The Company achieved an eight percent reduction in cost per megabit for DDR and DDR2 memory products comparing the second quarter to the first quarter of fiscal 2006. During the second quarter, the Company continued to shift its product mix to higher margin products, with CMOS image sensors leading gross margin performance across all product categories. The Company's revenue and gross margin decreased in the second quarter compared to the first quarter of fiscal 2006 primarily as a result of declines in average selling prices for memory products.
IM Flash Technologies, LLC, a joint venture between the Company (51 percent) and Intel Corporation (49 percent), began operations during the second quarter of fiscal 2006. IMFT manufactures NAND Flash products for the Company and Intel. The initial contributions from the parties included cash from Intel in the amount of $500 million. In addition, the Company recognized a $230 million gain, reflected in other operating income, on the sale of existing NAND flash memory designs and certain related technology to Intel.
Effective as of the beginning of the third quarter of fiscal 2006, the Company began consolidating the operating results of TECH Semiconductor. Production from TECH Semiconductor has approximated 20 to 25 percent of the Company's overall memory production. The Company's arrangement with TECH Semiconductor has historically been reported in revenue and cost of goods sold.
During the third quarter of fiscal 2006, the Company entered into a merger agreement to acquire Lexar Media, Inc. in a stock-for-stock transaction that will be accounted for as a purchase by Micron. Completion of the merger is subject to customary closing conditions, including Lexar shareholder and regulatory approvals.
At the end of the second quarter of fiscal 2006, the Company had $2.6 billion in cash and short-term investments. During the quarter, the Company generated $880 million in cash from operations and invested $268 million in capital expenditures. In addition to scheduled payments on notes and capital leases in the second quarter, the Company called for redemption of its 2.5 percent convertible subordinated notes, and holders of these notes converted them into 53.7 million shares of Company stock. In connection with the conversion of these notes, the Company negotiated the early termination of its call spread options for net proceeds to the Company of $171 million that were received on March 3, 2006, subsequent to quarter end. The Company anticipates capital additions for fiscal year 2006, with the inclusion of IM Flash Technologies and TECH Semiconductor, will total approximately $2.6 billion.
The Company will host a conference call today at 3:30 p.m. MDT to discuss its financial results. The conference call, audio and slides will be available online at www.micron.com. A Webcast replay will be available on the Company's web site until April 11, 2007. A taped audio replay of the conference call will also be available at (973) 341-3080 (confirmation code: 7252236) beginning at 5:30 p.m. MDT today and continuing until 5:30 p.m. MDT on April 17, 2006.
Micron Technology, Inc., is one of the world's leading providers of advanced semiconductor solutions. Through its worldwide operations, Micron manufactures and markets DRAMs, NAND flash memory, CMOS image sensors, other semiconductor components, and memory modules for use in leading-edge computing, consumer, networking and mobile products. Micron's common stock is traded on the New York Stock Exchange (NYSE) under the MU symbol. To learn more about Micron Technology, Inc., visit www.micron.com.
MICRON TECHNOLOGY, INC. CONSOLIDATED FINANCIAL SUMMARY (Amounts in millions except per share data) 2nd Qtr. 1st Qtr. 2nd Qtr. Six Months Ended Mar. 2, Dec. 1, Mar. 3, Mar. 2, Mar 3, 2006 2005 2005 2006 2005 Net sales $ 1,225.0 $1,361.8 $ 1,307.9 $ 2,586.8 $ 2,568.2 Cost of goods sold 989.7 1,050.7 953.9 2,040.4 1,791.2 Gross margin 235.3 311.1 354.0 546.4 777.0 Selling, general and administrative 107.8 95.3 84.9 203.1 171.7 Research and development 159.5 165.5 151.4 325.0 299.8 Other operating (income) expense (1) (219.2) (12.1) (8.7) (231.3) 4.2 Operating income 187.2 62.4 126.4 249.6 301.3 Interest income (expense), net 12.3 0.3 (5.0) 12.6 (9.5) Other non-operating income (expense) 1.0 0.1 0.1 1.1 (1.2) Income tax provision (2) (7.3) (0.2) (3.6) (7.5) (17.8) Net income $ 193.2 $ 62.6 $ 117.9 $ 255.8 $ 272.8 Earnings per share: Basic $ 0.29 $0.10 $ 0.18 $ 0.39 $ 0.42 Diluted 0.27 0.09 0.17 0.37 0.40 Number of shares used in per share calculations: Basic 661.5 650.1 647.1 655.8 646.6 Diluted 714.6 707.1 701.3 710.6 700.8 As of Mar. 2, Dec. 1, Sep. 1, 2006 2005 2005 Cash and short-term investments $ 2,584.8 $ 1,377.4 $ 1,290.4 Receivables (4) 926.7 805.3 794.4 Inventories 686.0 682.3 771.5 Total current assets 4,286.0 2,941.9 2,925.6 Property, plant and equipment, net 4,711.9 4,676.6 4,683.8 Restricted cash (3) 14.4 49.4 50.2 Total assets 9,377.4 8,009.5 8,006.4 Accounts payable and accrued expenses 910.4 721.0 752.5 Current portion of long-term debt 148.5 146.2 147.0 Total current liabilities 1,204.8 977.3 978.6 Long-term debt (3) 312.1 960.9 1,020.2 Noncontrolling interest in subsidiary 498.6 -- -- Shareholders' equity 6,954.2 5,923.5 5,846.8 Six Months Ended Mar. 2, Mar. 3, 2006 2005 Net cash provided by operating activities $ 1,305.1 $ 599.8 Net cash used for investing activities (694.1) (700.2) Net cash provided by (used for) financing activities 400.1 (26.2) Depreciation and amortization 594.6 630.9 Expenditures for property, plant and equipment (455.2) (670.6) Payments on equipment purchase contracts (77.1) (143.4) Noncash equipment acquisitions on contracts payable and capital leases 143.5 276.9 (1) Other operating income for the second quarter of fiscal 2006 includes $230 million of net proceeds from Intel Corporation ("Intel") for the sale of the Company's existing NAND Flash memory designs and certain related technology to Intel and the Company's acquisition of a perpetual, paid-up license to use and modify such designs. Other operating expense for the second quarter and first six month of fiscal 2006 include $9 million and $9 million, respectively, from losses net of gains on write-downs and disposals of semiconductor equipment. Other operating income for the first quarter of fiscal 2006 includes net gains of $12 million from changes in currency exchange rates primarily as the result of a generally stronger U.S. dollar relative to the Japanese yen and euro. Other operating expense for the first six months of fiscal 2005 includes net losses of $15 million from changes in currency exchange rates. Other operating income for the first six month of fiscal 2005 includes $12 million in receipts from the U.S. government in connection with anti-dumping tariffs. (2) Income taxes for 2006 and 2005 primarily reflect taxes on the Company's non-U.S. operations and U.S. alternative minimum tax. The Company has a valuation allowance for its net deferred tax asset associated with its U.S. operations. The provision for taxes on U.S. operations in 2006 and 2005 was substantially offset by reductions in the valuation allowance. Until such time as the Company utilizes a significant portion of its U.S. net operating loss carryforwards and unused tax credits, the provision for taxes on the Company's U.S. operations is expected to be substantially offset by reductions in the valuation allowance. As of March 2, 2006, the Company had aggregate U.S. tax net operating loss carryforwards of $1.7 billion and unused U.S. tax credit carryforwards of $185 million. The Company also has unused state tax net operating loss carryforwards of $1.3 billion and unused state tax credits of $146 million. Substantially all of the net operating loss carryforwards expire in 2022 to 2025 and substantially all of the tax credit carryforwards expire in 2013 to 2026. During the second quarter of fiscal 2006, the Company utilized approximately $1.0 billion of its U.S. and state tax net operating loss carryforwards as a result of the IMFT and related transactions. (3) In the second quarter of fiscal 2006, the Company's $632.5 million 2.5 percent Convertible Subordinated Notes ("Notes") were converted into 53.7 million shares of common stock. In addition, the Company's related interest rate swap terminated by its terms on February 6, 2006 and, as a result, $35 million pledged as collateral for the swap became unrestricted. Unamortized issuance costs of $10 million were charged to additional capital in the second quarter of fiscal 2006 in connection with the conversion of the Notes. (4) On February 14, 2006, the Company terminated its outstanding call spread options covering a total of approximately 53.7 million shares of its common stock ("Call Spread Options"). The Company originally entered into the Call Spread Options in connection with its issuance of the Notes. The Company had a receivable of $171 million as of the end of the second quarter of fiscal 2006 for the settlement of the Call Spread Options, which was received on March 3, 2006. The settlement was accounted for as a capital transaction.