Stock Split
Micron Technology Inc. and subsidiaries reported the following in its 1994 annual report:
Micron Technology, Inc.
Consolidated Balance Sheet (In Part)
(Amounts in Millions)
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September 1, 1994 |
September 2, 1993 |
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Shareholders’ equity: |
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Common stock, $0.10 per value; authorized, |
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150.0 million shares; issued and outstanding, |
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101.9 and 95.8 million shares |
$ 10.2 |
$ 4.0 |
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Additional paid in capital |
369.7 |
353.3 |
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Retained earnings |
670.8 |
282.5 |
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Unamortized stock compensation |
(1.4) |
(0.3) |
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Total shareholders’ equity |
$1,049.3 |
$639.5 |
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Micron Technology, Inc. |
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Consolidated Statements of Operations (In Part) |
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(Amounts in millions, except for per share amounts) |
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Fiscal year ended |
September 1, 1994 |
September 2, 1993 |
September 3, 1992 |
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Net sales |
$1,628.6 |
$828.3 |
$506.3 |
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Operating income |
620.1 |
165.9 |
13.7 |
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Net income |
400.5 |
104.1 |
6.6 |
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Earnings per share: |
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Primary |
$ 3.83 |
$ 1.04 |
$ 0.07 |
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Fully diluted |
3.80 |
1.03 |
0.07 |
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Number of shares used in per |
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share calculation: |
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Primary |
104.5 |
100.2 |
97.3 |
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Fully diluted |
105.2 |
101.3 |
97.3 |
On March 1, 1994, the company’s board of directors announced a 5 for 2 stock split effected in the form of a stock dividend to shareholders of record as of April 1, 1994. A total of 60,942,448 additional shares were issued in conjunction with the stock split.
The company distributed cash in lieu of fractional shares resulting from the stock split. The company’s par value of $0.10 per share remained unchanged. As a result, $6.1 million was transferred from additional paid in capital to common stock. All historical share and per share amounts have been restated to reflect retroactively the stock split.
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1993 Annual Report: |
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Micron Technology, Inc. |
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Consolidated Balance Sheet (In Part) |
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(Amounts in thousands) |
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September 2, 1993 |
September 3, 1992 |
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Shareholders’ equity: |
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Common stock, $0.10 par value; authorized, |
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100,000,000 shares; issued and outstanding, |
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40,099,156 and 38,336,565 |
$ 4,010 |
$ 3,834 |
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Additional paid in capital |
353,277 |
327,179 |
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Retained earnings |
282,468 |
180,341 |
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Unamortized stock compensation |
(246) |
(187) |
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Total shareholders’ equity |
$639,509 |
511,167 |
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Micron Technology, Inc. |
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Consolidated Statements of Operations (In Part) |
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(Amounts in thousands except for per share amounts) |
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September 2, 1993 |
September 3, 1992 |
August 29, 1991 |
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Net sales |
$828,270 |
$506,300 |
$425,362 |
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Operating income |
$165,946 |
$ 13,716 |
$ 11,761 |
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Net income |
$104,065 |
$ 6,626 |
$ 5,079 |
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Earnings per share: |
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Primary |
$ 2.60 |
$ 0.17 |
$ 0.13 |
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Fully diluted |
2.57 |
0.17 |
0.13 |
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Number of shares used in per share |
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calculations: |
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Primary |
40,070,000 |
38,912,000 |
37,821,000 |
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Fully diluted |
40,520,000 |
38,912,000 |
38,032,000 |
Required a. The 1993 annual report indicated that 40,520,000 shares were used to compute the 1993 fully diluted earnings per share. The 1994 annual report indicated that 101,300,000 shares were used to compute the
1993 fully diluted earnings per share. Why was there the change in the number of shares? Show the calculation of the change in number of shares.
b. What caused the change in reported fully diluted earnings per share in 1993, from $2.57 to $1.03? Show the calculation.
c. Speculate on reasons for the stock split.
d. How will the book value per share be affected by the stock split?
e. For a stock split, the par, or stated value, of the stock is usually changed in proportion to the stock split, and no change is made to retained earnings, additional paid in capital, or capital stock. How was this stock split handled?