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Commitments, Contingencies and Related Parties | 6 Months Ended
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Dec. 29, 2017
Commitments and Contingencies Disclosure [Abstract] |
Commitments, Contingencies and Related Parties | Commitments, Contingencies and Related Parties Flash Ventures The Company’s business ventures with Toshiba Memory Corporation (“TMC”) consist of three separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures”. In connection with a settlement agreement with Toshiba, in December 2017, the Company entered into a facility agreement (“Y6 Facility Agreement”) with TMC related to the construction and operation of a new 300-millimeter wafer fabrication facility in Yokkaichi, Japan, referred to as “Fab 6”, which is primarily intended to provide cleanroom space to continue the transition of existing 2D NAND manufacturing capacity to BiCS 3D NAND manufacturing capacity. Under the Y6 Facility Agreement, the Company is committed to 50% of Fab 6’s start-up costs, as well as 50% of the joint ventures’ portion of an upcoming investment in manufacturing equipment for Fab 6. See also Note 13, Legal Proceedings. The following table presents the notes receivable from, and equity investments in, Flash Ventures as of December 29, 2017 and June 30, 2017:
| December 29, 2017 |  | June 30, 2017
| (in millions)
Notes receivable, Flash Partners | $ | 737 |  |  | $ | 264 |
Notes receivable, Flash Alliance | 101 |  |  | 119 |
Notes receivable, Flash Forward | 429 |  |  | 379 |
Investment in Flash Partners | 187 |  |  | 187 |
Investment in Flash Alliance | 279 |  |  | 279 |
Investment in Flash Forward | 112 |  |  | 112 |
Total notes receivable and investments in Flash Ventures | $ | 1,845 |  |  | $ | 1,340 |
During the three and six months ended December 29, 2017, the Company made net payments to Flash Ventures of $1.2 billion and $2.0 billion, respectively, for purchased flash-based memory wafers and net loans. The Company makes, or will make, loans to Flash Ventures to fund equipment investments for new process technologies and additional wafer capacity. The Company aggregates its Flash Ventures’ notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Venture entity. For all reporting periods presented, no loans were past due and no loan impairments were recorded. The Company’s notes receivable from each Flash Ventures entity, denominated in Japanese yen, are secured by equipment owned by that Flash Ventures entity. The Company assesses financing receivable credit quality through financial and operational reviews of the borrower and creditworthiness, including credit rating agency ratings, of significant investors of the borrower, where material or known. Impairments, when required for credit worthiness, are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations. There were no such impairments in the three and six months ended December 29, 2017 and December 30, 2016. As of December 29, 2017 and June 30, 2017, the Company had accounts payable balances due to Flash Ventures of $250 million and $206 million, respectively. The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S. dollar exchange rate at December 29, 2017, is presented below. Investments in Flash Ventures are denominated in Japanese yen and the maximum possible loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.
| December 29, 2017
Notes receivable | $ | 1,267 |
Equity investments | 578 |
Operating lease guarantees | 941 |
Inventory and prepayments | 268 |
Maximum estimable loss exposure | $ | 3,054 |
The Company is committed to purchase its provided three-month forecast of Flash Ventures’ NAND wafer supply, which generally equals 50% of Flash Ventures’ output. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund 49.9% to 50.0% of each Flash Ventures entity’s investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments. Off-Balance Sheet Liabilities Flash Ventures sells and leases back from a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements of which the Company guarantees half of the total outstanding obligations. The lease agreements contain customary covenants for Japanese lease facilities. In addition to containing customary events of default related to Flash Ventures that could result in an acceleration of Flash Ventures’ obligations, the lease agreements contain acceleration clauses for certain events of default related to the guarantors, including the Company. The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of December 29, 2017.
| Lease Amounts
| (Japanese yen, in billions) |  | (U.S. dollar, in millions)
Total guarantee obligations | ¥ | 106 |  |  | $ | 941 |
The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of December 29, 2017 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of December 29, 2017:
Annual Installments |  | Payment of Principal Amortization |  | Purchase Option Exercise Price at Final Lease Terms |  | Guarantee Amount
|  | (in millions)
Year 1 |  | $ | 267 |  |  | $ | — |  |  | $ | 267 |
Year 2 |  | 178 |  |  | 34 |  |  | 212 |
Year 3 |  | 163 |  |  | 85 |  |  | 248 |
Year 4 |  | 80 |  |  | 98 |  |  | 178 |
Year 5 |  | 15 |  |  | 21 |  |  | 36 |
Total guarantee obligations |  | $ | 703 |  |  | $ | 238 |  |  | $ | 941 |
The Company and TMC have agreed to mutually contribute to, and indemnify each other and Flash Ventures for, environmental remediation costs or liability resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements. As of December 29, 2017, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

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