What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-27 compared with 2020-08-28 · 74 added, 119 removed, 228 unchanged (46% of the section changed)

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See also “Forward-Looking Statements” immediately prior to Part I, Item 1 of this Annual Report on Form 10-K.

We are a leading developer, manufacturer and provider of data storage devices and solutions that address the evolving needs of the information technology (“IT”) industry and the infrastructure that enables the proliferation of data in virtually every other industry.

We are a leading developer, manufacturer and provider of data storage devices and solutions that address the evolving needs of the IT industry and the infrastructure that enables the proliferation of data in virtually every other industry.

We create environments for data to thrive.

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Everywhere data lives, from advanced data centers to mobile sensors to personal devices, our industry-leading solutions deliver the possibilities of data.

Our broad portfolio of technology and products address the following key end markets:

Client Devices;

Data Center Devices and Solutions;

and Client Solutions.

We also generate license and royalty revenue from our extensive intellectual property (“IP”), which is included in each of these three end market categories.

Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks.

Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy.

Fiscal year 2020, which ended on July 3, 2020, is comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.

Fiscal years 2019, which ended on June 28, 2019, and 2018, which ended on June 29, 2018, were each comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Fiscal years 2021 and 2019, which ended on July 2, 2021 and June 28, 2019, respectively, are comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Fiscal year 2020, which ended on July 3, 2020, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.

Key Developments

COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a pandemic, and the United States declared a national emergency.

In the intervening months, COVID-19 has spread globally and led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although some of these governmental restrictions have since been lifted or scaled back, a recent surge of COVID-19 infections has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19.

These measures may remain in place for a significant amount of time.

In light of these events, we have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business.

We have implemented more thorough sanitation practices as outlined by health organizations and instituted social distancing policies at our locations around the world, including working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

These actions have resulted in some reductions of production levels, particularly impacting our manufacture of hard drives, as we adapt to a more limited number of employees in facilities and, as a result, we have incurred charges of approximately $110 million in costs related to under-absorbed overhead and higher logistics and other costs during the year ended July 3, 2020.

Business Structure

Late in the first quarter of fiscal 2021, we announced a decision to reorganize our business by forming two separate product business units:

flash-based products and hard disk drives (“HDD”).

The new structure is intended to provide each business unit with focus and responsibility for identifying current and future customer requirements while driving the strategy, roadmap, pricing and overall profitability for their respective product areas.

In the second fiscal quarter, to align with the new operating model and business structure, we began making management organizational changes and are implementing new reporting modules and processes to provide discrete information to manage the business.

We are evaluating the impact of these changes on our discussion and analysis of our financial condition and results of operations and expect to modify our disclosures to align with this structure when the implementations and assessments are completed, which is expected to be in the first quarter of fiscal 2022.

COVID-19 Pandemic and Operational Update

As a result of the ongoing COVID-19 pandemic, governments and other authorities around the world, including federal, state and local authorities in the United States, have from time-to-time imposed measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although some of these governmental restrictions have since been lifted or scaled back, a resurgence of COVID-19 infections could result in the re-imposition of certain restrictions in efforts to reduce further spread of COVID-19.

We have taken actions to protect the health and safety of our employees while continuing to serve our global customers as an essential business.

We have implemented and maintained more thorough sanitation practices as outlined by health organizations and supported vaccination efforts.

As we begin to phase in a return to site for more employees, we are monitoring and adopting practices recommended by health organizations to ensure the continued safety of our employees and business partners.

In addition, the responses to COVID-19 taken by others in the supply chain have increased the costs of their services which have in turn impacted our operations.

As a result, we have incurred charges of approximately $127 million primarily related to higher logistics during the year ended July 2, 2021, which were recorded in cost of revenue.

As an essential business, we continue to provide products and solutions that enable the proliferation of data and facilitate the sharing of information remotely, which has become more critical as much of the world is interacting from areas of self-isolation.

While we have experienced some reductions of sales in certain areas such as retail in our Client Solutions end market where brick and mortar operations have been impacted, we have seen strong demand for capacity enterprise products in our Data Center Devices and Solutions end market as the current environment has accelerated the movement to the cloud.

As such, our net revenue for the year ended July 3, 2020 was not significantly impacted by COVID-19.

We currently expect some softening in Cloud demand as these customers absorb recent capacity expansions, but expect some improvement in retail demand as countries begin to ease their lockdown restrictions and as brick and mortar locations shift more of their operations online.

However, we cannot predict the duration of this crisis and how demand may change if it becomes more protracted.

Generally, our revenues have remained solid during the pandemic, supported by continued work-from-home, distance learning, and at-home entertainment demand.

However, the COVID-19 environment remains dynamic and we cannot predict the duration of the pandemic and how demand may change as it continues to develop.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

See “The COVID-19 pandemic could adversely affect our business, results of operations and financial condition” in Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for more information regarding the risks we face as a result of the COVID-19 pandemic.

Flash Ventures

Through our three business ventures with Kioxia Corporation (“Kioxia”), referred to as “Flash Ventures”, we and Kioxia operate flash-based memory wafer manufacturing facilities in Japan.

We are obligated to pay for variable costs incurred in producing our share of Flash Ventures’ flash-based memory wafer supply, based on our three-month forecast, which generally equals 50% of Flash Ventures’ output.

In addition, we are obligated to pay for half of Flash Ventures’ fixed costs regardless of the output we choose to purchase.

We are also obligated to fund 49.9% to 50% of each Flash Ventures entity’s capital investments to the extent that Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

Since its inception, Flash Ventures’ primary manufacturing site has been located in Yokkaichi, Japan, which currently includes five wafer fabrication facilities.

These facilities historically operated near 100% of their manufacturing capacity.

As a result of supply/demand imbalance for flash-based products arising in the prior year, we temporarily reduced our utilization of our share of Flash Ventures’ manufacturing capacity to an abnormally low level for several quarters to more closely align our flash-based wafer supply with the projected demand.

As a result of this temporary reduction to abnormally low production levels, we incurred $264 million associated with the reduction in utilization, which was recorded as a charge to cost of revenue in the year ended June 28, 2019.

In addition, levels at the Yokkaichi site were temporarily reduced as a result of an unexpected power outage incident that occurred in the Yokkaichi region on June 15, 2019.

The power outage incident impacted the facilities and process tools and resulted in the damage of flash wafers in production.

The incident resulted in a reduction of our flash wafer availability by approximately 4 exabytes, the majority of which was contained in the first quarter of fiscal year 2020.

As a result of this power outage incident, we incurred aggregate charges of $68 million and $145 million recorded in Cost of revenue in the years ended July 3, 2020 and June 28, 2019, respectively, which primarily consisted of the write-off of damaged inventory and unabsorbed manufacturing overhead costs.

We continue to pursue recovery of our losses associated with this event;

however, the total amount of recovery cannot be estimated at this time.

In May 2019, we entered into additional agreements with Kioxia to extend Flash Ventures to a new wafer fabrication facility, known as “K1,” located in Kitakami, Japan.

The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes.

Output from the initial production line at K1 began in the third quarter of fiscal year 2020, although meaningful output from K1 is not expected to begin until the end of calendar 2020.

We have paid for most of our share of initial K1 equipment investments and relocation costs.

Other period expenses associated with the initial production ramp at K1 will begin trailing off as output increases toward the end of the calendar year.

We also agreed to prepay an aggregate of approximately $360 million over a 3-year period beginning in the first half of fiscal year 2020 toward K1 building depreciation, to be credited against future wafer charges.

As of July 3, 2020, remaining committed prepayments totaled $206 million.

Exit of Storage Systems Business

In September 2019, we announced our intention to exit Storage Systems, which consisted of IntelliFlash and ActiveScale.

These actions allow us to redirect investments to other higher value priorities.

In November 2019, we completed the sale of IntelliFlash for a price of $28 million, to be collected over the next three years.

The sale of our IntelliFlash business included an immaterial amount of inventory, other tangible and intangible assets, and goodwill and resulted in a gain of approximately $17 million recorded in Employee termination, asset impairment, and other charges in the Consolidated Statements of Operations for the year ended July 3, 2020.

Additionally, in March 2020, we completed the sale of ActiveScale.

The net assets sold and the proceeds from the sale of ActiveScale were not material.

See “The COVID-19 pandemic could negatively affect our business” in Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for more information regarding the risks we face as a result of the COVID-19 pandemic.

Results of Operations

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Interest expense (326) (1.9) (413) (2.5) (469) (2.8)

Other income (expense), net 4 — 38 0.2 (916) (4.4)

Other income, net 26 0.2 4 — 38 0.2

Total interest and other expense, net (293) (1.7) (381) (2.3) (374) (2.3)

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Revenue by Product

Hard disk drives (“HDD”) $ 8,967 $ 8,746 $ 10,698

HDD $ 8,216 $ 8,967 $ 8,746

Flash-based 8,706 7,769 7,823

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Exabytes Shipped 541 518 383

(1) Revenue for 2020 and 2019 are presented in accordance with Accounting Standards Codification (“ASC”) Topic 606.

Revenue for 2018 is presented in accordance with ASC Topic 605.

For information related to our transition from Topic 605 to Topic 606, see Part II, Item 8, Note 1, Organization and Basis of Presentation , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Net revenue was relatively flat in 2020 compared to 2019.

Higher volumes of memory generated approximately 30 percentage points of exabyte growth year over year, split relatively evenly between HDD and Flash products, which was largely offset by lower average selling prices.

Our revenue for Data Center Devices and Solutions increased 24% year over year, reflecting approximately 46 percentage points of growth in exabytes of storage, primarily driven by strength in capacity enterprise HDD and Flash, which we believe reflects an acceleration in the movement to cloud driven by remote working conditions as a result of COVID-19.

This growth was partially offset by lower average selling prices.

Client Devices revenue declined 12% year over year, which primarily reflects lower average selling prices in HDD and mobility products.

Client Solutions revenue declined 3% year over year, which reflects a decline of approximately 12 percentage points due to lower average selling prices, primarily on retail products, partially offset by an increase in volume of Flash products.

The changes in net revenue by geography reflect a decrease in Asia in 2020 primarily driven by our decision to limit our participation in the mobile market and our exit from multi-chip package solutions sales, resulting in lower sales to manufacturers in the Asia region, and a slight increase in the Americas driven by increased sales of capacity enterprise HDD.

Net revenue increased 1% in 2021 compared to 2020, which reflects approximately 13 percentage points increase in revenue related to higher exabyte volume of flash sold, largely offset by lower average selling price per gigabyte.

Client Devices revenue increased 15% year over year, reflecting a 22% increase from a higher volume of flash products sold.

This increase in flash volume was driven by continued strength in demand for notebook and Chromebooks, gaming, smart home devices, automotive and industrial applications.

This increase was partially offset by lower average selling price per gigabyte, primarily in flash.

Data Center Devices and Solutions revenue decreased 20% year over year.

Lower exabytes of storage sold for HDD and flash each contributed approximately 7 percentage points to the revenue decline, while lower average selling price per gigabyte, primarily in HDD products, contributed another 6 percentage points to the decline.

Year-over-year volume was negatively impacted by cloud digestion and China shipment restrictions, and delays in product qualifications with certain customers earlier in the year.

The impacts of cloud digestion have abated and we have now completed qualifications with all our cloud titan customers.

In flash, we are beginning to see growth with our second generation, NVMe enterprise SSD at several cloud titans and are ramping production more broadly.

In HDD, we are experiencing a resurgence of demand driven by the successful ramp of our 18-terabyte energy-assisted hard drive, growing cloud demand, a recovery in enterprise spending, and to a lesser extent, cryptocurrency, driven by Chia.

We believe the strong demand from our cloud customers and beginning of a recovery in the enterprise demand continues to positively impact results.

Client Solutions revenue increased 11% year over year, which reflects an increase of approximately 16 percentage points due to exabyte growth, split evenly between HDD and Flash products, which was partially offset by lower average selling price per gigabyte.

Client Solutions remains a high performing end market, reflecting our brand recognition, broad product portfolio and extensive distribution channels to markets.

The changes in net revenue by geography reflect an increase in Asia due to our increased sales of mobility products to manufacturers in the Asia region, and a decrease in Americas driven by lower sales of capacity enterprise products.

For 2021, 2020 and 2019, our top 10 customers accounted for 39%, 42% and 45%, respectively, of our net revenue.

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Gross Profit and Gross Margin

Gross profit and gross margin for 2020 were relatively flat compared to 2019, which reflected lower aggregate charges for amortization expense on acquired intangible assets, manufacturing underutilization charges, and charges related to the power outage incident, which aggregated $678 million for 2020 compared to $1.2 billion for 2019.

These lower costs were offset by the impact of lower average selling prices, as noted above;

the impact of COVID-related costs;

and higher per-unit overhead costs in HDD as we ramp up production on our new 18-terabyte drives.

We expect gross margins to be constrained in the near term as we continue to ramp up production on our new drives and continue to incur COVID-related costs.

Gross profit increased $740 million, or 19.6%, in 2021 compared to 2020, which reflected a $279 million decrease in charges for amortization expense on acquired intangible assets, $143 million improvement related to power outage charges of $68 million incurred in 2020 combined with a $75 million recovery in the current year as well as incremental profit from the increase in volume.

As a percent of revenue, gross margin increased by 4.1 percentage points over the prior year of which 2.5 percentage points reflected the impact of the change in power outage charges and lower charges for amortization expense.

In addition, as we ramped production on new products, cost reduction also contributed to the increase in gross margin.

Operating Expenses

Research and development (“R&D”) expense increased $79 million in 2020 compared to 2019 primarily due to approximately $30 million of additional expense related to the additional week in the current year and increased variable compensation, partially offset by savings from our exit from the storage systems business and lower outside services and travel and entertainment (“T&E”) spending.

Selling, general and administrative (“SG&A”) expense decreased $164 million in 2020 compared to 2019 primarily due to savings realized from our exit from the storage systems business, lower outside services and T&E spending, partially offset by approximately $10 million of additional expense related to the additional week in the current year and increased variable compensation.

Employee termination, asset impairment and other charges decreased from the prior year as many of the actions initiated in the prior year have been substantially completed.

Research and development (“R&D”) expense decreased $18 million in 2021 compared to 2020.

The decrease was driven by lower facility costs of approximately $50 million due to restructuring and cost initiatives and approximately $20 million of lower travel related expenses due to COVID-19 restrictions, partially offset by higher employee compensation cost for additional headcount as we invested in research and development, and higher variable compensation cost due to improved earnings.

Selling, general and administrative (“SG&A”) expense decreased $48 million in 2021 compared to 2020.

The decline was primarily driven by a $50 million reduction in expenses related to travel, marketing and outside services as a result of COVID-19 restrictions.

The gains recognized in Employee termination, asset impairment and other charges compared to the losses in the prior year primarily reflect gains on the disposal of assets associated with our business realignment activities.

For additional information regarding employee termination, asset impairment and other charges, see Part II, Item 8, Note 16, Employee Termination, Asset Impairment and Other Charges , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Interest and Other Income (Expense)

The decreases in total interest and other expense, net in 2020 compared to 2019 primarily reflect decreases in interest expense resulting from the pay-down of principal on our debt and lower index rates, partially offset by decreases in Interest income resulting from lower invested cash and lower rates of return, as well as lower gains on foreign currency transactions.

Income Tax Expense

The following table sets forth income tax information from our Consolidated Statements of Operations by dollar and effective tax rate:

2020 2019 2018

(in millions, except percentages)

Income (loss) before taxes $ (46) $ (287) $ 2,085

The decreases in total interest and other expense, net in 2021 compared to 2020 primarily reflects a decrease in interest expense resulting from lower index rates and the pay-down of principal on our debt during 2021.

Income Tax Expense

Effective tax rate (443) % (163) % 68 %

The Tax Cuts and Jobs Act (the “2017 Act”) includes a broad range of tax reform proposals affecting businesses.

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Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to our estimates in future periods.

The following table sets forth income tax information from our Consolidated Statements of Operations by dollar and effective tax rate:

2021 2020 2019

(in millions, except percentages)

Income (loss) before taxes $ 927 $ (46) $ (287)

Income tax expense 106 204 467

Effective tax rate 11 % (443) % (163) %

The primary drivers of the difference between the effective tax rate for 2021 and the U.S.

Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits and tax holidays in Malaysia, Philippines and Thailand that will expire at various dates during fiscal years 2021 through 2031.

The primary drivers of the difference between the effective tax rate for 2020 and the U.S.

In addition, the effective tax rate for 2020 includes the discrete effect of a de-recognition of $31 million for certain deferred tax assets associated with creditable foreign withholding taxes due to the issuance of final regulatory guidance.

The regulatory guidance does not preclude us from potentially claiming these creditable taxes as a period benefit when paid.

The primary driver of the difference between the effective tax rate for the year ended June 28, 2019 and the U.S.

Federal statutory rate of 21% is the discrete effect of the finalization of the accounting for the tax effects of the enactment of the 2017 Act.

These discrete effects consist of $119 million related to the mandatory deemed repatriation tax and $189 million related to the decision to change our indefinite reinvestment assertion.

The remaining difference is attributable primarily to a change in the estimated effective tax rate due to changes in the relative mix of earnings by jurisdiction, partially offset by credits and tax holidays.

Our future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S.

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For additional information regarding Income tax expense (benefit), see Part II, Item 8, Note 14, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

A discussion of our results of operations for 2018, including a comparison of such results of operations to 2019, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , included in our Annual Report on Form 10-K for the year ended June 28, 2019 filed with the Securities and Exchange Commission on August 27, 2019.

A discussion of our results of operations for 2019, including a comparison of such results of operations to 2020, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , included in our Annual Report on Form 10-K for the year ended July 3, 2020 filed with the Securities and Exchange Commission on August 28, 2020.

Liquidity and Capital Resources

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Effect of exchange rate changes on cash 6 (1) 4

Net decrease in cash and cash equivalents $ (407) $ (1,550) $ (1,349)

Net increase (decrease) in cash and cash equivalents $ 322 $ (407) $ (1,550)

We believe our cash, cash equivalents and cash generated from operations as well as our available credit facilities will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months.

Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors, in this Annual Report on Form 10-K.

During fiscal 2021, we expect expenditures for property, plant and equipment for our company plus our portion of the capital expenditures by our Flash Ventures joint venture with Kioxia for its operations to aggregate approximately $3.1 billion.

During fiscal 2022, we expect expenditures for property, plant and equipment for our company plus our portion of the capital expenditures by our Flash Ventures joint venture with Kioxia for its operations to aggregate to $3.1 billion.

After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we expect net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to be a cash outflow of approximately $2.0 billion during fiscal 2022.

The total expected cash to be used could vary depending on the timing and completion of various capital projects and the availability, timing and terms of related financing .

During fiscal 2019, we made the determination that it was our intention to repatriate all of our foreign undistributed earnings as a result of the 2017 Act, except a portion of our foreign undistributed earnings, which could result in additional federal taxes based on interpretive guidance issued by the IRS.

After consideration of this interpretative guidance affecting the taxation of a certain portion of our foreign undistributed earnings, we made the determination that we do not intend to repatriate this portion of our foreign undistributed earnings and did not establish an accrual for this liability of $1.25 billion.

A total of $1.99 billion and $2.12 billion of our Cash and cash equivalents was held outside of the U.S.

as of July 3, 2020 and June 28, 2019, respectively.

As a result of the change in our permanent reinvestment assertion, there are no material tax consequences that were not previously accrued for on the repatriation of this cash.

as of July 2, 2021 and July 3, 2020, respectively.

There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

Operating Activities

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This represents our principal source of cash.

Net cash used for changes in operating assets and liabilities was $757 million for 2020, as compared to $260 million net cash used for changes in operating assets and liabilities for 2019.

Net cash used for changes in operating assets and liabilities was $175 million for 2021, as compared to $757 million for 2020.

Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our cash conversion cycle as well as timing of payments for taxes.

Our cash conversion cycle measures how quickly we can convert our products into cash through sales.

The cash conversion cycles were as follows:

At the end of the respective fourth quarters, the cash conversion cycles were as follows:

2021 2020 2019

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Cash conversion cycle 77 70 70

Changes in days sales outstanding (“DSO”) are generally due to the linearity of shipments.

Changes in days sales outstanding (“DSO”) are generally due to the linearity of timing of shipments.

Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds.

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Generally, we make the payment term modifications through negotiations with our vendors or by granting to, or receiving from, our vendors’ payment term accommodations.

For 2020, DSO increased by 26 days over the prior year, reflecting 6 days for lower factoring of receivables, and 4 days resulting from balance sheet reclassifications of certain customer incentives in connection with the adoption of ASC Topic 606 related to recognition of agreements with customers.

The additional increase primarily reflects the timing of shipments and customer collections.

For 2021, DSO decreased by 8 days over the prior year, reflecting more linearity in the timing of shipments and more favorable customer terms, partially offset by an increase of approximately 2 days for lower factoring of receivables.

We have seen no significant deterioration in our receivables as a result of COVID-19.

DIO decreased by 8 days over the prior year, reflecting higher stocking levels of HDD inventory in the prior year in response to the plant closure in Kuala Lumpur.

DPO increased by 12 days over the prior year, primarily reflecting resumptions of flash production volumes as well as routine variations in the timing of purchases and payments during the period.

DIO increased by 11 days over the prior year, reflecting higher stocking levels of HDD inventory to serve anticipated demand growth and better output from Flash Ventures as production ramped up at the new fabrication sites.

DPO decreased by 4 days over the prior year, primarily reflecting resumptions of flash production volumes and ramp up of production of new drives as well as routine variations in the timing of purchases and payments during the period.

Investing Activities

Net cash provided by investing activities in 2020 primarily consisted of a $931 million net decrease in notes receivable issuances to Flash Ventures, partially offset by $647 million of capital expenditures and $22 million for acquisitions.

Net cash used in investing activities in 2019 primarily consisted of $876 million of capital expenditures and a net $598 million increase in notes receivable issuances to Flash Ventures to fund its capital expansion.

Net cash used in investing activities in 2021 primarily consisted of $1.1 billion in capital expenditures, partially offset by a $231 million net decrease in notes receivable issuances to Flash Ventures and proceeds of $143 million from the disposal of property, plant and equipment, primarily related to our business realignment activities.

Our cash equivalents are primarily invested in money market funds that invest in U.S.

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Financing Activities

During 2020, net cash used in financing activities primarily consisted of $982 million for repayment of debt (of which $257 million was for scheduled principal payments and $725 million was for voluntary prepayments), $595 million to pay dividends on our common stock and $72 million for taxes paid on vested stock awards under employee stock plans, partially offset by $141 million of cash from the issuance of stock under our employee stock plans.

Net cash used in financing activities in 2019 primarily consisted of $681 million for the repayment of our revolving credit facility and other debt, $584 million to pay dividends on our common stock, and $563 million for share repurchases.

During 2021, net cash used in financing activities primarily consisted of $886 million for repayment of debt, which included $600 million in voluntary prepayments on our Term Loan B-4, and $56 million for taxes paid on vested stock awards under employee stock plans, partially offset by $134 million of cash from the issuance of stock under our employee stock plans.

Net cash used in financing activities in 2020 primarily consisted of $982 million for the repayment of debt, which included $725 million in voluntary prepayments on our Term Loan B-4, $595 million to pay dividends on our common stock, and $72 million for taxes paid with respect to vested stock awards under our employee stock plans, partially offset by $141 million of cash from the issuance of stock under our employee stock plans.

On July 19, 2021, we made an incremental voluntary prepayment of $150 million on our Term Loan B-4.

In April 2020, we suspended our dividend policy to reinvest in the business and to support our ongoing deleveraging efforts.

We will reevaluate our dividend policy as our leverage ratio improves.

A discussion of our cash flows for the year ended June 29, 2018 is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources , included in our Annual Report on Form 10-K for the year ended June 28, 2019 filed with the Securities and Exchange Commission on August 27, 2019.

A discussion of our cash flows for the year ended June 28, 2019 is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources , included in our Annual Report on Form 10-K for the year ended July 3, 2020 filed with the Securities and Exchange Commission on August 28, 2020.

Off-Balance Sheet Arrangements

Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short and Long-term Liquidity-Contractual Obligations and Commitments” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.

Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short and Long-term Liquidity-Indemnifications” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.

We do not have any majority-owned subsidiaries that are not included in the Consolidated Financial Statements.

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Mandatory Deemed Repatriation Tax

The following is a summary of our estimated mandatory deemed repatriation tax obligations that are payable in the following fiscal years (in millions):

Total $ 1,029

The following is a summary of our estimated mandatory deemed repatriation tax obligations under the 2017 Act that are payable in the following fiscal years (in millions):

For additional information regarding our estimate of the total tax liability for the mandatory deemed repatriation tax, see Part II, Item 8, Note 13, Income Tax Expense , of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 28, 2019.

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We issued a quarterly cash dividend from the first quarter of fiscal 2013 up to the third quarter of fiscal 2020.

During the year ended July 3, 2020, we declared aggregate cash dividends of $1.50 per share on our outstanding common stock totaling $449 million.

In April 2020, we suspended our dividend to reinvest in the business and to support our ongoing deleveraging efforts.

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We provide distributors and retailers (collectively referred to as “resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions.

We also provide resellers and original equipment manufacturers (“OEMs”) with other sales incentive programs.

We also provide resellers and OEMs with other sales incentive programs.

The Company records estimated variable consideration related to these items as a reduction to revenue at the time of revenue recognition.

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We use the expected value method to arrive at the amount of variable consideration.

The Company is constraining variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.

The Company constrains variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.

For sales to OEMs, the Company’s methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs’ volume of purchases from the Company or other agreed upon sales incentive programs.

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Unanticipated changes in technology or customer demand could result in a decrease in demand for one or more of our products, which may require a write down of inventory that could materially affect operating results.

Litigation and Other Contingencies

When we become aware of a claim or potential claim, we assess the likelihood of any loss or exposure.

We disclose information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible.

If a loss contingency is probable and the amount of the loss can be reasonably estimated, we record an accrual for the loss.

In such cases, there may be an exposure to potential loss in excess of the amount accrued.

Where a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible losses is not material to our financial position, results of operations or cash flows.

The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties.

The actual outcome of such matters could differ materially from management’s estimates.

For additional information, see Part II, Item 8, Note 16, Legal Proceedings , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

We account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards.

21 unchanged sentences

If impairment is indicated, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The estimates of fair

value require evaluation of future market conditions and product lifecycles as well as projected revenue, earnings and cash flow.

The estimates of fair value require evaluation of future market conditions and product lifecycles as well as projected revenue, earnings and cash flow.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis