Crucial 2013 Annual Report Download - page 17

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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.
Our cash flows from operations depend primarily on the volume of semiconductor memory sold, average selling prices and
per unit manufacturing costs. To develop new product and process technologies, 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 capital spending for 2014 will be
approximately $2.6 billion to $3.2 billion. In addition, as a result of the Elpida acquisition, we believe that our future capital
spending will be higher than our historical levels as we integrate our manufacturing operations and support the increase of
capacity resulting from the Elpida transaction. As of August 29, 2013, we had cash and equivalents of $2,880 million, short-
term investments of $221 million and long-term marketable investments of $499 million. Cash and investments included
$1,094 million held by Elpida and its consolidated subsidiaries and $62 million held by IM Flash Technologies, LLC ("IMFT"),
none of which is generally available to finance our other operations.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the Elpida Companies and their
subsidiaries are subject to certain restrictions on dividends, loans and advances. The plans of reorganization of the Elpida
Companies prohibit the Elpida Companies from paying dividends, including any cash dividends, to us and require that excess
earnings be used in their businesses or to fund the Elpida Companies' installment payments. These prohibitions would also
effectively prevent the subsidiaries of the Elpida Companies from paying cash dividends to us in respect of the shares of such
subsidiaries owned by the Elpida Companies, as any such dividends would have to be first paid to the Elpida Companies which
are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an
order of the Japan Court, the Elpida Companies cannot make loans or advances, other than certain ordinary course advances, to
us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the Elpida Companies may be
considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court. As a result,
the assets of the Elpida Companies and their subsidiaries, while available to satisfy the Elpida Companies' installment payments
and the other obligations, capital expenditures and other operating needs of the Elpida Companies and their subsidiaries, are not
available for use by us in our other operations. Moreover, certain uses of the assets of the Elpida Companies, including
investments in certain capital expenditures and in Rexchip, may require consent of Elpida's trustees and/or the Japan Court.
In the past we have utilized external sources of financing when needed. As a result of our current 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 Elpida to fund its capital
expenditures, access capital markets or find other sources of financing to fund our operations, make debt amortization payments
and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our
inability to do the foregoing could have a material adverse effect on our business and results of operations.
Our Inotera Supply Agreement involves numerous risks.
On January 17, 2013, we entered into a new supply agreement with Inotera (the "Inotera Supply Agreement") under which
we are obligated to purchase substantially all of Inotera's output at a purchase price based on a discount from market prices for
our comparable components. Our Inotera Supply Agreement involves numerous risks including the following:
• higher costs for supply obtained under the market-based provisions of the Inotera Supply Agreement;
• difficulties and delays in ramping production at Inotera and delays in the future; and
• difficulties in transferring technology to Inotera.
Inotera's financial situation may adversely impact the value of our interest and our supply agreement.
As of June 30, 2013, Inotera's current liabilities exceeded its current assets by $1.0 billion, which exposes Inotera to
liquidity risk. Additionally, Inotera incurred net losses of $541 million for its fiscal year ended December 31, 2012. As of June
30, 2013, Inotera was not in compliance with certain loan covenants, and had not been in compliance for the past several years,
which may result in its lenders requiring repayment of such loans during the next year. Inotera has applied for a waiver from
complying with the June 30, 2013 financial covenants. Inotera's management has implemented plans to improve its liquidity
and for its six-month period ended June 30, 2013, Inotera generated net income of $91 million; however, there can be no
assurance that Inotera will be successful in sufficiently improving its liquidity and complying with their loan covenants, which
may result in its lenders requiring repayment of such loans during the next year. If Inotera is unable to continue to improve its
liquidity, we may have to impair our investment in Inotera.