Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:
Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended August 31, 2017.September 1, 2022. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Our fiscal 2018Fiscal years 2023 and 20172022 each contain 52 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions, except per share amounts.
MBU sales for the second quarter and first six months of 2018 increased 45% and 39%, respectively, as compared to the corresponding periods of 2017 primarily due to improvements in DRAM pricing and increases in sales volumes, driven by customer qualifications for LPDRAM and managed NAND products, combined with higher memory content in smartphones.
MBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to increases in average selling prices for mobile DRAM products, manufacturing cost reductions, and higher sales volumes.
SBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 1,254 |
| | $ | 1,041 |
| | $ | 1,383 |
| | $ | 2,637 |
| | $ | 1,901 |
|
| Operating income | 251 |
| | 71 |
| | 400 |
| | 651 |
| | 26 |
|
SBU sales of Trade NAND products for the second quarter of 2018 decreased 7% as compared to the first quarter of 2018 due to declines in NAND component sales from lower average selling prices, partially offset by increases in SSD sales. Sales of SSD storage products for the second quarter of 2018 increased 22% as compared to the first quarter of 2018, driven by strong demand in cloud and client markets for products incorporating our TLC 3D NAND technology. SBU Non-Trade sales were $136 million for the second quarter of 2018 as compared to $122 million for the first quarter of 2018 and $158 million for the second quarter of 2017. SBU operatingIncome Taxes: Our income for the second quarter of 2018 was also adversely affected by costs associated with IMFT's production of 3D XPoint products at less than full capacity, partially offset by a mix shift to SSD products and NAND manufacturing cost reductions. See "Operating Results by Product – Trade NAND" for further details.
SBU sales of Trade NAND products for the second quarter and first six months of 2018 increased 23% and 40%, respectively, as compared to the corresponding periods of 2017 primarily due to increases in sales volumes from strong demand, particularly for sales of SSD products into the cloud market. SBU sales of SSD storage products for the second quarter and first six months of 2018 increased by 81% and 103%, respectively, as compared to the corresponding periods of 2017 primarily as a result of the launch of new SSD products incorporating our TLC 3D NAND technology. SBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to manufacturing cost reductions and improvements in product mix.
EBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 829 |
| | $ | 590 |
| | $ | 830 |
| | $ | 1,659 |
| | $ | 1,168 |
|
| Operating income | 363 |
| | 193 |
| | 342 |
| | 705 |
| | 371 |
|
EBU sales are comprised of DRAM, NAND, and NOR Flash in decreasing order of revenue. EBU sales for the second quarter of 2018 were relatively unchanged from the first quarter of 2018. EBU operating income for the second quarter of 2018 increased from the first quarter of 2018 primarily due to manufacturing cost reductions and improved pricing for DRAM products resulting from strong demand for our products.
EBU sales for the second quarter and first six months of 2018 increased 41% and 42%, respectively, as compared to the corresponding periods of 2017 primarily due to strong demand and higher sales volumes for DRAM, NAND, and eMCP in consumer markets. EBU operating income for the second quarter and first six months of 2018 increased as compared to the corresponding periods of 2017 as a result of increases in average selling prices, manufacturing cost reductions, and increases in sales volumes.
Operating Results by Product
Net Sales by Product
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Total | | 2017 | | % of Total | | 2018 | | % of Total | | 2018 | | % of Total | | 2017 | | % of Total |
| DRAM | $ | 5,213 |
| | 71 | % | | $ | 2,960 |
| | 64 | % | | $ | 4,562 |
| | 67 | % | | $ | 9,775 |
| | 69 | % | | $ | 5,381 |
| | 62 | % |
| Trade NAND | 1,805 |
| | 25 | % | | 1,412 |
| | 30 | % | | 1,866 |
| | 27 | % | | 3,671 |
| | 26 | % | | 2,684 |
| | 31 | % |
| Non-Trade | 136 |
| | 2 | % | | 158 |
| | 3 | % | | 122 |
| | 2 | % | | 258 |
| | 2 | % | | 281 |
| | 3 | % |
| Other | 197 |
| | 3 | % | | 118 |
| | 3 | % | | 253 |
| | 4 | % | | 450 |
| | 3 | % | | 272 |
| | 3 | % |
| | $ | 7,351 |
| | | | $ | 4,648 |
| | | | $ | 6,803 |
| | | | $ | 14,154 |
| | | | $ | 8,618 |
| | |
Percentages of total net sales reflect rounding and may not total 100%.
Non-Trade consists of NAND and 3D XPoint products manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding products that combine both NAND and DRAM components is reported within Trade NAND. Other includes sales of NOR and trade 3D XPoint products.
DRAM
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabit | increased low double digit | | increased low 40% range | | increased high 40% range |
Gigabits sold | increased mid single digit | | increased low 20% range | | increased low 20% range |
Increases in sales volumes and prices for the second quarter of 2018 as compared to the first quarter of 2018 and second quarter of 2017 resulted from strong conditions for server, mobile, and client markets. Our gross margin percentage on sales of DRAM products for the second quarter of 2018 improved from the first quarter of 2018 and second quarter of 2017 primarily due to increases in average selling prices due to favorable market conditions and manufacturing cost reductions.
Trade NAND
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabyte | decreased mid-teens range | | decreased high single digit | | decreased mid single digit |
Gigabytes sold | increased low double digit | | increased low 40% range | | increased low 40% range |
Decreases in net sales for the second quarter of 2018 as compared to the first quarter of 2018 resulted from declines in average selling prices partially offset by increase in sales of cloud and client SSDs driven by growth and gains in market share for SSD products. Increases in net sales for the second quarter of 2018 as compared to the second quarter of 2017 primarily resulted from increases in sales of cloud and client SSDs. Our ability to meet increased demand for SSDs and other NAND products in the second quarter of 2018 was primarily due to improvements in process technology, including our transition to 3D NAND products and strong execution. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 declined slightly from the first quarter of 2018 as declines in average selling prices outpaced manufacturing cost reductions. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 improved from the second quarter of 2017 as manufacturing cost reductions outpaced declines in average selling prices.
Operating Expenses and Other
Selling, General, and Administrative
SG&A expenses for the second quarter of 2018 were relatively unchanged compared to the first quarter of 2018. SG&A expenses for the second quarter of 2018 were 5% higher than the second quarter of 2017 primarily due to increases in payroll costs. SG&A expenses for the first six months of 2018 were 12% higher than the first six months of 2017 primarily due to increases in performance-based pay and other payroll costs.
Research and Development
R&D expenses for the second quarter of 2018 were 17% higher than the first quarter of 2018 primarily due to higher volumes of product being processed that had not been qualified and increases in payroll costs. R&D expenses for the second quarter of 2018 were 11% higher than the second quarter of 2017 primarily due to increases in payroll costs. R&D expenses for the first six months of 2018 were slightly higher as compared to the first six months of 2017 due to increases in payroll costs, partially offset by lower volumes of product being processed that had not been qualified.
We share the cost of certain product and process development activities with development partners, including Intel. We expect to continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be delivered in 2019. In the second quarter of 2018, we and Intel mutually agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for each individual business' needs. Our R&D expenses were reduced by reimbursements under our arrangements by $58 million for the second quarter of 2018, $56 million for the first quarter of 2018, and $59 million for the second quarter of 2017.
Income Taxes
Income tax (provision) benefit consisted of the following:
| | | | | | | | | | | |
| First Quarter | Fourth Quarter | First Quarter |
| 2023 | 2022 | 2022 |
| | | |
| Income (loss) before taxes | $ | (176) | | $ | 1,553 | | $ | 2,521 | |
| Income tax (provision) benefit | (8) | | (56) | | (219) | |
| Effective tax rate | (4.5) | % | 3.6 | % | 8.7 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Provisional estimate for the Repatriation Tax, net of adjustments related to uncertain tax positions | $ | (1,335 | ) | | $ | — |
| | $ | — |
| | $ | (1,335 | ) | | $ | — |
|
| Remeasurement of deferred tax assets and liabilities reflecting lower U.S. corporate tax rates | (133 | ) | | — |
| | — |
| | (133 | ) | | — |
|
| Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations | 1,337 |
| | — |
| | — |
| | 1,337 |
| | — |
|
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (17 | ) | | (8 | ) | | (26 | ) | | (43 | ) | | (21 | ) |
| Other income tax (provision) benefit | 5 |
| | (30 | ) | | (88 | ) | | (83 | ) | | (48 | ) |
| | $ | (143 | ) | | $ | (38 | ) | | $ | (114 | ) | | $ | (257 | ) | | $ | (69 | ) |
| | | | | | | | | | |
| Effective tax rate | 4.1 | % | | 4.1 | % | | 4.1 | % | | 4.1 | % | | 6.1 | % |
Our income taxes reflect the following:
various provisional estimatesThe changes in our effective tax rate for the impactsfirst quarter of 2023 as compared to the Tax Act, includingfourth quarter of 2022 and the Repatriation Tax, remeasurementfirst quarter of deferred tax assets and liabilities at2022 were primarily due to a loss before taxes in the lower U.S. corporate ratefirst quarter of 21%, and release of a substantial portion of the valuation allowance on the net deferred tax assets2023, which eliminated substantially all of our U.S. operations;tax on foreign operations. The geographic mix of our income, together with U.S. and foreign tax rules, results in more variability in our tax rate at lower profitability levels.
operations
We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.
On December 22, 2017, the U.S. government enacted the Tax Act which lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxedarrangements. These incentives expire, in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a Repatriation
Tax in 2018; provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a Foreign Minimum Tax. The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period costwhole or in our measurement of deferred taxes.
SAB 118 allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.
In accordance with SAB 118, we recorded certain provisional estimates included in the table above. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatorypart, at various dates through 2034 and legislative guidance related to the Tax Act.
As noted above, provisional estimates were recorded for the Repatriation Tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.
We operate in a number of locations outside the Unites States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect ofbenefit from tax incentive arrangements which expire in whole or in part at various dates through 2030,was not material for the first quarter of 2023. These arrangements reduced our tax provision by $436$161 million (benefiting our diluted earnings per share by $0.35) for the second quarter of 2018, by $391 million ($0.32 per diluted share) in the first quarter of 2018, and by $132 million ($0.110.15 per diluted share) for the secondfourth quarter of 2017. The Tax Act establishes a new provision designed to impose the Foreign Minimum Tax beginning in 2019. Consequently, we may incur additional U.S. tax expense on income of our foreign subsidiaries that could offset a significant portion of the benefits realized from our tax incentive arrangements. Beginning in 2019, our tax rate may increase to the low teens percentage depending on profitability.
Other
Net interest expense decreased 40%2022 and by $290 million ($0.26 per diluted share) for the second quarter of 2018 as compared to the first quarter of 2018 primarily due to decreases in debt obligations in the first six months of 2018. Net interest expense decreased 60% for the second quarter of 2018 as compared to the second quarter of 2017 primarily due to decreases in debt obligations, including the redemption of $600 million in principal amount of notes in the fourth quarter of 2017 and the redemption and conversion of an aggregate of $2.42 billion in principal amount of notes in the first six months of 2018, as well as an increase in capitalized interest from higher levels of capital spending. Interest income also increased in the second quarter of 2018 as compared to the second quarter of 2017 primarily due to increases in our aggregate cash and investments. Net interest expense decreased 43% for the first six months of 2018 as compared to the first six months of 2017 primarily due to decreases in debt obligations, increases in interest income as a result of increases in our cash and investments, and increases in capitalized interest.2022.
Other:Further discussion ofinformation on other operating and non-operating income and expensesitems can be found in "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans and Other Non-Operating Income (Expense), Net" notes.Statements.”
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. Cash and marketable investments totaled $12.01 billion as of December 1, 2022, and $10.98 billion as of September 1, 2022. Our cash and investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor. As of December 1, 2022, $1.37 billion of our cash and marketable investments was held by our foreign subsidiaries.
We are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, in the future, to engage in a variety of financing transactions for such purposes, including the issuance of securities. We have an undrawn revolving credit facility that expires in February 2020As of December 1, 2022, $2.50 billion was available to draw under our Revolving Credit Facility. Funding of certain significant capital projects is also dependent on the receipt of government incentives, which are subject to conditions and provides for additional borrowings of up to $750 million based on eligible receivables. We expect that our cash and investments, cash flows from operations, and available financing willmay not be sufficient to meet our requirements at least through the next 12 months.obtained.
To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate thatcapital expenditures in 20182023 for property, plant, and equipment, net of partner contributions, to be in the range of $7.0 billion to $7.5 billion plus or minus 5 percent, focused on technology transitions and product enablement. The actualbillion. Actual amounts for 20182023 will vary depending on market conditions. As of MarchDecember 1, 2018,2022, we had commitmentspurchase obligations of approximately $1.6$3.56 billion for the acquisition of property, plant, and equipment, substantially all of which approximately $2.73 billion is expected to be paid within one year.
Cash For a description of other contractual obligations, such as debt and marketable investments totaled $8.56 billion and $6.05 billion as of March 1, 2018 and August 31, 2017, respectively. Our investments consist primarily of money market funds and liquid investment-grade fixed-income securities, diversified among industries and individual issuers. As of March 1, 2018, $3.94 billion of our cash and marketable investments was held by our foreign subsidiaries. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor.
In October 2017, we issued 34 million shares of our common stock for $41.00 per share in a public offering for proceeds of $1.36 billion, net of underwriting fees and other offering costs. In the first six months of 2018, we paid $2.93 billion in cash for the repurchase or settlement upon conversion of notes with an aggregate principal amount of $2.42 billion. See "Itemleases, see “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases” and “ – Debt." We may redeem, repurchase, or otherwise retire additional debt”
33
To support expected memory demand in the future.
Limitations on the Use of Cash and Investments
MMJ Group:Cash and marketable investments included $495 million held by the MMJ Group as of March 1, 2018. As a resultsecond half of the corporate reorganization proceedingsdecade, we will need to add new DRAM wafer capacity. Following the enactment of MMJ initiatedthe U.S. CHIPS and Science Act of 2022 (“CHIPS Act”), we announced plans to invest in March 2012,two leading-edge memory manufacturing fabs in the United States, contingent on CHIPS Act support through grants and for so long as such proceedings are continuing,investment tax credits. As part of this plan, in September 2022, we broke ground on a leading-edge memory manufacturing fab in Boise, Idaho. Construction of the MMJ Groupfab is prohibited from paying dividendsexpected to us.begin in calendar 2023 with DRAM production targeted to start in calendar 2025. In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing fab in Clay, New York. We plan to start site preparation work in calendar 2023 and expect construction to begin in calendar 2024, with production anticipated to ramp in the latter half of the decade. We expect these new fabs to fulfill our requirements for additional wafer capacity starting in the second half of the decade and beyond, in line with industry demand trends.
On November 1, 2021, we issued $1 billion in aggregate principal amount of unsecured 2032 Green Bonds. Over time, we plan to allocate an amount equal to the net proceeds to fund eligible sustainability-focused projects involving renewable energy, green buildings, energy efficiency, water management, waste abatement, and a circular economy. Through November 1, 2022, the date of our 2022 Green Bond Report, we had allocated $676 million toward this commitment. We currently anticipate that 100% of net proceeds of the 2032 Green Bonds will be allocated and dispersed for eligible projects by November 1, 2023.
Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to an order of the Japan Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances,Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to us without the consent of the Japan Courtacquire any common stock, and may, under certain circumstances, be subject to the approval of the legal trustee. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
MSTW and MTTW: Cash and marketable investments included $59 million held by MSTW and MTTW as of March 1, 2018. The 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and MTTW to pay dividends. As a result, the assets of MSTW and MTTW are not available for use by us in our other operations.
IMFT: Cash and marketable investments included $317 million held by IMFT as of March 1, 2018. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intelmarket conditions and contractual limitations. Amounts held by IMFT are not anticipated to beour ongoing determination of the best use of available to finance our other operations.
Indefinitely Reinvested: Ascash. Through December 1, 2022, we had repurchased an aggregate of March 1, 2018, $3.18$6.89 billion of cash and marketable investments, including substantially all of the amounts held by MMJ, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable for U.S. federal income taxes; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. As we evaluate the impact of the Tax Act and the future cash needs of our global operations, we may revise the amount of the foreign earnings considered to be indefinitely reinvested outside of the United States. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Cash Flows
|
| | | | | | | |
| | First Six Months |
| | 2018 | | 2017 |
| Net cash provided by operating activities | $ | 7,984 |
| | $ | 2,543 |
|
| Net cash provided by (used for) investing activities | (3,843 | ) | | (5,385 | ) |
| Net cash provided by (used for) financing activities | (1,420 | ) | | 2,341 |
|
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 4 |
| | (33 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 2,725 |
| | $ | (534 | ) |
Operating Activities:For the first six months of 2018, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $630 million of cash used for increases in receivables, partially offset by $93 million of cash provided by an increase in accounts payable and accrued expenses. For the first six months of 2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $773 million of cash used for net increases in receivables, $361 million of payments attributed to intercompany balances with Inotera, and $399 million of cash provided by net increases in accounts payable and accrued expenses.
Investing Activities: For the first six months of 2018, net cash used for investing activities consisted primarily of $4.22 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners), partially offset by $198 million of net inflows from sales, maturities, and purchases of available-for-sale securities. For the first six months of 2017, net cash used for investing activities consisted primarily of $2.63 billion of net cash paid for the Inotera Acquisition (net of $361 million of payments attributed to intercompany balances with Inotera included in operating activities) and $2.43 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners).
Financing Activities: For the first six months of 2018, net cash used for financing activities consisted primarily of redemption of our 2023 Secured Notes for $1.37 billion in cash, redemption of our 2023 Notes for $1.05 billion in cash, conversions of our convertible notes for $511 million of cash, and $449 million for repayments of other notes payable and capital leases, partially offset by net proceeds of $1.36 billion from the issuance of 34 million shares of our common stock for $41.00 per share in a public offering and $650 million of proceeds from IMFT Member Debt. For the first six months of 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan and $445 million of net proceeds from the 2021 MSAC Term Loan, partially offset by $556 million for repayments of debt.authorized amount. See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt."Equity.”
On December 19, 2022, our Board of Directors declared a quarterly dividend of $0.115 per share, payable in cash on January 19, 2023, to shareholders of record as of the close of business on January 3, 2023. The declaration and payment of any future cash dividends are at the discretion and subject to the approval of our Board of Directors. Our Board of Directors' decisions regarding the amount and payment of dividends will depend on many factors, including, but not limited to, our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant.
Potential Settlement ObligationsWe expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable future.
Cash Flows
| | | | | | | | |
| First Quarter |
| 2023 | 2022 |
| | |
| Net cash provided by operating activities | $ | 943 | | $ | 3,938 | |
| Net cash provided by (used for) investing activities | (2,266) | | (2,485) | |
| Net cash provided by (used for) financing activities | 2,632 | | (513) | |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | (6) | | (6) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 1,303 | | $ | 934 | |
Operating Activities: Cash provided by operating activities reflects net income (loss) adjusted for certain non-cash items, including depreciation expense, amortization of Convertibleintangible assets, and stock-based compensation, and the effects of changes in operating assets and liabilities. The decrease in cash provided by operating activities for the first quarter of 2023 as compared to the first quarter of 2022 was primarily due to a net loss in the current quarter adjusted for non-cash items and the effect of lower receivables, partially offset by an increase in inventories and a decline in accounts payable and accrued expenses.
Investing Activities: For the first quarter of 2023, net cash used for investing activities consisted primarily of $2.45 billion of expenditures for property, plant, and equipment, partially offset by $272 million of net inflows from maturities, sales, and purchases of available-for-sale securities.
For the first quarter of 2022, net cash used for investing activities consisted primarily of $3.27 billion of expenditures for property, plant, and equipment; inflows of $55 million of partner contributions for capital expenditures; $893 million of net inflows from the sale of the Lehi, Utah fab; and $91 million of net outflows from purchases, sales, and maturities of available-for-sale securities.
Financing Activities: For the first quarter of 2023, net cash provided by financing activities consisted primarily of $2.60 billion of proceeds from our 2025, 2026, and 2027 Term Loan A borrowings and $749 million (net of original issue discount) from the issuance of the 2029 B Notes. See “Item 1. Financial Statements – Notes
Since to Consolidated Financial Statements – Debt.” Cash used for financing activities included $425 million for the closing priceacquisition of 8.6 million shares of our common stock exceeded 130%under our share repurchase authorization, $126 million of cash payments of dividends to shareholders, and $47 million of payments on equipment purchase contracts.
For the first quarter of 2022, net cash used for financing activities included $1.95 billion of repayments of debt primarily to redeem the 2023 Notes and 2024 Notes, $259 million for the acquisition of 3.6 million shares of our common stock under our share repurchase authorization, $112 million of cash payments of dividends to shareholders, $102 million used for stock repurchases related to tax withholdings for employee equity awards, and $78 million of payments on equipment purchase contracts. Cash used for financing activities was partially offset by aggregate proceeds of $2.00 billion from the issuance of the conversion price per shareunsecured 2032 Green Bonds, 2041 Notes, and 2051 Notes.
Critical Accounting Estimates
For a discussion of all our convertible notes for at least 20 trading days in the 30 trading day period ended on December 31, 2017, holders may convert their notes through the calendar quarter ended March 31, 2018. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending March 31, 2018 if all holders converted their notes. The amounts in the table below are based on our closing share price of $47.62 as of March 1, 2018.
|
| | | | | | | | | | | | | | | | | |
| | Settlement Option | | | | If Settled With Minimum Cash Required | | If Settled Entirely With Cash |
| | Principal Amount | | Amount in Excess of Principal | | Underlying Shares | | Cash | | Remainder in Shares | |
| 2032C Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | $ | — |
| | 18 |
| | $ | 849 |
|
| 2032D Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | — |
| | 18 |
| | 845 |
|
2033E Notes(1) | Cash | | Cash and/or shares | | 5 |
| | 197 |
| | 1 |
| | 261 |
|
2033F Notes(1) | Cash | | Cash and/or shares | | 27 |
| | 393 |
| | 18 |
| | 1,272 |
|
| 2043G Notes | Cash and/or shares | | Cash and/or shares | | 35 |
| | — |
| | 35 |
| | 1,674 |
|
| | | |
| | 103 |
| | $ | 590 |
| | 90 |
| | $ | 4,901 |
|
| |
(1)
| Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. The settlement obligation of these notes will settle in cash in the third quarter of 2018. |
Contractual Obligations
As of March 1, 2018, the contractual obligations of principal and interest of all our notes payable was $9.80 billion, of which $610 million is due in the remainder of 2018, $3.30 billion is due in 2019 and 2020, $2.77 billion is due in 2021 and 2022, and $3.12 billion is due in 2023 and thereafter. There have been no other material changes to our contractual obligations as described in "Part Icritical accounting estimates, see “Part II – Item 2. Management's7. Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations – Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended August 31, 2017, other than our purchase commitments for the acquisition of property, plant, and equipment as described above.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Part I - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended August 31, 2017. Except for the critical accounting estimates associated with our income taxes as discussed below, thereSeptember 1, 2022. There have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended August 31, 2017.September 1, 2022.
Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
In connection with the Tax Act, we recognized a provision for income taxes of $131 million in the second quarter of 2018, of which $133 million was related to the impact of remeasuring our deferred tax assets and liabilities to reflect the lower tax rate and $2 million of income tax benefit was considered a provisional estimate. The provisional estimate included $1.34 billion associated with the Repatriation Tax, essentially offset by a benefit of $1.34 billion for the release of the valuation allowance on the net deferred tax assets of our U.S. operations. Based on the information available, we recorded a provisional amount;Recently Adopted Accounting Standards
No material items.
however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release as a result of the Tax Act.
Recently Issued Accounting Standards
See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."No material items.
35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates. See discussion regarding certain interest rate risks below. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see "Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the year ended August 31, 2017.
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio.indebtedness. As of MarchDecember 1, 20182022 and August 31, 2017, theSeptember 1, 2022, we had fixed-rate debt with an aggregate carrying value of our debt with fixed interest rates was $4.0$4.77 billion and $5.7$4.03 billion, respectively, and as a result, the fair value of our debt fluctuates with changes in market interest rates. In the first quarter of 2023, we issued $750 million principal amount of new fixed-rate debt. We estimate that, as of MarchDecember 1, 20182022 and August 31, 2017,September 1, 2022, a hypothetical 1% decrease in market interest rates of 1% would increase the fair value of our fixed-rate debt by approximately $130$325 million and $273$275 million, respectively.
As of December 1, 2022 and September 1, 2022, we had floating-rate debt as well as fixed-rate debt that is swapped to floating-rate debt with an aggregate principal amount of $4.69 billion and $2.09 billion, respectively. In the first quarter of 2023, we borrowed $2.60 billion principal amount of new floating-rate debt. We estimate that, as of December 1, 2022 and September 1, 2022 a hypothetical 1% increase in the interest rates of this floating-rate debt would result in an increase in annual interest expense of approximately $47 million and $21 million, respectively.
For further discussion about market risk and sensitivity analysis related to changes in interest rates and currency exchange rates, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended September 1, 2022.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the Commission'sSEC’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisiondecisions regarding disclosure.
During the secondfirst quarter of 2018,2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Part“Part I – Item 3. Legal Proceedings"Proceedings” of our Annual Report on Form 10-K for the year ended August 31, 2017September 1, 2022 and "Partthe sections titled “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies"Contingencies” and "Item“Item 1A. Risk Factors" herein.Factors” in this Quarterly Report on Form 10-Q.
SEC regulations require disclosure of certain proceedings related to environmental matters unless we reasonably believe that the related monetary sanctions, if any, will be less than a specified threshold. We use a threshold of $1 million for this purpose.
ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-Q, the following arethis section discusses important factors the order of which is not necessarily indicative of the level of risk that each poses to us, which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant. Any
Risk Factor Summary
Risks Related to Our Business, Operations, and Industry
•volatility in average selling prices of our products;
•our ability to maintain or improve gross margins;
•the highly competitive nature of our industry;
•a downturn in the worldwide economy;
•our ability to develop and produce new and competitive memory and storage technologies and products;
•dependency on specific customers, concentration of revenue with a select number of customers, and customers who are located internationally;
•our international operations, including geopolitical risks;
•limited availability and quality of materials, supplies, and capital equipment and dependency on third-party service providers for ourselves and our customers;
•the effects of the factors below could have a material adverse effect onCOVID-19 pandemic;
•products that fail to meet specifications, are defective, or are incompatible with end uses;
•disruptions to our manufacturing process from operational issues, natural disasters, or other events;
•breaches of our security systems or products, or those of our customers, suppliers, or business resultspartners;
•attracting, retaining, and motivating highly skilled employees;
•realizing expected returns from capacity expansions;
•achieving or maintaining certain performance obligations associated with incentives from various governments;
•acquisitions and/or alliances;
•restructure charges;
•responsible sourcing requirements and related regulations; and
•ESG considerations.
Risks Related to Intellectual Property and Litigation
•protecting our intellectual property and retaining key employees who are knowledgeable of operations, financial condition,and develop our intellectual property;
•legal proceedings and claims; and
•claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others or failure to obtain or renew license agreements covering such intellectual property.
Risks Related to Laws and Regulations
•compliance with tariffs, trade restrictions, and/or trade regulations;
•tax expense and tax laws in key jurisdictions; and
•compliance with laws, regulations, or industry standards, including ESG considerations.
Risks Related to Capitalization and Financial Markets
•our ability to generate sufficient cash flows or obtain access to external financing;
•our debt obligations;
•changes in foreign currency exchange rates;
•counterparty default risk;
•volatility in the trading price of our common stock; and
•fluctuations in the amount and timing of our common stock price.repurchases and payment of cash dividends and resulting impacts.
37
Risks Related to Our Business, Operations, and Industry
We have experienced volatility
Volatility in average selling prices for our semiconductor memory and storage products which may adversely affect our business.
We have experienced significant volatility in our average selling prices including dramatic declines, as noted in the table below, and may continue to experience such volatility in the future. For DRAM, annual percentage changes in average selling prices have ranged from approximately plus 35% to minus 35% since 2017. For NAND, annual percentage changes in average selling prices have ranged from nearly flat to approximately minus 50% since 2017. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in the future. Decreases in averageAverage selling prices for our products that decline faster than our costs could have a material adverse effect on our business, results of operations, or financial condition.
|
| | | | | |
| | DRAM | | Trade NAND |
| | | | |
| | (percentage change in average selling prices) |
| 2017 from 2016 | 19 | % | | (9 | )% |
| 2016 from 2015 | (35 | )% | | (20 | )% |
| 2015 from 2014 | (11 | )% | | (17 | )% |
| 2014 from 2013 | 6 | % | | (23 | )% |
| 2013 from 2012 | (11 | )% | | (18 | )% |
We may be unable to maintain or improve gross margins.
Our gross margins are dependent, in part, upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, but not limited to, process line-width, additional 3D memory layers, additional bits per cell (i.e., cell levels), architecture, number of mask layers, number of fabrication steps, and yield. In future periods, wedesigns. Factors that may be unablelimit our ability to reduce our per gigabit manufacturing costs at sufficient levels to maintain or improve gross margins. Factors that may limit our ability to reduce costsmargins include, but are not limited to, to:
•strategic product diversification decisions affecting product mix, the mix;
•increasing complexity of manufacturing processes, processes;
•difficulties in transitioning to smaller line-width process technologies or additional 3D memory layers or NAND cell levels, levels;
•process complexity including number of mask layers and fabrication steps, steps;
•manufacturing yield, yield;
•technological barriers, barriers;
•changes in process technologies, and technologies;
•new products that may require relatively larger die sizes. Persizes;
•start-up or other costs associated with capacity expansions; and
•higher costs of goods and services due to inflationary pressures or market conditions.
Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, difficulties in ramping emerging technologies, supply chain disruptions, and delays from equipment suppliers. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization and corresponding increases in our per gigabit manufacturing costs may adversely affect our gross margins, business, results of operations, or financial condition.
We have a broad portfolio of products to address our customers’ needs, which span multiple market segments and are subject to rapid technological changes. Our manufacturing costs on a per gigabit basis vary across our portfolio as they are largely influenced by the technology node in which the solution was developed. We strive to balance our demand and supply for each technology node, but the dynamics of our markets and our customers can create periods of imbalance, which can lead us to carry elevated inventory levels. Consequently, we may incur charges in connection with obsolete or excess inventories or we may not fully recover our costs, which would reduce our gross margins. In addition, due to the customized nature of certain of the products we manufacture, we may be unable to sell certain finished goods inventories to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods.
In addition, if we are unable to supply products that meet customer design and performance specifications, we may be required to sell such products at lower average selling prices, which may reduce our gross margins. Our gross margins may also be affectedimpacted by a broadershifts in product mix, driven by our strategy to optimize our portfolio which may have smaller production quantities and shorter product lifecycles. to best respond to changing market dynamics.
Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.
The semiconductor memory and storage markets are highly competitive.
We face intense competition in the semiconductor memory and storage markets from a number of companies, including Intel;Intel Corporation; Kioxia Holdings Corporation; Samsung Electronics Co., Ltd.; SK Hynixhynix Inc.; Toshiba Corporation; and Western Digital Corporation. Our competitors may use aggressive pricing to obtain market share. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage. disadvantage as our competitors may benefit from increased manufacturing scale and a stronger product portfolio.
In addition, some governments such as China,may provide, or have provided and may continue to provide, significant assistance, financial assistanceor otherwise, to some of our competitors or to new entrants. Ourentrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities, such as Yangtze Memory Technologies Co., Ltd. (“YMTC”) and ChangXin Memory Technologies, Inc. (“CXMT”), that is intended to advance China’s stated national policy objectives. In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies.
We and our competitors generally seek to increase silicon capacity,wafer output, improve yields, and reduce die size, in their product designs which maycould result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. We, and some of our competitors, have plans to ramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, wouldcould lead to further declines in average selling prices for our products and wouldcould materially adversely affect our business, results of operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.
The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affectA downturn in the worldwide economy may harm our financial condition.business.
As of March 1, 2018, we had debt with a carrying value of $9.32 billion. In addition,Downturns in the conversion value in excess of principal ofworldwide economy, due to inflation, geopolitics, major central bank policy actions including interest rate increases, public health crises, or other factors, have harmed our convertible notes as of March 1, 2018 was $3.18 billion. In the first six months of 2018, and full years of 2017 and 2016, we paid $2.93 billion and 4 million shares of our treasury stock as non-cash settlement, $1.63 billion, and $94 million, respectively, to repurchase and settle notes with principal amounts of $2.42 billion, $1.55 billion, and $57 million,
respectively. As of March 1, 2018, we had an undrawn revolving credit facility that provided for additional borrowings of up to $750 million based on eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize this revolving credit facility. We have incurredbusiness in the past and expect to incur in thecurrent and future debt to financedownturns could also adversely affect our capital investments, business acquisitions,business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, smartphones, automobiles, and restructuring of our capital structure.
Our debt obligationsservers. Reduced demand for these or other products could adversely impact us. For example, these obligations could:
require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
result in certainsignificant decreases in our average selling prices and product sales. In addition, to the extent our customers or distributors have elevated inventory levels, we may experience a decrease in short-term and/or long-term demand resulting in industry oversupply and declines in pricing for our products.
A deterioration of our debt instruments being accelerated to be immediately due and payable or being deemed to beconditions in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
result in all obligations owing under the 2021 MSTW Term Loan being accelerated to be immediately due and payable if MSTW fails to comply with certain covenants, including financial covenants;
increase the interest rate under the 2021 MSTW Term Loan if we or MSTW fails to maintain certain financial covenants;
adversely impact ourworldwide credit rating, whichmarkets could increase future borrowing costs;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
restrict our ability to incur specified indebtedness, create or incur certain liens,obtain external financing to fund our operations and enter into sale-leaseback financing transactions;
increasecapital expenditures. In addition, we may experience losses on our vulnerabilityholdings of cash and investments due to adversefailures of financial institutions and other parties. Difficult economic and semiconductor memory and storage industry conditions;
increaseconditions may also result in a higher rate of losses on our exposureaccounts receivable due to interest rate risk from variable rate indebtedness;
continue to dilute our earnings per share ascredit defaults. As a result, of the conversion provisions in our convertible notes; and
require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flowsdownturns in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, whichworldwide economy could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments. 39
Our cash flows from operations depend primarily on the volumeTable of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate that net cash expenditures in 2018 for property, plant, and equipment will be approximately $7.5 billion plus or minus 5 percent, which reflects the offset of amounts we expect to be funded by our partners. Investments in capital expenditures, offset by amounts funded by our partners, were $2.11 billion in the second quarter of 2018. As of March 1, 2018, we had cash and marketable investments of $8.56 billion. As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the cash held by the MMJ Group, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. In addition, cash of $317 million held by IMFT was generally not available to finance our other operations.Contents
The 2021 MSTW Term Loan contains covenants that limit or restrict MSTW's ability to create liens in or dispose of collateral securing obligations under the 2021 MSTW Term Loan, mergers involving MSTW and/or MTTW, loans or
guarantees to third parties by MTTW and/or MSTW, and MSTW's and/or MTTW's distribution of cash dividends. As a result, the assets of MSTW and/or MTTW are not available for use by us in our other operations.
As a result of the corporate reorganization proceedings of MMJ initiated in 2012, and for so long as such proceedings are continuing, MMJ is prohibited from paying dividends, including any cash dividends, to us and such proceedings require that excess earnings be used in MMJ's business or to fund the MMJ creditor payments. In addition, pursuant to an order of the Japan Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court and may, under certain circumstances, be subject to approval of the legal trustee. As a result, the assets of MMJ are not available for use by us in our other operations. Furthermore, certain uses of the assets of MMJ, including certain capital expenditures of MMJ and MMT or further investments in MMT, may require consent of MMJ's trustees and/or the Japan Court.
In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assurance that we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Our future success depends on our ability to develop and produce new and competitive new memory and storage technologies.technologies and products.
Our key semiconductor memory and storage products and technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, increasing bits per cell (i.e., cell levels), shrinking products in order to reduce costs, meeting higher density requirements, and improving power consumption and reliability. To meet these requirements, wereliability, and delivering advanced features and higher performance. We may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per gigabit cost. We have invested and expect thatto continue to invest in R&D for new memoryand existing products and process technologies, willsuch as EUV lithography, to continue to deliver advanced product requirements. Such new technologies can add complexity and risk to our schedule and may affect our costs and production output. We may be developed byunable to recover our investment in R&D or otherwise realize the semiconductoreconomic benefits of reducing die size or increasing memory and storage industry.densities. Our competitors are working to develop new memory and storage technologies that may offer performance andand/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies. There can be no assurance of the following:
that we will be successful in developing competitivenew semiconductor memory and storage technologies;
that we will be able to cost-effectively manufacture new products;
that we will be able to successfully market these technologies; and
that margins generated from sales of these products will allow us to recover costs of development efforts.
We develop and produce advanced memory technologies, including 3D XPoint memory, a new class of non-volatile technology. There is no assurance that our efforts to develop and market new product technologies will be successful. Unsuccessful efforts to develop new semiconductor memory and storage technologies could have a material adverse effect on our business, results of operations, or financial condition.
New product development may be unsuccessful.
We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investmentsinvested and expect to continue to invest in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development overdevelopment. We are increasingly differentiating our products and solutions to meet the next several years.specific demands of our customers, which increases our reliance on our customers’ ability to accurately forecast the needs and preferences of their customers. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers. In addition, our ability to successfully introduce new products often requires us to make product specification decisions multiple years in advance of when new products enter the market.
It is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may exclude us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality, performance, and performance,reliability, often well in advance of a planned ramp of production, in order to secure design wins with our customers. Many factors may negatively impact our ability to meet anticipated timelines and/or expected or required quality standards with respect to the development of certain of our products. In addition, some of our components have long lead-times, requiring us to place orders up to a year in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand.
There can be no assurance of the following:
•that our product development effortswe will be successful;successful in developing competitive new semiconductor memory and storage technologies and products;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;technologies;
that •margins generated from sales of these products will allow us to recover costs of development efforts;
•we will be able to establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;
•we will accurately predict and design products that meet our customers' specifications; or
•we will be able to introduce new products into the market and qualify them with our customers on a timely basis; orbasis.
•that margins generated from sales of these products will allow us to recover costs of development efforts.
Our unsuccessfulUnsuccessful efforts to develop new productsmemory and solutionsstorage technologies and products could have a material adverse effect on our business, results of operations, or financial condition.
Our joint ventures and strategic relationships involve numerous risks.
our interests could diverge from our partners' interests or we may not be able to agree with our partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint ventures;
our joint venture partners' products may compete with our products;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, we and our partners may not participate to the same extent on funding capital investments in our joint ventures;
cash flows may be inadequate to fund increased capital requirements of our joint ventures;
we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal, or regulatory requirements may necessitate changes in the agreements with our partners.
Our joint ventures and strategic relationships, if unsuccessful, could have a material adverse effect on our business, results of operations, or financial condition.
A significant concentrationportion of our net salesrevenue is toconcentrated with a select number of customers.
In each of the last three years, approximately one-half of our total net sales were torevenue was from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. Our customers’ demand for our products may fluctuate due to factors beyond our control. In addition, any consolidation of our customers could reduce the number of customers to whom our products couldmay be sold. Our inability to meet our customers'customers’ requirements or to qualify our products with them could adversely impact our sales.revenue. A meaningful change in the inventory strategy of our customers could impact our industry bit demand growth outlook. The loss of, or restrictions on our ability to sell to, one or more of our major customers, or any significant reduction in orders from, or a shift in product mix by, these customers could have a material adverse effect on our business, results of operations, or financial condition.
We face geopolitical and other risks associated with our international operations that could materially adversely affect our business, results of operations, or financial condition.
In addition to our U.S. operations, a substantial portion of our operations are conducted in Taiwan, Singapore, Japan, Malaysia, China, and India, and many of our customers, suppliers, and vendors also operate internationally. In 2022, nearly half of our revenue was from sales to customers who have headquarters located outside the United States, while over 80% of our revenue in 2022 was from products shipped to customer locations outside the United States.
Our international operations are subject to a number of risks, including:
•export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds, including currency controls in China, which could negatively affect the amount and timing of payments from certain of our customers and, as a result, our cash flows;
•imposition of bans on sales of goods or services to one or more of our significant foreign customers;
•public health issues;
•compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, sanctions and anti-corruption laws, export and import laws, and similar rules and regulations;
•theft of intellectual property;
•political and economic instability, including the effects of disputes between China and Taiwan and Russia’s invasion of Ukraine;
•government actions or civil unrest preventing the flow of products and materials, including delays in shipping and obtaining products and materials, cancellation of orders, or loss or damage of products;
•problems with the transportation or delivery of products and materials;
•issues arising from cultural or language differences and labor unrest;
•longer payment cycles and greater difficulty in collecting accounts receivable;
•compliance with trade, technical standards, and other laws in a variety of jurisdictions;
•contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;
•disruptions to manufacturing or R&D activities as a result of actions imposed by foreign governments;
•changes in economic policies of foreign governments; and
•difficulties in staffing and managing international operations.
If we or our customers, suppliers, or vendors are impacted by any of these risks, it could have a material adverse effect on our business, results of operations, or financial condition. For example, political, economic, or other actions may adversely affect our operations in Taiwan. A majority of our DRAM production output in 2022 was from our fabrication facilities in Taiwan and any loss of output could have a material adverse effect on us. Any political, economic, or other actions may also adversely affect our customers and the technology industry supply chain, for which Taiwan is a central hub, and as a result, could have a material adverse impact on us.
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In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar restrictions on one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even when such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose, or make such recoveries at acceptable average selling prices, while complying with such restrictions.
Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or dependency on third-party service providers.
Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials, components, and services that meet our standards and, in some cases, materials, components, or services are provided by a single or sole source, and we may be unable to qualify new suppliers on a timely basis. The availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks is impacted by various factors. These factors could include a shortage of raw materials or a disruption in the processing or purification of those raw materials into finished goods. Shortages or increases in lead times have occurred in the past, are currently occurring with respect to some materials and components, and may occur from time to time in the future. Constraints within our supply chain for certain materials and integrated circuit components could limit our bit shipments, which could have a material adverse effect on our business, results of operations, or financial condition.
Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers, analog integrated circuits, and other components used in some of our products and with outsourced semiconductor foundries, assembly and test providers, contract manufacturers, logistics carriers, and other service providers, including providers of electricity and other utilities. Although we have certain long-term contracts with some of our suppliers, many of these contracts do not provide for long-term capacity or pricing commitments. To the extent we do not have firm commitments from our third-party suppliers over a specific time period or for any specific capacity, quantity, and/or pricing, our suppliers may allocate capacity to their other customers and capacity and/or materials may not be available when needed or at reasonable prices. Inflationary pressures and shortages have increased, and may continue to increase, costs for materials, supplies, and services. Regardless of contract structure, large swings in demand may exceed our contracted supply and/or our suppliers’ capacity to meet those demand changes resulting in a shortage of parts, materials, or capacity needed to manufacture our products. In addition, if any of our suppliers was to cease operations or become insolvent, this could impact their ability to provide us with necessary supplies, and we may not be able to obtain the needed supply in a timely way or at all from other providers.
Certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals. Trade disputes, geopolitical tensions, economic circumstances, political conditions, or public health issues, such as COVID-19, may limit our ability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China.
We and/or our suppliers and service providers could be affected by regional conflicts, sanctions, tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, responsible sourcing practices, public health crises, contagious disease outbreaks, or other matters, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Our ability to procure components to repair equipment essential for our manufacturing processes could also be negatively impacted by various restrictions or disruptions in supply chains, among other items. The disruption of our supply of materials, components, or services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers’ limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
Our construction projects to expand production and R&D capacity are highly dependent on available sources of labor, materials, equipment, and services. Increasing demand, supply constraints, inflation, and other market conditions could result in increasing shortages and higher costs for these items. Difficulties in obtaining these resources could result in significant delays in completion of our construction projects and cost increases, which could have a material adverse effect on our business, results of operations, or financial condition.
Our inability to source materials, supplies, capital equipment, or third-party services could affect our overall production output and our ability to fulfill customer demand. Significant or prolonged shortages of our products could halt customer manufacturing and damage our relationships with these customers. Any damage to our customer relationships as a result of a shortage of our products could have a material adverse effect on our business, results of operations, or financial condition.
Similarly, if our customers experience disruptions to their supplies, materials, components, or services, or the extension of their lead times, they may reduce, cancel, or alter the timing of their purchases with us, which could have a material adverse effect on our business, results of operations, or financial condition.
The continued effects of the COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.
The ongoing effects of the public health crisis caused by the COVID-19 pandemic and the measures being taken to limit COVID-19’s impact on our business, results of operations, and financial condition are uncertain and difficult to predict, but may include, and in some cases, have included and may continue to include:
•Disruptions to our supply chain and our operations, or those of our suppliers, especially as a result of public health measures;
•Impacts to customer demand, resulting in industry oversupply and declines in pricing for our products;
•Adverse impacts to our business activities and increased costs from our efforts to mitigate the impact of COVID-19;
•Increased costs for, or unavailability of, transportation, raw materials, components, electricity and/or other energy sources, or other inputs necessary for the operation of our business;
•Reductions in, or cessation of, operations at one or more of our sites or those of our subcontractors or suppliers, resulting from government restrictions and/or our own measures to prevent and/or mitigate the spread of COVID-19; and
•Adverse impacts to our construction projects, which could hamper our ability to introduce new technologies, reduce costs, or meet customer demand.
These effects and other impacts of the pandemic, alone or taken together, could have a material adverse effect on our business, results of operations, or financial condition.
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Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop, qualify, and qualifymanufacture our system solutions.
Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers'customers’ specifications offor those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products inat sufficient volume, quantity,volumes and prices in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers' specifications or achieve design wins with our customers, we may experience a significant adverse impact on our sales and margins. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors'competitors’ products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customer'scustomers’ ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected.
Manufacturing system-level solutions, such as SSDs and managed NAND, typically results in higher per-unit manufacturing costs as compared to other products. Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs exceed ourare not offset by higher per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discrete products, to design, test, and qualify, which may increase our costs. Additionally, someSome of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may need to update our controller and hardware design as well as our firmware or develop new firmware as a result of new product introductions or changes
in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-level solutions and/or controller, hardware design, and firmware in a timely manner may result in reduced demand for our system-level products and could have a material adverse effect on our business, results of operations, or financial condition.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time, we experience problems with nonconforming, defective, or incompatible products after we have shipped such products. In recent periods, we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. AsOur products and solutions may be deemed fully or partially responsible for functionality in our customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result weof our customers’ products failing to perform as specified. In addition, if our products and solutions perform critical functions in our customers’ products or are used in high-risk consumer end products, such as autonomous driver assistance programs, home and enterprise security, smoke and noxious gas detectors, medical monitoring equipment, or wearables for child and elderly safety, our potential liability may increase. We could be adversely affected in several ways, including the following:
•we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible products and to replace products;
•we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and
•we may encounter adverse publicity, which could cause a decrease in sales of our products or harm our reputation or relationships with existing or potential customers.
Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to protect our intellectual property or retain key employees who are knowledgeable
We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secret laws, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.
Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. Global competition for such skilled employees in our industry is intense. Due to the volatile nature of our industry and our operating results, a decline in our operating results and/or stock price may adversely affect our ability to retain key employees whose compensation is dependent, in part, upon the market price of our common stock, achieving certain performance metrics, levels of company profitability, or other financial or company-wide performance. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment.
Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.
Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management's time and attention. As a result of these claims, we may be required to:
pay significant monetary damages, fines, royalties, or penalties;
enter into license or settlement agreements covering such intellectual property rights;
make material changes to or redesign our products and/or manufacturing processes; and/or
cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. (See also "Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.")
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.
We and our subcontractors manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We and our subcontractors maintain operations and continuously implement new product and process technology at our manufacturing operations,facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. Additionally,As a result of the necessary interdependence within our control over operationsnetwork of manufacturing facilities, an operational disruption at IMFT is limited byone of our agreements with Intel. or a subcontractor’s facilities may have a disproportionate impact on our ability to produce many of our products.
From time to time, wethere have experiencedbeen disruptions in our manufacturing processoperations as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures, earthquakes,failures. We have manufacturing and other operations in locations subject to natural occurrences and possible climate changes, such as severe and variable weather and geological events resulting in increased costs, or other environmental events. disruptions to our manufacturing operations or those of our suppliers or customers. In addition, climate change may pose physical risks to our manufacturing facilities or our suppliers’ facilities, including increased extreme weather events that could result in supply delays or disruptions. Other events, including political or public health crises, such as an outbreak of contagious diseases like COVID-19 may also affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping. Events of the types noted above have occurred from time to time and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.
If production at a fabrication facility is disrupted for any reason, manufacturing yields may be adversely affected, or we may be unable to meet our customers'customers’ requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenues,revenue, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda's insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of March 1, 2018, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.
We are unable to predict the outcome of the matter and, therefore, cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the
benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operations, or financial condition.
We may incur additional restructuring charges in future periods.
In separate transactions in 2017, we sold our assembly and test facility located in Akita, Japan and our 40% ownership interest in Tera Probe; assets associated with our 200mm fabrication facility in Singapore; and assets related to our Lexar brand. In 2016, we initiated a restructure plan in response to business conditions and the need to accelerate focus on our key priorities. The plan included the elimination of certain projects and programs, the permanent closure of a number of open headcount requisitions, workforce reductions in certain areas of our business, and other non-headcount related spending reductions. As a result of these and other actions, we incurred charges of $18 million, $67 million, and $3 million for 2017, 2016, and 2015, respectively.
We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products, which could have a material adverse effect on our business, results of operations, or financial condition.
Breaches of our security systems or products, or those of our customers, suppliers, or business partners, could expose us to losses.
We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons, employees, former employees, or employeesother third parties may gain access to our facilities or networktechnology infrastructure and systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. TheseThis risk is exacerbated as competitors for talent, particularly engineering talent, increasingly attempt to hire our employees. Through cyberattacks on technology infrastructure and systems, unauthorized parties may also be ableobtain access to developcomputer systems, networks, and deploy viruses,data, including cloud-based platforms. The technology infrastructure and systems of our suppliers, vendors, service providers, cloud solution providers, and partners have in the past experienced, and may in the future experience, such attacks, which could impact our operations. Cyberattacks can include ransomware, computer denial-of-service attacks, worms, supply chain attacks, social engineering, and other malicious software programs or other attacks, including those using techniques that disrupt our operationschange frequently or may be disguised or difficult to detect, or designed to remain dormant until a triggering event, impersonation of authorized users, and efforts to discover and exploit any design flaws, “bugs,” security vulnerabilities, as well as intentional or unintentional acts by employees or other insiders with access privileges. Globally, cyberattacks are increasing in number and the attackers are increasingly organized and well-financed, or supported by state actors, and are developing increasingly sophisticated systems to not only attack, but also to evade detection. In addition, geopolitical tensions or conflicts may create security vulnerabilities.a heightened risk of cyberattacks. Breaches of our physical security, and attacks on our networktechnology infrastructure and systems, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised.
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Our products are also targets for cyberattacks, including those products utilized in cloud-based environments. While some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, whichbreached, or circumvented by motivated and sophisticated attackers. Further, our products contain sophisticated hardware and firmware and applications that may contain security vulnerabilities or defects in design or manufacture, including “bugs” and other problems that could interfere with the intended operation of our products. To the extent our products are hacked, or the encryption schemes are compromised or breached, this could harm our business by requiring us to employ additional resources to fix the errors or defects, exposing us to litigation, claims, and harm to our reputation.
Any of the foregoing security risks could have a material adverse effect on our business, results of operations, or financial condition.
ChangesWe must attract, retain, and motivate highly skilled employees.
To remain competitive, we must attract, retain, and motivate executives and other highly skilled, diverse employees, as well as effectively manage succession for key employees. Competition for experienced employees in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Acrossindustry is intense. Hiring and retaining qualified executives and other employees is critical to our global operations, significant transactionsbusiness. If our total compensation programs, employment benefits, and balancesworkplace culture are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar,not viewed as competitive and yen. We recorded net losses from changes in currency exchange rates of $36 million for the first six months of 2018, $74 million for 2017, and $24 million for 2016. Based on our foreign currency balances of monetary assets and liabilities, as of March 1, 2018, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $414 million. Although we hedge our primary exposures to changes in currency exchange rates from our monetary assets and liabilities, the effectiveness of these hedges is dependent uponinclusive, our ability to accurately forecastattract, retain, and motivate employees could be compromised.
At times, we experience higher levels of attrition, increasing compensation costs, and more intense competition for talent across our monetary assetsindustry. To the extent we experience significant attrition and liabilities. In addition,are unable to timely replace employees, we could experience a significant portionloss of critical skills and reduced employee morale, potentially resulting in business disruptions or increased expenses to address any disruptions. Additionally, changes to immigration policies in the countries in which we operate, as well as restrictions on travel due to public health crises or other causes, may limit our manufacturing costsability to hire and/or retain talent in, or transfer talent to, specific locations.
Our inability to attract, retain, and motivate executives and other employees or effectively manage succession of key roles may inhibit our ability to maintain or expand our business operations.
We may not be able to achieve expected returns from capacity expansions.
We have announced our intent to expand our DRAM production capacity in the United States and we also make capital investments in projects outside the United States.
These expansions involve several risks including the following:
•capital expenditure requirements for capacity expansions during periods of relatively low free cash flow generation, resulting from challenging memory and storage industry conditions;
•availability of necessary funding, which may include external sources;
•ability to realize expected grants, investment tax credits, and other government incentives, including through the CHIPS Act and foreign, state, and local grants;
•potential changes in laws or provisions of grants, investment tax credits, and other government incentives;
•potential restrictions on expanding in certain geographies;
•availability of equipment and construction materials;
•ability to complete construction as scheduled and within budget;
•availability of the necessary workforce;
•ability to timely ramp production in a cost-effective manner;
•increases to our cost structure until new production is ramped to adequate scale; and
•sufficient growth in customer demand to meet our increased output.
We invest our capital in areas that we believe best align with our business strategy and optimize future returns. Investments in capital expenditures may not generate expected returns or cash flows. Significant judgment is required to determine which capital investments will result in optimal returns, and we could invest in projects that are denominatedultimately less profitable than those projects we do not select. Delays in foreign currencies. Exchange rates for somecompletion and ramping of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar,new production facilities, or failure to optimize our manufacturing costsinvestment choices, could significantly increase. Exchange rates forimpact our ability to realize expected returns on our capital expenditures.
Any of the U.S. dollar that adversely change against our foreign currency exposuresabove factors could have a material adverse effect on our business, results of operations, or financial condition.
Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations and are subject to reduction, termination, or clawback.
We have received, and may makein the future acquisitionscontinue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to achieve or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives or could restrict us from undertaking certain activities. We may be unable to obtain significant future incentives to continue to fund a portion of our capital expenditures and operating costs, without which our cost structure would be adversely impacted. We also cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our compliance with their terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.
Acquisitions and/or alliances which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:
•integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
•increasing capital expenditures to upgrade and maintain facilities;
•increased debt levels;
•the assumption of unknown or underestimated liabilities;
•the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
•diverting management'smanagement’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by governmentalgovernment authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability•underestimating the costs or overestimating the benefits, including product, revenue, cost and other synergies and growth opportunities that we expect to realize, synergies or other expectedand we may not achieve those benefits;
•failure to maintain customer, vendor, and other relationships;
•inadequacy or ineffectiveness of an acquired company'scompany’s internal financial controls, disclosure controls and procedures, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
•impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions or technological advancements, or worse-than-expected performance of the acquired business.advancements.
In previous years, supply of memory and storage products has significantly exceeded customer demand resulting in significant declines in average selling prices for DRAM and NAND. The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, technology companies are inherently risky and may not be successful and could have a material adverse effect on our business, results of operations, or financial condition.
The limited availability 47
We may incur restructure charges in future periods and may not realize expected savings or capital equipment could materially adversely affect our business, resultsother benefits from restructure activities.
In the second quarter of operations, or financial condition.
Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials and services. However, only2023, we initiated a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards. In some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, sub-assemblies, targets, and reticle glass blanks. Shortages may occur, from time to time, in the future. We and/or our suppliers could be affected by laws and regulations enactedrestructure plan in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials.current market conditions. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Subsequent Events.” In addition, we may in the future, enter into other restructure initiatives in order to, among other items, streamline our operations, respond to changes in business conditions, our markets, or product offerings, or to centralize certain key functions.
We may not realize expected savings or other benefits from our current or future restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extendedoperations, and difficulties in the past. The disruptiontimely delivery of our supply of raw materials or services or the extension of our lead timesproducts, which could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependentCompliance with responsible sourcing requirements and any related regulations could increase our operating costs, or limit the supply and increase the cost of certain materials, supplies, and services, and if we fail to comply, customers may reduce purchases from us or disqualify us as a supplier.
We and many of our customers have adopted responsible sourcing programs that require us to meet certain ESG criteria, and to periodically report on our abilityperformance against these requirements, including that we source the materials, supplies, and services we use and incorporate into the products we sell as prescribed by these programs. Many customer programs require us to procure advanced semiconductor manufacturing equipment that enables the transitionremove a supplier within a prescribed period if such supplier ceases to lower cost manufacturing processes. For certain key typescomply with prescribed criteria, and our supply chain may at any time contain suppliers at risk of equipment, including photolithography tools,being removed due to non-compliance with responsible sourcing requirements. Some of our customers may elect to disqualify us as a supplier (resulting in a permanent or temporary loss of sales to such customer) or reduce purchases from us if we are sometimes dependentunable to verify that our performance or products (including the underlying supply chain) meet the specifications of our customers’ responsible sourcing programs on a single supplier.continuous basis. Meeting responsible sourcing requirements may increase operating requirements and costs or limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such materials, supplies, and services is concentrated to a limited number of suppliers. From time to time, we have experienced difficultiesremove suppliers or require our suppliers to remove suppliers from their supply chains based on our responsible sourcing requirements or customer requirements, and we or our suppliers may be unable to replace such removed suppliers in obtaining some equipment on a timely basis dueor cost-effective manner. Any inability to suppliers' limited capacity.replace removed suppliers in a timely or cost effective manner may affect our ability and/or the cost to obtain sufficient quantities of materials, supplies, and services necessary for the manufacture of our products. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipmentreplace suppliers we have removed in a timely or cost-effective manner or comply with customers’ responsible sourcing requirements or with any related regulations could have a material adverse effect on our business, results of operations, or financial condition.
Failure to meet ESG expectations or standards or achieve our ESG goals could adversely affect our business, results of operations, financial condition, or stock price.
In recent years, there has been an increased focus from stakeholders on ESG matters, including greenhouse gas emissions and climate-related risks, renewable energy, water stewardship, waste management, diversity, equality and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. Given our commitment to ESG, we actively manage these issues and have established and publicly announced certain goals, commitments, and targets which we may refine or even expand further in tariffsthe future. These goals, commitments, and targets reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Evolving stakeholder expectations and our efforts to manage these issues, report on them, and accomplish our goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on our reputation and stock price.
Such risks and uncertainties include:
•reputational harm, including damage to our relationships with customers, suppliers, investors, governments, or other taxesstakeholders;
•adverse impacts on our productsability to sell and manufacture products;
•the success of our collaborations with third parties;
•increased risk of litigation, investigations, or equipmentregulatory enforcement action;
•unfavorable ESG ratings or investor sentiment;
•diversion of resources and suppliesincreased costs to control, assess, and report on ESG metrics;
•our ability to achieve our goals, commitments, and targets within timeframes announced;
•increased costs to achieve our goals, commitments, and targets;
•unforeseen operational and technological difficulties;
•access to and increased cost of capital; and
•adverse impacts on our stock price.
Any failure, or perceived failure, to meet evolving stakeholder expectations and industry standards or achieve our ESG goals, commitments, and targets could have an adverse impacteffect on our operations.business, results of operations, financial condition, or stock price.
Risks Related to Intellectual Property and Litigation
We sellmay be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.
We maintain a significant majoritysystem of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secrets, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology or other proprietary information. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws, and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.
Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment, and this may also negatively impact our ability to maintain and develop intellectual property.
Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.
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Legal proceedings and claims could have a material adverse effect on our business, results of operations, or financial condition.
From time to time, we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. Such claims include, but are not limited to, allegations of anticompetitive conduct and infringement of intellectual property. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant attention from our management. We may be associated with and subject to litigation, claims, or arbitration disputes arising from, or as a result of:
•our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners;
•the actions of our vendors, subcontractors, or business partners;
•our indemnification obligations, including obligations to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, trademarks, copyrights, or trade secrets; and
•the terms of our product warranties or from product liability claims.
As we continue to focus on developing system solutions with manufacturers of consumer products, into countries outside the United Statesincluding autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers’ use of those products. We, our officers, or our directors could also be subject to claims of alleged violations of securities laws. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we purchasemay elect to self-insure with respect to certain matters. Exposures to various legal proceedings and claims could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.
Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of equipmentmanagement’s time and supplies from suppliers outsideattention. As a result of these claims, we may be required to:
•pay significant monetary damages, fines, royalties, or penalties;
•enter into license or settlement agreements covering such intellectual property rights;
•make material changes to or redesign our products and/or manufacturing processes; and/or
•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the United States.actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
Risks Related to Laws and Regulations
Government actions and regulations, such as export restrictions, tariffs, and trade protection measures, may limit our ability to sell our products to certain customers or markets, or could otherwise restrict our ability to conduct operations.
International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, impede our ability to perform R&D activities, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to, some markets and/or customers.
We cannot predict what further actions may ultimately be taken with respect to export regulations, tariffs or other trade regulations between the United States and other countries, have leviedwhat products or companies may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, and taxesrestrictions on certain goods. Further tariffs, additional taxesexports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.
A downturn in the worldwide economy may harm our business.
Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, SSDs, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on
our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditionssupplies. Such changes may also result in a higher ratereputational harm to us, the development or adoption of lossestechnologies that compete with our products, long-term changes in global trade and technology supply chains, or negative impacts on our accounts receivables due to credit defaults. As a result, a downturncustomers’ products which incorporate our solutions. Any of the effects described in the worldwide economythis risk factor could have a material adverse effect on our business, results of operations, or financial condition.
Our results of operations couldThe technology industry is subject to intense media, political, and regulatory scrutiny, which can increase our exposure to government investigations, legal actions, and penalties. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be affected by natural disasters and other events in the locations in which weno assurance that our employees, contractors, suppliers, or agents will not violate such laws or our customerspolicies. Violations of trade laws, restrictions, or suppliers operate.
We have manufacturingregulations can result in fines; criminal sanctions against us or our officers, directors, or employees; prohibitions on the conduct of our business; and other operations in locations subject to natural occurrences such as severe weather and geological events, such as earthquakes or tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruptiondamage to our operations, or the operations of our customers or suppliers,reputation.
Tax-related matters could have a material adverse effect on our business, results of operations, or financial condition.
Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations andWe are subject to reduction, termination, or clawback.
We have received, and mayincome taxes in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to perform or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives. We cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our performance with the terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.
The operations of MMJ are subject to continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings.
Because MMJ's plan of reorganization provides for ongoing payments to creditors following the closing of our acquisition of MMJ, the reorganization proceedings in Japan (the "Japan Proceedings") are continuing and MMJ remains subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee is responsible for overseeing the operation of the business of MMJ, other than oversight in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. MMJ's reorganization proceedings in Japan, and oversight of the Japan Court, will continue until the final creditor payment is made under MMJ's plan of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. MMJ may petition the Japan Court for an early termination of the reorganization proceedings once two-thirds of all payments under the plan of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Japan Court will grant any such petition in this particular case.
During the pendency of the reorganization proceedings in Japan, MMJ is obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions relating to its businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of MMJ or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of MMJ's plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as part of our global business or to cause MMJ to take certain actions that we deem advisable for its business could be adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to MMJ.
The operations of MMJ being subject to the continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings could have a material adverse effect on our business, results of operations, or financial condition.
We may incur additional tax expense or become subject to additional tax exposure.
We operate in a number of locations outside the United States including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our earnings among thesemany foreign jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including changes in the geographic mix of our earnings among jurisdictions, mandatory capitalization of R&D expenses beginning in 2023, challenges by tax authorities to our tax positions and intercompany transfer pricing agreements, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities,arrangements, failure to meet performance obligations with respect to tax incentive agreements, and changesexpanding our operations in tax laws and regulations. We file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 2013 through 2017. In addition, tax returns that remain open to examinationcountries, fluctuations in Japan and Taiwan range from the years 2012 to 2017, and in Singapore from 2013 to 2017. The resultsforeign currency exchange rates, adverse resolution of audits and examinations of previously filed tax returns, and continuing assessmentschanges in tax laws and regulations.
Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could significantly increase our effective tax exposures mayrate and ultimately reduce our cash flows from operating activities and otherwise have ana material adverse effect on our provisionfinancial condition. Beginning in 2024, the Inflation Reduction Act of 2022 imposes a 15% book minimum tax on corporations with three-year average annual adjusted financial statement income exceeding $1 billion. We are in the process of assessing whether the book minimum tax would impact our effective tax rate. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for income taxesEconomic Co-operation and cash tax liability. The foregoing itemsDevelopment. If implemented by taxing authorities in countries where we do business, such changes, could have a material adverse effect on our business, results of operations, or financial condition.
A change in tax laws in key jurisdictions could materially increase our tax expense. 51
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from our foreign operations are taxed in the United States. As a resultTable of our fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of 25.7% for 2018, and 21% for subsequent years. Based on the information available, we recorded provisional amounts under SAB 118; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax. The final tax impacts may differ from our provisional estimates due to, among other things, the issuance of additional regulatory and legislative guidance. As a result of the Tax Act, our tax rate may increase up to the low teens percentage depending on future profitability.Contents
We may not utilize alland others are subject to a variety of our net deferred tax assets.
We have substantial deferred tax assets,laws, regulations, or industry standards, including with respect to ESG considerations, which include, among others, net operating loss and credit carryforwards. As of August 31, 2017, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.88 billion and $1.95 billion, respectively, which, if not utilized, will expire at various dates from 2028 through 2037 and 2018 through 2037, respectively. As of August 31, 2017, our foreign net operating loss carryforwards were $6.30 billion, which will, if not utilized, substantially all expire at various dates from 2019 through 2026. As of August 31, 2017, we had gross deferred tax assets of $3.78 billion and valuation allowances of $2.32 billion against our deferred tax assets. As of March 1, 2018, after recording the provisional estimated impact of the Tax Act, which includes the utilization of a substantial portion of our U.S. deferred tax assets, we had net deferred tax assets of $1.95 billion and valuation allowances of $943 million against our deferred tax assets. Utilization of all of our net operating loss and credit carryforwards would increase the amount of our annual cash taxes reducing the overall amount of cash available to be used in other areas of the business and couldmay have a material adverse effect on our business, results of operations, or financial condition.
A change in ownership may limit our ability to utilize our net operating loss carryforwards.
On January 18, 2017, our shareholders approved a Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the close of business on August 1, 2016 received one right for each share of common stock outstanding, which entitles certain shareholders to purchase additional shares of our common stock at a significant discount in the event of certain transactions that may result in an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Rights will attach to all shares of the Company’s common stock issued prior to the earlier of the rights' distribution date or expiration date as set forth in the Rights Agreement. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownership of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board or without meeting certain customary exceptions, the rights (other than rights held by the acquiring shareholder (or group) and certain related persons) would become exercisable. The Rights Agreement is intended to avoid an adverse ownership change, thereby preserving our current ability to utilize certain net operating loss and credit carryforwards; however, there is no assurance that the Rights Agreement will prevent all transfers that could result in such an ownership change.
If we experience a 50% or greater change in ownership involving shareholders owning 5% or more of our common stock, it could adversely impact our ability to utilize our existing net operating loss and credit carryforwards. The inability to utilize
existing net operating loss and credit carryforwards would significantly increase the amount of our annual cash taxes and reduce the overall amount of cash available to be used in other areas of the business which could have a material adverse effect on our business, results of operations, or financial condition.
Compliance with regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metals used in manufacturing our products.
Increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and its implementing SEC regulations. The Dodd-Frank Act imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals" are commonly found in materials used in the manufacture of semiconductors. The implementation of these new regulations may limit the sourcing and availability of some of these materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient quantities and may affect related material pricing. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products are DRC conflict free. Our inability to comply with the regulations regarding the use of conflict minerals could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to a variety of laws and regulations that may result in additional costs and liabilities.
The manufacturingmanufacture of our products requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any of thesechanges in laws, regulations, or regulationsindustry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with these laws, regulations, or regulationsindustry standards could adversely impact our reputation and our financial results. Additionally, we partner with other companies inengage various third parties as sales channel partners or to represent us or otherwise act on our joint ventures, whichbehalf who are also subject to a broad array of laws, regulations, and regulations.industry standards. Our ownership inengagement with these joint venturesthird parties may also expose us to risks associated with their respective compliance with these laws and regulations.
New ESG considerations, including those related to climate change and the potential resulting environmental impact, may result in new laws, regulations, or industry standards that may affect us, our suppliers, and our customers. Such laws, regulations, or industry standards could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our customers, suppliers, or both incurring additional compliance costs that are passed on to us. These costs may adversely impact our results of operations and financial condition.
As a result of thesethe items detailed in this risk factor, we could experience the following:
•suspension of production;production or sales of our products;
•remediation costs;
•increased compliance costs;
•alteration of our manufacturing processes;
•regulatory penalties, fines, and legal liabilities; and
•reputational challenges.
OurCompliance with, or our failure, or the failure of our joint ventures,third-party sales channel partners or agents, to comply with, these laws, and regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.
Risks Related to Capitalization and Financial Markets
We face risks associated withmay be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our international salesoperations, make scheduled debt payments, pay our dividend, and make adequate capital investments.
Our cash flows from operations that could materially adversely affect our business, results of operations, or financial condition.
Sales to customers outside the United States approximated 86% of our consolidated net sales for 2017. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, Japan, and China. Our international sales and operations are subject to a variety of risks, including:
export and import duties, changes to import and export regulations, customs regulations and processes, and restrictionsdepend primarily on the transfervolume of funds;semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate capital expenditures in 2023 for property, plant, and equipment, net of partner contributions, will be in the range of $7.0 billion to $7.5 billion.
compliance with U.S. and international laws involving international operations, including
In the Foreign Corrupt Practices Actpast we have utilized external sources of 1977, as amended, export and import laws, and similar rules and regulations;
theft of intellectual property;
political and economic instability;
problems with the transportation or delivery of our products;
issues arising from cultural or language differences and labor unrest;
longer payment cycles and greater difficulty in collecting accounts receivable;
compliance with trade, technical standards, and other laws in a variety of jurisdictions;
contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels;
disruptions to our manufacturing operations asfinancing when needed. As a result of actions imposedour debt levels, expected debt amortization, and general capital market and other economic conditions, it may be difficult for us to obtain financing on terms acceptable to us or at all. We have experienced volatility in our cash flows and operating results and may continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by foreign governments;
changesour liquidity, financial results, economic risk, or other factors, which may increase the cost of future borrowings and make it difficult for us to obtain financing on terms acceptable to us or at all. There can be no assurance that we will be able to generate sufficient cash flows, access capital or credit markets, or find other sources of financing to fund our operations, make debt payments, pay our quarterly dividend, and make adequate capital investments to remain competitive in economic policiesterms of foreign governments;technology development and
difficulties in staffing and managing international operations.
These factors cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.
We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and to realign our capital structure. As of December 1, 2022, we had debt with a carrying value of $10.27 billion and may incur additional debt, including under our $2.50 billion Revolving Credit Facility. Our debt obligations could adversely impact us as follows:
•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund our business activities;
•adversely impact our credit rating, which could increase future borrowing costs;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
•restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
•increase our vulnerability to adverse economic and industry conditions;
•increase our exposure to rising interest rates from variable rate indebtedness; and
•result in certain of our debt instruments becoming immediately due and payable or being deemed to be in default if applicable cross default, cross-acceleration and/or similar provisions are triggered.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows or obtain external financing in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our Revolving Credit Facility. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
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Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Malaysian ringgit, Singapore dollar, New Taiwan dollar, and yen. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, capped call contracts on our common stock, and derivative instruments. Additionally, we are subject to counterparty default risk from our customers for amounts receivable from them. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may not comply with theirits contractual commitments which could then lead to theirits defaulting on theirits obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty'scounterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.
The trading price of our common stock has been and may continue to be volatile.
Our common stock has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, we, the technology industry, and the stock market as a whole have on occasion experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to the specific operating performance of individual companies. The trading price of our common stock may fluctuate widely due to various factors, including, but not limited to, actual or anticipated fluctuations in our financial condition and operating results, changes in financial forecasts or estimates by us or financial or other market estimates and ratings by securities and other analysts, changes in our capital structure, including issuance of additional debt or equity to the public, interest rate changes, regulatory changes, news regarding our products or products of our competitors, and broad market and industry fluctuations.
For these reasons, investors should not rely on recent or historical trends to predict future trading prices of our common stock, financial condition, results of operations, or cash flows. Investors in our common stock may not realize any return on their investment in us and may lose some or all of their investment. Volatility in the trading price of our common stock could also result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.
The amount and frequency of our share repurchases may fluctuate, and we cannot guarantee that we will fully consummate our share repurchase authorization, or that it will enhance long-term shareholder value. Share repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.
The amount, timing, and execution of our share repurchases pursuant to our share repurchase authorization may fluctuate based on our operating results, cash flows, and priorities for the use of cash for other purposes. Our expenditures for share repurchases were $2.43 billion in 2022, $1.20 billion in 2021, $176 million in 2020, and $2.66 billion in 2019. These other purposes include, but are not limited to, operational spending, capital spending, acquisitions, and repayment of debt. Other factors, including changes in tax laws, could also impact our share repurchases. Although our Board of Directors has authorized share repurchases of up to $10 billion of our outstanding common stock, the authorization does not obligate us to repurchase any common stock.
We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value. The repurchase authorization could affect the trading price of our stock and increase volatility, and any announcement of a pause in, or termination of, this program may result in a decrease in the trading price of our stock. In addition, this program will diminish our cash reserves.
There can be no assurance that we will continue to declare cash dividends in any particular amounts or at all.
Our Board of Directors has adopted a dividend policy pursuant to which we currently pay a cash dividend on our common shares on a quarterly basis. The declaration and payment of any dividend is subject to the approval of our Board of Directors and our dividend may be discontinued or reduced at any time. There can be no assurance that we will declare cash dividends in the future in any particular amounts, or at all.
Future dividends, if any, and their timing and amount, may be affected by, among other factors: our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments could have a negative effect on the trading price of our stock.
55
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the second quarter ofIn May 2018, we share-settled allannounced that our Board of Directors authorized the discretionary repurchase of up to $10 billion of our remaining 2032Coutstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and 2033E Capped Callsis subject to market conditions and a portionour ongoing determination of our 2032D Capped Calls and received 7,022,506 sharesthe best use of our common stock.available cash.
| | | | | | | | | | | | | | | | | | | | |
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under publicly announced plans or programs (in millions) |
| | | | | | |
| September 2, 2022 | — | | October 6, 2022 | 8,577,145 | | $ | 49.58 | | 8,577,145 | | |
| October 7, 2022 | – | November 3, 2022 | — | | — | | — | | |
| November 4, 2022 | – | December 1, 2022 | — | | — | | — | | |
| | | 8,577,145 | | $ | 49.58 | | 8,577,145 | | $3,106 |
|
| | | | | | | | | | | | | |
| Period | | (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs |
| December 1, 2017 | – | January 4, 2018 | | 4,710,314 |
| | $ | 45.68 |
| | | | |
| January 5, 2018 | – | February 1, 2018 | | — |
| | — |
| | | | |
| February 2, 2018 | – | March 1, 2018 | | 2,312,192 |
| | 42.47 |
| | | | |
| | | | | 7,022,506 |
| | 44.62 |
| |
| | |
Shares of common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchasesrequired to be disclosed under an authorized common stock repurchase planItem 703 of Regulation S-K and accordingly are excluded from the amounts in the table above.
ITEM 6. ExhibitsEXHIBITS
| | | | | | | | | | | | | | | | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 4.1 | | | 8-K | 10/31/22 | 4.2 | 10/31/22 |
| 4.2 | | | 8-K | 10/31/22 | 4.3 | 10/31/22 |
| 10.1* | | X | | | | |
| 10.2* | | X | | | | |
| 10.3* | | X | | | | |
| 10.4 | Term Loan Credit Agreement, dated as of November 3, 2022, by and among Micron Technology, Inc., as borrower, Wells Fargo Bank, National Association, as administrative agent, the other agents party thereto, and each financial institution party from time to time thereto | X | | | | |
| 31.1 | | X | | | | |
| 31.2 | | X | | | | |
| 32.1 | | X | | | | |
| 32.2 | | X | | | | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | | | | |
* Indicates management contract or compensatory plan or arrangement.
57 |
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 3.1 | | | 8-K | | 99.2 | 1/26/15 |
| 3.2 | | | 8-K | | 99.1 | 4/15/14 |
| 10.1 | | | DEF 14A | | B | 12/7/2017 |
| 10.75 | | | DEF 14A | | A | 12/7/2017 |
| 10.76 | | ü | | | | |
| 31.1 | | ü | | | | |
| 31.2 | | ü | | | | |
| 32.1 | | ü | | | | |
| 32.2 | | ü | | | | |
| 101.INS | XBRL Instance Document | ü | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | ü | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ü | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ü | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ü | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ü | | | | |
SIGNATURES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | |
| | Micron Technology, Inc. |
| | | (Registrant) |
| | | |
| | | |
| Date: | March 23, 2018December 22, 2022 | By: | /s/ David A. ZinsnerMark Murphy |
| | David A. Zinsner
Senior
| Mark Murphy |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
| | | /s/ Scott Allen |
| | | Scott Allen |
| | | Corporate Vice President and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
