Question

Case 3-2 Micron Technology, Inc. Micron Technology, Inc. designs, develops, and manufactures leading-edge semiconductor memory products. The Company is a leading global manufacturer of semiconductor memory products with manufacturing facilities located in the United States, Japan, Singapore, and Scotland. The Company's memory products are sold primanly to the PC, telecommunications, and networking hardware markets. The Company supplies several major PC original equip ment manufacturers with more than 30 percent of their memory requirements. Sales to Dell Computer Corporation exceeded 10 percent of the Company's net sales in 2001, 2000, and 1999. In addition, sales to Compaq Computer Corporation exceeded 10% of the Companys net sales in 2000 REQUIRED: 1. Using the Consolidated Staternents of Operations and the excerpts from the notes and management discussion and analysis, found on pages 119-121, analyze the profitability of Micron Technology, Inc. Your analysis should include the following cal- culations for all three years: (a) Common size income statements (b) Growth rates of sales and total operating costs (c) Ellective tax rates 2. Your written interpretation of the income statement and the numbers calculated should offer explanations for why trends have occurred EXCERPT FROM MANAGEMENT DISCUSSION AND ANALYSIS Net Sales Substantially all of the Company's net sales for all periods presented were derived from Semiconductor Operations. The Company's results of operations for 2001 were significantly affected by a precipitous decline in average selling prices for its semiconductor memory products. Average selling prices for the Company's semiconductor memory products declined by approximately 60% for 2001 as compared to 2000, and decreased by approxi. mately 85% for the fourth quarter of 2001 compared to the fourth quarter of 2000. The decrease in average selling prices led to significantly lower net sales. The decrease also led to charges to cost of goods sold for the write-downs of the Company's work in process and finished goods semiconductor memory inventories of $466 million and $261 million in the fourth and third quarters of 2001, respectively, to reduce the carrying value of such invento- nes to their lower of cost or market value. Average selling prices increased approximately 3% "Source: Micron Technology, Inc. Form 10-K. August 30, 2001. Chapter 3 Income Statement and Statement of Stockholders' Equity 119 August 31, 2000 $6,362.4 3.1143 3.248.1 438.5 427.0 (10.1 2.392.7 112.8 (979) 1.0 142 September 2, 1999 $2,575.1 1.9470 6281 276.9 320.5 503 (19.6) 82.8 (129.6) 2.1 (0.1) (644) Micron Technology, Inc. Consolidated Statements of Operations (Amounts in milions except per share amounts) August 30, For the year ended 2001 Nel sales $3.935.9 Cost of goods sold 3.825.2 Gross margin 110.7 Selling general and administrative 524.1 Research and development 489.5 Other operating expense (income) 736 Operating income (los) (976.5) Interest income 135.8 Interest expense (16.7) Gain (loss) on issuance of subsidiary Stock (3.4) Other non-operating income (expense) 198.7) Income (loss) before taxes and minority interests (959.5) Income tax (provision) benett 446,0 Minority interests in net income (77) Income (loss) from continuing operations (521.2) Loss on discontinued PC Operations, not of taxes and minority interests: Loss from operations of PC business Loss on disposal of PC Operations (67.7) Net oss from discontinued PC Operations (1038) Net incomo (loss) S(625.0) Basic earnings (los) per share: Continuing operations 5 (0.38) Discontinued operations (0.18) Net income (loss) (1.05) Diluted earnings (loss) per share: Continuing operations $ (0.88) Discontinued operations (0.18) Net Income (loss) Number of shares used in per share calculations Basic 5924 Diuled 592.4 See accompanying notes to consolidated aciments 2.422.8 (829.8) 45.3) 1,547.7 25.1 (19.7) (590) (36.1) (43.5) (9.9) (43.5) $ 1,5042 (9.9) $(68.9) $ 2.81 (0.08) 2.73 $ 2.63 (0.07) 2.56 5(011) (0.02) (0.13) $(0.11) (0.02) (0.13) (1.05) 550.9 605.4 521.5 521.5 120 Chapter 3 Income Statement and Statement of Stockholders' Equity from 1999 to 2000. Product shipments increased by approximately 50% from 2000 to 2001 and 142% from 1999 to 2000 EXCERPT FROM NOTES TO FINANCIAL STATEMENTS During 2001, the Company's convertible subordinated notes due October 2005 were con verted into 24.7 million shares of the Company's common stock.