----
TECH Semiconductor Singapore Pte. Ltd. ("TECH") is a joint venture between TI,
the Singapore Economic Development Board ("EDB"), Canon Inc. ("Canon"), and
Hewlett-Packard Company ("HP") formed in 1991 for purposes of constructing and
operating a manufacturing facility in Singapore. As of December 31, 1997 and
1996, TI owned 27.25% of this joint venture. During the second quarter of 1998,
TI increased its ownership interest to 29.93% by providing an equity
contribution of $31 million.
Under the related purchase agreement between TI and TECH, MMP is required to buy
100% of DRAM units produced by TECH, and HP and Canon hold an option to purchase
products from TI (as specified in the shareholders' agreement between the co-
venturers). The pricing terms for products purchased from TECH by TI were based
upon a percentage discount from TI's average selling price of DRAM products
during the previous quarter. During the second quarter of 1998, TI amended the
pricing terms with TECH such that the price paid for products supplied by the
joint venture is fixed if average selling prices fall below specified levels.
TI was contingently liable at December 31, 1997 and 1996 for $11 million under a
debt guarantee provided by TI as part of the joint venture. In addition, if
TECH does not maintain certain debt service coverage requirements, TI must
deposit a portion of price discounts received from TECH into an escrow account
not to exceed $100 million. No such deposits were required prior to 1998. TI
deposited $8 million, $5 million, and $3 million into the escrow account during
the first, second, and third quarters of 1998, respectively. Such amounts were
expensed as paid in 1998. Under the terms of the Agreement, TI retains rights
to the escrow account.
KTI
- ---
KTI Semiconductor Limited ("KTI") is a joint venture between TI and Kobe Steel,
Ltd. ("Kobe") formed in 1990 for purposes of constructing and operating a
manufacturing facility in Japan. As of December 31, 1997 and 1996, TI owned 25%
of this joint venture. During the first quarter of 1998, TI, in coordination
with a Kobe equity contribution, provided an equity contribution of $48 million
to the joint venture and maintained its ownership interest of 25%. During the
second quarter of 1998, TI loaned approximately $38 million to KTI. The
receivable associated with the loan was not acquired by Micron.
Under the related purchase agreement between TI and KTI, TI is required to buy
100% of DRAM units produced by KTI. The pricing terms for products purchased
from KTI by TI were based upon a percentage discount from TI's average selling
price of DRAM products during the current quarter. During the second quarter of
1998, TI amended
12
the pricing terms with KTI such that the price paid for products supplied by the
joint venture is fixed. This fixed price exceeded current average selling prices
as of the end of the second quarter of 1998.
Under the joint venture arrangement, TI agreed to indemnify 25% of Kobe's
guarantee of certain KTI debt. At December 31, 1997 and 1996, TI was
contingently liable for $8 million and $14 million, respectively, for such
guarantee.
TI-Acer
- -------
Until June, 1998, Texas Instruments - Acer Incorporated ("TI-Acer") was a joint
venture between TI, Acer Incorporated ("Acer"), and the China Development
Corporation formed in 1990 for purposes of constructing and operating a
manufacturing facility in Taiwan. As of December 31, 1997 and 1996, TI owned
33.33% of this joint venture.
Under the related purchase agreement between TI and TI-Acer, TI was required to
buy 100% of DRAM units produced by TI-Acer, and Acer held an option to purchase
up to 50% of such products from TI (as specified in the shareholders' agreement
between the co-venturers). The pricing terms for products purchased from TI-
Acer by TI were based upon percentage discounts (depending upon Acer operating
results) from TI's average selling price of DRAM products during the current
quarter.
On March 3, 1998, TI and Acer entered into a stock purchase agreement whereby
Acer agreed to purchase all of TI's equity interest in TI-Acer for $120 million
cash. The sale of TI's interest in TI-Acer closed on June 10, 1998, and TI
recorded a gain to TI of approximately $83 million in the second quarter of
1998. In connection with the stock purchase agreement, a termination and
release agreement was executed between TI, Acer, TI-Acer, and other minority
investors whereby TI was released from all claims associated with TI-Acer. In
addition, a transition agreement was executed whereby MMP would purchase a
specified supply of DRAM units from the former TI-Acer between June 10, 1998 and
September 30, 1998 at a fixed price. This fixed price exceeded current average
selling prices as of the end of the second quarter of 1998. TI also agreed to
provide up to $20 million of interest-free working capital financing through MMP
to the former TI-Acer to be repaid to TI in the second half of 1998.
Under the terms of the Agreement, Micron will not invest in or continue an
inventory supply arrangement with the former TI-Acer. Accordingly, MMP's
investment in this joint venture as of December 31, 1997 and 1996 has not been
included in the statements of net assets acquired. Inventory purchases from TI-
Acer were $379 million in 1997 and $535 million in 1996. Revenues from
assembly/test manufacturing activities performed by MMP for TI-Acer were $124
million in 1997 and $130 million in 1996.
Twinstar
- --------
TwinStar Semiconductor Incorporated ("Twinstar") was a joint venture formed in
1994 between TI and Hitachi, Ltd. ("Hitachi") for purposes of constructing and
operating a manufacturing facility in Richardson, Texas. As of December 31,
1997 and 1996, TI owned 36.5% and 27.4%, respectively, of this joint venture.
Under the related purchase agreement between TI, Hitachi, and Twinstar, the DRAM
units produced by Twinstar were required to be purchased by TI and Hitachi at a
50/50 ratio. The pricing terms for products purchased from Twinstar by TI were
based upon percentage discounts (depending upon Twinstar operating results) from
TI's average selling price of DRAM products during the current quarter. Both
MMP and Hitachi had agreements to receive payments from the joint venture to
provide certain engineering support, training, and technology transfers to
assist in the establishment and maintenance of advanced wafer fabrication
facilities.
In February, 1998, TI and Hitachi executed an agreement to discontinue their
joint venture arrangement, with TI purchasing the JV's assets. Under the terms
of the agreement, which closed in March, 1998, all borrowings and original bank
equity investments were repaid by TI and Hitachi, and a newly created subsidiary
of TI, Texas Instruments Richardson, LLC ("TIR"), was formed to become the sole
owner of all assets and liabilities of the former Twinstar joint venture. Such
net assets in the joint venture consisted primarily of working capital and
property, plant and equipment and were valued at approximately $100 million at
acquisition. During the first quarter of 1998, MMP recognized a pretax charge
of $219 million, which is included in cost of revenues, in connection with the
termination of the Twinstar joint venture.
13
In June, 1998, TI announced termination of TIR operations effective immediately.
MMP recorded shut down costs in second quarter 1998 of approximately $37 million
(included in cost of revenue), primarily comprised of employee severance,
contract cancellation costs, and inventory write-offs. Under the Agreement,
Micron has acquired the assets and assumed certain liabilities of TIR.
13. GRANTS FROM ITALIAN GOVERNMENT
MMP participates in a grant program with the Italian government whereby grants
are received from the government as reimbursement for certain purchases of
capital equipment and facilities as well as research and development/training
costs incurred as part of operations in Avezzano. These grants have been issued
to MMP in phases, and MMP is required to maintain use of the related equipment
and facilities for a designated time period after the Closing.
During 1997 and 1996, MMP participated in two phases of the program. Prior to
1996, the MMP Business accounted for grants received under Phase I and II of the
program using a modified cash basis whereby cash received from the government
was recognized in operating results when received over a one year period from
the date of receipt. The modified cash basis was utilized by MMP due to
collectibility delays experienced in previous years with the Italian government.
During 1995, MMP's experience with grant collections improved significantly.
Accordingly, effective January 1, 1996, the MMP Business adopted the accrual
method for Phase II grants. At that time, substantially all grants under Phase
I had been collected. Under the accrual method, the MMP Business recognizes
grants in operating results over the period necessary to match the grants
received with related costs incurred which were eligible for reimbursement under
the program.
In 1996, the MMP Business received $52 million in cash for Phase II grants and
recognized $97 million for Phase I and II grants as credits to research and
development and capital depreciation in the statements of income. In 1997, the
MMP Business received $36 million in cash and recognized $35 million for Phase
II grants as credits to research and development and capital depreciation.
In accordance with the terms of the Agreement, receivables from the Italian
government and deferred credits for cash received under the grant program have
not been included in the Statements of Net Assets Acquired.
14. BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
Effective for the year ended December 31, 1997, MMP adopted SFAS No. 131, which
requires a new basis of determining reportable business segments, i.e., the
management approach. This approach designates that the source of business
segments within an entity is the internal organization used by management for
making operating decisions and assessing performance. MMP operates in one
business segment: semiconductor memory products.
Selected geographic data for MMP is presented below for the years ended December
31, 1997 and 1996. Trade revenues are based on product shipment destination,
and property, plant and equipment is based on physical location (in millions of
dollars):
Geographic Area Net Trade Revenues
1997 1996
-----------------------------------
United States $ 505 $ 557
Japan 239 359
Singapore 125 214
Rest of World 726 840
-----------------------------------
$1,595 $1,970
===================================
14
Geographic Area Net Property, Plant and Equipment
December 31
1997 1996
-----------------------------------
United States $ 9 $ 1
Singapore 158 103
Italy 331 354
-----------------------------------
$ 498 $ 458
===================================
15. YEAR 2000 (UNAUDITED)
TI's plan to address Year 2000 issues has included the MMP business. Based on
assessments to date, TI believes current MMP products are ready for Year 2000.
Obsolete and discontinued products, as well as previously divested product
lines, have not been included in these assessments. The extent to which Micron
adopts or modifies the strategy TI has undertaken with regard to MMP or how
Micron will integrate MMP into its own strategy regarding the Year 2000 is not
known.
15
(b) Pro Forma Financial Information
----------------------------------------
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
MICRON/MMP COMBINED COMPANY
Basis of Presentation
- ---------------------
Texas Instruments Incorporated ("TI") and Micron Technology, Inc. ("Micron")
entered into an acquisition agreement dated as of June 18, 1998, as amended as
of July 31, 1998 and September 30, 1998, respectively (the "Agreement"),
pursuant to which Micron agreed to acquire substantially all of TI's memory
products business, including the acquisition of certain assets and the
assumption of certain liabilities (the "Acquired Business"). For purposes of
the unaudited pro forma combined financial statements in this Item 7(b), "MMP"
refers to the Acquired Business together with those operations, assets and
liabilities not acquired by Micron under the Agreement but which constitute a
part of TI's memory products business as conducted by TI historically, except
as noted herein. The transaction closed on September 30, 1998 (the "Closing").
The transaction described in the Agreement is herein referred to as the
"Acquisition."
The following unaudited pro forma combined financial statements are based upon
the consolidated financial statements of Micron and the Acquired Business,
combined and adjusted to give effect to the Acquisition.
The following unaudited pro forma combined statements of income for the year
ended August 28, 1997 and for the nine months ended May 28, 1998 give effect to
the Acquisition as if it had occurred on August 30, 1996 and August 29, 1997,
respectively. The unaudited pro forma combined statements of income for the
year ended August 28, 1997 were prepared based upon the audited consolidated
statement of income of Micron for the year ended August 28, 1997 and the
unaudited statements of income of MMP for the twelve months ended June 30, 1997.
The unaudited pro forma combined statements of income for the nine months ended
May 28, 1998 were prepared based upon the unaudited consolidated statement of
income of Micron for the nine months ended May 28, 1998 and the unaudited
statement of income of MMP for the nine months ended March 31, 1998.
The following unaudited proforma combined balance sheets as of May 28, 1998,
give effect to the Acquisition as if it had occurred on such date and were
prepared based upon the unaudited consolidated balance sheet of Micron as of May
28, 1998, and the unaudited statement of net assets acquired for the Acquired
Business as of March 31, 1998.
These unaudited pro forma combined financial statements and the notes thereto
should be read in conjunction with Micron's Form 10-Q for the interim period
ended May 28, 1998 and the Company's Form 10-K, as amended, for the year ended
August 28, 1997, and the audited financial statements of the MMP Business of TI,
including the notes thereto (see Item 7(a)). The financial statements of the
MMP Business of TI, including the notes thereto, present MMP, except as noted
therein and herein, and are not limited to the results of operations and cash
flows of the Acquired Business.
The Acquisition will be accounted for by the purchase method of accounting.
Accordingly, Micron's cost to acquire the Acquired Business (the "Purchase
Consideration") of approximately $830 million, net of cash proceeds, will be
allocated to the assets acquired and liabilities assumed according to their
respective fair values, with any excess Purchase Consideration being allocated
to goodwill. The Purchase Consideration is based on the approximate market
price of Micron's Common Stock ($22.7) when the transaction was announced and
the estimated market value of the Convertible Notes and the Subordinated Notes
on the date of issuance (approximately 90% and 80% of par value, respectively).
The final allocation of the Purchase Consideration is dependent upon the
completion of certain valuations and other studies. Accordingly, the purchase
allocation adjustments made in connection with the development of the unaudited
pro forma combined financial statements are preliminary and subject to change.
The unaudited pro forma combined financial statements are not necessarily
indicative of the results of operations or financial position of the combined
company that would have occurred had the Acquisition occurred at the beginning
of the period presented or on the date indicated, nor are they necessarily
indicative of future operating results or financial position.
16
The Acquisition is expected to have a significant effect on the Company's future
results of operations and cash flows, including, but not limited to: a
considerable negative impact on gross margin in the near term due in part to
significantly higher per unit manufacturing costs at the acquired facilities;
costs related to the assimilation of the acquired operations; increased interest
expense associated with the Convertible Notes and Subordinated Notes issued; an
increase in capital spending relating to the acquired facilities; and the
potential for further downward pressure on the average selling prices the
Company receives on its semiconductor memory products. In addition, the
creation of intangible assets associated with the purchase could result in
significant future amortization expense.
The pro forma excess of Purchase Consideration over the historical net book
value of the Acquired Business net assets acquired as of September 30, 1998 is
estimated to be approximately $200 million, and principally represents a ten
year royalty-free patent cross license between TI and Micron which is expected
to be amortized over a period of not more than ten years. Excess Purchase
Consideration was also allocated to joint venture supply contracts, equity
investments in joint ventures, property, plant and equipment, acquired software
and software licenses, an established workforce and other miscellaneous assets.
The Company is in the process of completing the valuations and other studies of
the significant assets, liabilities and business operations of the Acquired
Business. Using this information, Micron will make a final allocation of the
Purchase Consideration, including allocation to tangible assets and liabilities,
identifiable intangible assets and goodwill.
INDEX TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited pro forma combined statement of income for the year ended August 28, 1997...... 18
Unaudited pro forma combined statement of income for the nine months ended May 28, 1998.. 19
Unaudited pro forma combined balance sheet as of May 28, 1998............................ 20
Notes to statements...................................................................... 21
17
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED AUGUST 28, 1997
HISTORICAL PRO FORMA
----------------------- -----------------------------
MICRON MMP ADJUSTMENTS COMBINED
-------- -------- -------------- --------
(Amounts in millions, except per share data)
Net sales $3,515.5 $1,586.7 $ (484.6) (a) $4,384.0
Costs and expenses: $ (233.6) (b)
Cost of goods sold 2,539.2 1,483.7 (432.7) (a) 3,400.6
(162.9) (b)
(45.2) (c)
18.5 (d)
Selling, general and administrative 370.9 181.6 (2.6) (b) 418.0
2.8 (c)
(134.7) (e)
Research and development 208.9 185.9 (22.4) (b) 399.8
1.0 (c)
26.4 (d)
Other operating expense (5.9) 1.0 2.1 (c) (2.8)
-------- -------- --------------- --------
Total costs and expenses 3,113.1 1,852.2 (749.7) 4,215.6
-------- -------- --------------- --------
Operating income (loss) 402.4 (265.5) 31.5 168.4
Gain on sale of investments and subsidiary stock, net 186.7 - - 186.7
Gain (loss) on issuance of subsidiary stock, net 29.1 - - 29.1
Other nonoperating income (expense), net - (20.0) (c) (20.0)
Interest income (expense), net 0.9 (11.4) (51.0) (f) (50.1)
11.4 (g)
-------- -------- --------------- --------
Income (loss) before income taxes and minority 619.1 (276.9) (28.1) 314.1
interests
Income tax benefit (provision) (267.3) (21.4) 128.2 (h) (160.5)
Minority interest in net income (19.6) - - (19.6)
-------- -------- --------------- --------
Net income (loss) $ 332.2 $ (298.3) $ 100.1 $ 134.0
======== ======== =============== ========
Earnings (loss) per share:
Basic $ 1.58 n/a $ 0.56
Diluted $ 1.55 n/a $ 0.55
Number of shares used in per share calculations:
Basic 210.0 n/a 28.9 (i) 238.9
Diluted 214.3 n/a 28.9 (f), (i) 243.2
See accompanying notes to unaudited pro forma combined financial statements
18
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED MAY 28, 1998
HISTORICAL PRO FORMA
-------------------- -------------------------
MICRON MMP ADJUSTMENTS COMBINED
-------- -------- ------------ --------
(Amounts in millions, except per share data)
Net sales $2,320.0 $1,003.6 $ (238.9) (a) $2,946.2
(138.5) (b)
Costs and expenses:
Cost of goods sold 2,080.8 1,201.2 (208.0) (a) 2,937.4
(116.6) (b)
(26.2) (c)
6.2 (d)
Selling, general and administrative 369.3 123.4 (2.0) (b) 414.2
2.1 (c)
(78.6) (e)
Research and development 200.0 155.3 (17.2) (b) 360.4
1.4 (c)
20.9 (d)
Other operating expense 32.1 0.6 1.6 (c) 34.3
-------- -------- ------------- --------
Total costs and expenses 2,682.2 1,480.5 (416.4) 3,746.3
-------- -------- ------------- --------
Operating income (loss) (362.2) (476.9) 39.0 (800.1)
Gain on sale of investments and subsidiary stock, net 157.1 - - 157.1
Gain (loss) on issuance of subsidiary stock, net 0.8 - - 0.8
Other nonoperating income (expense), net (20.0) (c) (20.0)
Interest income (expense), net 1.4 (7.7) (36.9) (f) (35.5)
7.7 (g)
-------- -------- ------------- --------
Income (loss) before income taxes and minority (202.9) (484.6) (10.2) (697.7)
interests
Income tax benefit (provision) 69.6 (24.3) 197.5 (h) 242.8
Minority interest in net income (11.4) - - (11.4)
-------- -------- ------------- --------
Net income (loss) $ (144.7) $ (508.9) $ 187.3 $ (466.3)
======== ======== ============= ========
Earnings (loss) per share:
Basic $ (0.68) n/a $ (1.94)
Diluted $ (0.68) n/a $ (1.94)
Number of shares used in per share calculations:
Basic 211.90 n/a 28.9 (i) 240.8
Diluted 211.90 n/a 28.9 (f),(i) 240.8
See accompanying notes to unaudited pro forma combined financial
statements.
19
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 28, 1998
HISTORICAL PRO FORMA
------------------------- -----------------------
MICRON ACQUIRED ADJUSTMENTS COMBINED
-------- -------- ------------ --------
BUSINESS
--------
(Amounts in millions, except per share data)
ASSETS
Cash and equivalents $ 507.9 $ - $ 550.3 (a) $1,058.2
Liquid investments 200.5 - - 200.5
Receivables 397.8 184.9 29.8 (b) 612.5
Inventories 378.7 102.4 - 481.1
Prepaid expenses 9.3 2.7 - 12.0
Deferred income taxes 77.7 - - 77.7
-------- ------ ------------- --------
Total current assets 1,571.9 290.0 580.1 2,442.0
Product and process technology, net 89.1 - 140.1 (c) 229.2
Property, plant and equipment, net 2,995.8 633.9 (61.6) (c) 3,568.1
Other assets 76.5 46.0 52.3 (c) 174.8
-------- ------ ------------- --------
Total assets $4,733.3 $969.9 $ 710.9 $6,414.1
======== ====== ============= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 527.1 $152.1 $ 18.6 (d) $ 697.8
Short-term debt 8.5 - 8.5
Deferred income 5.6 - 5.6
Equipment purchase contracts 117.3 - 117.3
Current portion of long-term debt 93.3 - 93.3
-------- ------------- --------
Total current liabilities 751.8 152.1 18.6 922.5
Long-term debt 718.0 836.0 (e) 1,554.0
Deferred income taxes 283.2 - 283.2
Non-current product and process technology 10.7 - 10.7
Other liabilities 50.3 17.7 - 68.0
-------- ------ ------------- --------
Total Liabilities 1,814.0 169.8 854.6 2,838.4
Minority interests 145.4 - - 145.4
Commitments and contingencies
Common stock 21.3 - 2.9 (f) 24.2
Additional capital 518.6 - 653.5 (f) 1,172.1
Retained earnings 2,234.0 - - 2,234.0
-------- ------ ------------- --------
Total shareholders' equity 2,773.9 - 656.4 3,430.3
-------- ------ ------------- --------
Total liabilities and shareholders' equity $4,733.3 $169.8 $1,511.0 $6,414.1
======== ====== ============= ========
See accompanying notes to unaudited pro forma combined financial statements.
20
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined statements of income reflect the following:
(a) Exclusion of historical MMP revenues and costs for product sourced from the
former Texas Instruments Acer Incorporated ("TI-Acer") and exclusion of
historical amortization of TI-Acer supply contracts. Under the terms of
the Agreement, Micron will not invest in or continue an inventory supply
arrangement with the former TI-Acer. (See notes to MMP historical
financial statements.)
(b) Exclusion of historical MMP revenues and costs for FLASH, certain 4 Meg
DRAM, and EPROM products, as inventory for such products is not included as
part of the Acquisition.
(c) Depreciation and amortization of assets arising from the allocation of
excess Purchase Consideration over the historical net book value of MMP net
assets acquired, including joint venture supply contracts, property, plant
and equipment, an established workforce, acquired software and software
licenses and other miscellaneous assets, as well as the effects of equity
accounting relating to joint ventures. Pro forma adjustments are net of
historical MMP depreciation and amortization. The ten-year royalty-free
patent cross license between TI and Micron pursuant to the Agreement does
not commence until January 1, 1999, and therefore pro forma adjustments for
the periods presented do not reflect amortization expense for this license.
(d) Adjustment to research and development expense and capital depreciation to
exclude income statement effects of MMP's grant program with the Italian
government. (See notes to MMP historical financial statements.)
(e) Adjustment to historical MMP selling, general and administrative expense to
exclude expense associated with employees not hired in the Acquisition.
(f) Interest expense for $740 million principal amount of seven-year, 6.5%
notes convertible into an additional 12.3 million shares of Micron Common
Stock, and $210 million principal amount, seven-year, 6.5% subordinated
notes, net of estimated interest income on cash proceeds. The if-converted
method was applied to determine the appropriate effect on earnings per
share for the convertible notes. Conversion was not assumed as the effect
to earnings per share would have been anti-dilutive.
(g) Exclusion of MMP interest expense for Italian lira mortgage notes (of an
Italian subsidiary of TI). These notes will not be assumed by Micron as a
part of the acquisition.
(h) Income tax effect of pro forma adjustments and to present income tax
expense at the statutory rate.
(i) Effect on earnings per share from the issuance of 28,933,092 unregistered
shares of Micron Common Stock to Texas Instruments, Inc.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined balance sheets reflect the following:
(a) Receipt of $550 million in cash pursuant to the terms of the Agreement, as
amended.
(b) Pro forma cash payment due pursuant to a requirement of the Agreement, as
amended, which requires the parties to make cash adjustments to ensure
that with respect to the Acquired Business, current acquired assets minus
the sum of current and noncurrent assumed liabilities ("working capital")
is $150 million at closing. While the final Acquired Business closing
statement of net assets is not yet available, the financial position of
Acquired Business at closing is expected to differ significantly from the
financial position of Acquired Business reflected in the unaudited pro
forma combined balance sheets as of May 28, 1998. The actual working
capital cash adjustment is expected to require a cash payment from TI to
Micron in excess of $100 million. Final determination of the working
capital adjustment is subject to a post-closing audit.
(c) Excess Purchase Consideration over net assets acquired, including a ten-
year royalty-free patent cross license agreement, property, plant and
equipment, joint venture supply contracts, equity investment in joint
ventures, acquired software and software licenses, an established workforce
and other miscellaneous assets.
(d) Accrual of estimated acquisition costs.
(e) Issuance of $740 million principal amount of seven-year, 6.5% notes
convertible into an additional approximately 12.3 million shares of Micron
Common Stock, and a $210 million principal amount, seven year, 6.5%
subordinated note. The notes will be recorded at estimated market values
of 90% and 80% of par value, estimated as of the date of closing.
(f) Issuance of 28,933,092 unregistered shares of Micron Common Stock to Texas
Instruments, Inc., the value of which is based on the approximate market
price of Micron's Common Stock ($22.7 per share) when the transaction was
announced on June 18, 1998.
21
(c) Exhibits
2.2 Second Amendment to Acquisition Agreement dated as of
September 30, 1998 between Micron Technology, Inc. and
Texas Instruments Incorporated.
10.125 Second Supplemental Trust Indenture, dated as of
September 30, 1998 between Micron Technology, Inc. and
Norwest Bank Minnesota, National Association Trustee,
relating to the issuance of 6 1/2% Convertible
Subordinated Notes due October 2, 2003 (the "Notes")
(including the form of Note.)
10.126 Subordinated Promissory Note, dated September 30, 1998,
issued by Micron Technology, Inc. in the name of Texas
Instruments Incorporated in the amount of $210,000,000.
23.1 Consent of Ernst & Young LLP
22
SIGNATURE
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 hereunto duly authorized.
MICRON TECHNOLOGY, INC.
Date: October 16, 1998 By: /s/ Wilbur G. Stover, Jr.
-----------------------------
Wilbur G. Stover, Jr.
Vice President of Finance and
Chief Financial Officer
23