What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-10-19 compared with 2019-10-17 · 159 added, 133 removed, 186 unchanged (61% of the section changed)

MANAGEMENT’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 for the year ended August 29, 2019 .

This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended September 3, 2020.

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 2019, 2018, and 2017 each contain 52 weeks.

Fiscal 2020 contains 53 weeks and our fiscal 2019 and 2018 each contain 52 weeks.

Our fourth quarter of fiscal 2020 contained 14 weeks.

All tabular dollar amounts are in millions, except per share amounts.

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Business – Overview.”

Impact of COVID-19 on Our Business

Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe, which has affected demand for certain of our products.

While we have observed demand increases in some areas of our business that support a stay-at-home economy, such as products used in data center infrastructure, notebook computers, and similar applications, we have also observed demand decreases in other categories such as smartphones, consumer electronics, automotive, desktop PCs, and enterprise markets.

The ultimate extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including new information that may emerge concerning the severity of the coronavirus and actions to contain and treat its impacts.

While all our global sites are currently operating with close to full staff and at normal capacity levels, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates.

We may be required to, or deem it to be in the best interest of our employees, customers, partners, suppliers, and stakeholders, to alter our business operations in order to maintain a healthy and safe environment.

It is not clear what potential effects any such alterations or modifications may have on our business, including effects on our customers, employees, and prospects, or on our financial results.

We are following government policies and recommendations designed to slow the spread of COVID-19 and remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities.

Our efforts to respond to the COVID-19 outbreak include the following:

• We have put health screenings in place, required physical distancing, established team separation protocols, and made equipment upgrades at our facilities.

We are also prohibiting visitors, have significantly decreased business travel, and are generally requiring team members to work from home where possible.

Where work from home is not possible, all on-site team members must pass thermal scanning equipment to ensure they do not have an elevated body temperature and must wear a mask at all times.

• To respond to changing market conditions, we have shifted some supply from markets which have experienced declines in demand, such as smartphones, consumer electronics, desktop PCs, automotive, and enterprise to markets that have experienced demand increases, such as data center, cloud server, notebooks, and gaming.

• We have evaluated our supply chain and communicated with our suppliers to identify supply gaps and taken steps to ensure continuity.

In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.

• We have added assembly and test capacity to provide redundant manufacturing capability through our network of captive operations and external partners.

• We are evaluating all our construction projects across our global manufacturing operations and enacting protocols to enhance the safety of our team members, suppliers, and contractors.

• We have developed strategies and are implementing measures to respond to a variety of potential economic scenarios, such as limitations on new hiring and business travel and reductions of discretionary spending.

• We are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help safeguard our team members, while safely continuing operations at our sites across the globe.

We believe these actions are appropriate and prudent to safeguard our team members, contractors, suppliers, customers, and communities, while allowing us to safely continue operations, but we cannot predict how the steps we, our team members, government entities, suppliers, or customers take in response to the COVID-19 outbreak will ultimately impact our business, outlook, or results of operations.

35 | 2020 10-K

Results of Operations

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For the year ended 2020 2019 2018

Revenue $ 21,435 100 % $ 23,406 100 % $ 30,391 100 %

Cost of goods sold 14,883 69 % 12,704 54 % 12,500 41 %

Selling, general, and administrative

6,552 31 % 10,702 46 % 17,891 59 %

Research and development 2,600 12 % 2,441 10 % 2,141 7 %

Selling, general, and administrative 881 4 % 836 4 % 813 3 %

Other operating (income) expense, net

68 — % 49 — % (57) — %

Operating income

3,003 14 % 7,376 32 % 14,994 49 %

Interest income (expense), net (80) — % 77 — % (222) (1) %

Other non-operating income (expense), net

60 — % (405) (2) % (465) (2) %

Income tax (provision) benefit

(280) (1) % (693) (3) % (168) (1) %

Equity in net income (loss) of equity method investees

7 — % 3 — % (1) — %

Net income attributable to noncontrolling interests

(23) — % (45) — % (3) — %

Net income attributable to Micron

$ 2,687 13 % $ 6,313 27 % $ 14,135 47 %

Total Revenue :

Total revenue for 2020 decreased 8% as compared to 2019 primarily due to a decline in DRAM sales partially offset by an increase in NAND sales.

Sales of DRAM products for 2020 decreased 14% as compared to 2019 as average selling prices declined in the mid-30% range due to challenging market conditions, partially offset by growth in bit shipments in the low-30% range driven by cloud server, enterprise server, and mobile markets.

Sales of NAND products for 2020 increased 14% as compared to 2019 primarily due to increases in bit shipments in the mid-20% range driven by sales of SSDs to data center customers and sales of managed NAND products, partially offset by a high-single digit percent decline in average selling prices.

Bureau of Industry and Security (“BIS”) enacted broad trade restrictions with respect to Huawei (which represented approximately 10% of our revenue in the fourth quarter of 2020 and 12% in 2019) that took effect on September 15, 2020 and currently prevent us from shipping products to Huawei.

We cannot predict the duration these restrictions will remain in place and whether the BIS will grant us licenses to ship products to Huawei.

We may not be able to replace the lost revenue opportunities associated with such restrictions.

Total revenue for 2019 decreased 23% as compared to 2018 primarily due to pricing declines resulting from the challenging memory market environment in 2019.

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The higher NAND sales volumes in 2019 were driven by increases in sales of high-value mobile managed NAND products as well as discrete NAND products enabled by our execution in ramping 64- and 96-layer TLC 3D NAND.

Total revenue for 2018 increased 50% as compared to 2017.

Higher revenue in 2018 for both DRAM and NAND as compared to 2017 were driven by strong execution in delivering high-value products featuring our 1Xnm DRAM and 64-layer 3D NAND technologies combined with strong demand for products across our primary markets.

Sales of DRAM products for 2018 increased 64% from 2017 primarily due to an increase in average selling prices of approximately 35% and an increase in sales volumes of approximately 20% as a result of strong market conditions, particularly for cloud, enterprise, mobile, and graphics markets, combined with increased sales into high-value markets.

Sales of NAND products for 2018 increased 20% from 2017 despite declines in average selling prices primarily due to an increase in sales volumes of approximately 30% driven by increases in sales of high-value SSD and mobile managed NAND products enabled by strong demand and our execution in delivering 3D NAND products.

Overall Gross Margin :

Our overall gross margin percentage decreased to 31% for 2020 from 46% for 2019, primarily due to declines in average selling prices, partially offset by the effect of decreases in non-cash depreciation expense from the revision in estimated useful lives of equipment in our NAND wafer fabrication facilities described below, cost reductions resulting from strong execution in delivering products featuring advanced technologies, and continuous improvement initiatives to reduce production costs.

Our gross margins included the impact of underutilization costs at MTU of $557 million for 2020, $384 million for 2019, and $262 million for 2018.

We expect underutilization costs at MTU to gradually decline through 2021 as we redeploy equipment and continue to right-size our capacity.

Our overall gross margin percentage decreased to 46% for 2019 from 59% for 2018 primarily due to declines in average selling prices partially offset by cost reductions resulting from strong execution in delivering products featuring advanced technologies and from continuous improvement initiatives to reduce production costs.

Underutilization of IMFT assets adversely impacted our gross margin by a per-quarter average of approximately $100 million in 2019 and $65 million in 2018, and we anticipate the adverse impact of underutilization at IMFT to increase to approximately $150 million per quarter beginning in the first quarter of 2020.

We continue to evaluate planned technology node transitions, capital spending and re-use rates for NAND equipment.

Based on our preliminary assessment, we anticipate changing the depreciable life of our NAND equipment from five to seven years beginning in the first quarter of 2020.

We anticipate this change will reduce our depreciation expense included in cost of goods sold for the first quarter of 2020 by approximately $80 million, increasing to approximately $100 to $150 million per quarter for the remainder of 2020.

Our overall gross margin percentage increased to 59% for 2018 from 42% for 2017 primarily due to favorable market conditions across key markets combined with strong execution in delivering products featuring advanced technologies, including 1Xnm DRAM and 64-layer 3D NAND, enabling manufacturing cost reductions.

For 2018 as compared to 2017, pricing for DRAM products increased while manufacturing costs declined and, for NAND products, manufacturing cost reductions outpaced declines in average selling prices.

We periodically assess the estimated useful lives of our property, plant, and equipment.

Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of the existing equipment in our NAND wafer fabrication facilities and our research and development facilities from five years to seven years as of the beginning of the first quarter of 2020.

The revision in estimated useful lives reduced NAND manufacturing depreciation expense by approximately $565 million in 2020, of which approximately $165 million remained capitalized in inventory as of the end of 2020.

Adjusting for the effect of the reduced amount of depreciation expense remaining in inventory, the revision in estimated useful lives benefited cost of goods sold by approximately $400 million for 2020.

Revenue by Business Unit

For the year ended 2020 2019 2018

CNBU $ 9,184 43 % $ 9,968 43 % $ 15,252 50 %

MBU 5,702 27 % 6,403 27 % 6,579 22 %

SBU 3,765 18 % 3,826 16 % 5,022 17 %

EBU 2,759 13 % 3,137 13 % 3,479 11 %

All Other 25 — % 72 — % 59 — %

$ 21,435 $ 23,406 $ 30,391

Percentages of total revenue may not total 100% due to rounding.

CNBU revenue for 2019 decreased 35% as compared to 2018 due to challenging market conditions in 2019, which led to price declines.

MBU revenue for 2019 decreased 3% as compared to 2018 primarily due to price declines offset by strong execution in developing and qualifying mobile managed NAND products and continued content growth in smartphones, which combined to drive significant increase in shipment volumes.

SBU revenue for 2019 decreased 24% as compared to 2018 primarily due to price declines, partially offset by significant growth in shipment volumes as a result of strong execution in ramping 64-layer and 96-layer TLC NAND products.

SBU revenue includes products manufactured and sold to Intel under a long-term supply agreement at prices approximating cost, which included 3D XPoint memory and NAND, aggregating $682 million, $541 million, and $553 million, for 2019, 2018, and 2017, respectively.

EBU revenue for 2019 decreased 10% as compared to 2018 primarily due to lower sales to consumer markets as a result of weak demand and pricing, partially offset by increases in sales to automotive and industrial markets.

CNBU revenue for 2018 increased 77% as compared to 2017 due to strong market conditions and demand in key markets, including cloud server, client, enterprise server, and graphics, which drove increases in pricing and sales volumes.

Sales into cloud and graphics markets more than doubled in 2018 as compared to 2017.

MBU revenue for 2018 increased 49% as compared to 2017 primarily due to customer qualifications for LPDRAM and managed NAND products, which combined with higher memory content in smartphones to drive improvements in DRAM pricing and increases in sales volumes.

SBU revenue for 2018 from all other sales of NAND products (excluding sales to Intel at prices approximating cost) increased 13% as compared to 2017 driven by higher sales of SSD storage products, which increased by 72%, partially offset by declines in SBU NAND component sales from a strategic reallocation of supply from component sales to SSD and mobile managed NAND products.

Increases in SBU sales volumes for 2018 resulting from strong demand for cloud and enterprise SSD markets more than offset declines in selling prices.

EBU revenue for 2018 increased 29% as compared to 2017 primarily due to strong demand across EBU's primary markets including consumer, industrial multimarkets, and automotive.

Changes in revenue for each business unit for 2020 as compared to 2019 were as follows:

• CNBU revenue decreased 8% primarily due to DRAM price declines driven by imbalances in supply and demand, partially offset by bit sales growth across key markets, particularly in cloud server and graphics markets.

In addition, in the second quarter of 2020, we determined that the 3D XPoint technology and product roadmap are more closely aligned with our CNBU strategy than our SBU strategy and 3D XPoint became an integral part of CNBU.

Accordingly, we began to report all 3D XPoint activities within CNBU from that date.

• MBU revenue decreased 11% primarily due to price declines, partially offset by bit sales growth for high-value mobile MCP products.

• SBU revenue decreased 2% primarily due to the decline in 3D XPoint revenue in SBU after the first quarter of 2020 as noted above and NAND selling price declines, partially offset by bit sales growth for SSDs.

SBU revenue included products manufactured and sold to Intel under a long-term supply agreement at prices approximating cost, which included 3D XPoint memory and NAND, aggregating $124 million, $682 million, and $541 million, for 2020, 2019, and 2018, respectively.

• EBU revenue decreased 12% primarily due to price declines resulting from the impact of the global COVID-19 pandemic on automotive, industrial, and consumer segments partially offset by bit sales growth from transitions to an increasing mix of high-density DRAM and NAND products.

Changes in revenue for each business unit for 2019 as compared to 2018 were as follows:

• CNBU revenue decreased 35% due to challenging market conditions in 2019, which led to price declines.

• MBU revenue decreased 3% primarily due to price declines offset by strong execution in developing and qualifying mobile managed NAND products and continued content growth in smartphones, which combined to drive a significant increase in shipment volumes.

• SBU revenue decreased 24% primarily due to price declines, partially offset by significant growth in shipment volumes as a result of strong execution in ramping 64-layer and 96-layer TLC NAND products.

• EBU revenue decreased 10% primarily due to lower sales to consumer markets as a result of weak demand and pricing, partially offset by increases in sales to automotive and industrial markets.

37 | 2020 10-K

Operating Income (Loss) by Business Unit

For the year ended 2020 2019 2018

CNBU $ 2,010 22 % $ 4,645 47 % $ 9,773 64 %

MBU 1,074 19 % 2,606 41 % 3,033 46 %

SBU 36 1 % (386) (10) % 964 19 %

EBU 301 11 % 923 29 % 1,473 42 %

All Other (2) (8) % 13 18 % — — %

$ 3,419 $ 7,801 $ 15,243

Percentages reflect operating income (loss) as a percentage of revenue for each business unit.

CNBU operating income for 2019 decreased from 2018 primarily due to declines in pricing and higher R&D costs, partially offset by cost reductions.

MBU operating income for 2019 decreased from 2018 primarily due to declines in pricing partially offset by increases in sales of high-value managed NAND products and manufacturing cost reductions.

SBU operating margin for 2019 declined from 2018 primarily due to declines in pricing, which were partially offset by manufacturing cost reductions and increases in sales volumes.

SBU operating results for 2019 and 2018 were adversely impacted by the underutilization charges at IMFT.

EBU operating income for 2019 decreased from 2018 as a result of declines in pricing and higher R&D costs partially offset by manufacturing cost reductions and increases in sales volumes.

CNBU operating income for 2018 improved from 2017 primarily due to improved pricing and higher sales volumes resulting from strong demand for our products combined with manufacturing cost reductions.

MBU operating income for 2018 improved from 2017 primarily due to increases in pricing and sales volumes for LPDRAM products, higher sales of high-value managed NAND products, and manufacturing cost reductions.

SBU operating income for 2018 improved from 2017 primarily due to manufacturing cost reductions enabled by our execution in transitioning to 64-layer TLC 3D NAND products and improvements in product mix.

SBU operating income for 2018 was adversely impacted by higher costs associated with IMFT's production of 3D XPoint memory products at less than full capacity.

EBU operating income for 2018 increased as compared to 2017 as a result of increases in average selling prices, manufacturing cost reductions, and increases in sales volumes, partially offset by higher R&D costs.

Changes in operating income or loss for each business unit for 2020 as compared to 2019 were as follows:

• CNBU operating income decreased primarily due to declines in DRAM pricing and MTU underutilization costs in 2020 related to 3D XPoint.

• MBU operating income decreased primarily due to declines in low-power DRAM and NAND pricing, partially offset by increases in sales of high-value MCP products and manufacturing cost reductions.

• SBU operating margin improved primarily due to lower 3D XPoint underutilization costs, manufacturing cost reductions, increases in sales volumes, and improved product mix, partially offset by declines in selling prices.

• EBU operating income decreased as a result of declines in pricing, partially offset by increases in sales volumes to the automotive and industrial markets.

Changes in operating income or loss for each business unit for 2019 as compared to 2018 were as follows:

• CNBU operating income decreased primarily due to declines in pricing and higher R&D costs, partially offset by manufacturing cost reductions.

• MBU operating income decreased primarily due to declines in pricing partially offset by increases in sales of high-value managed NAND products and manufacturing cost reductions.

• SBU operating margin declined primarily due to declines in pricing, which were partially offset by manufacturing cost reductions and increases in sales volumes.

SBU operating results for 2019 and 2018 were adversely impacted by the underutilization costs at IMFT.

• EBU operating income decreased as a result of declines in pricing and higher R&D costs partially offset by manufacturing cost reductions and increases in sales volumes.

Operating Expenses and Other

Selling, General, and Administrative

SG&A expenses for 2019 were 3% higher than 2018 primarily due to increases in legal costs and consulting fees, partially offset by a reduction in employee compensation and sales commissions.

SG&A expenses for 2018 were 9% higher than 2017 primarily due to increases in legal costs, consulting fees, and employee compensation.

Research and Development :

R&D expenses vary primarily with the number of development wafers processed, amounts reimbursed under R&D cost-sharing agreements, the cost of advanced equipment dedicated to new product and process development, and personnel costs.

R&D expenses vary primarily with the number of development and pre-qualification wafers processed, amounts reimbursed under R&D cost-sharing agreements, the cost of advanced equipment dedicated to new product and process development, and personnel costs.

Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing.

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R&D expenses can vary significantly depending on the timing of product qualification.

R&D expenses for 2019 were 14% higher than 2018 primarily due to decreases in reimbursements from our R&D cost-sharing arrangements as described below, increases in depreciation expense as a result of increases in capital spending, and increases in employee compensation.

R&D expenses for 2018 were 17% higher than 2017 primarily due to increases in employee compensation, volumes of development and pre-qualification wafers, and depreciation expense as a result of increases in capital spending.

We share the cost of certain product and process development activities under development agreements with partners, including agreements to jointly develop NAND and 3D XPoint technologies with Intel.

Our R&D expenses were reduced by reimbursements under these development partner arrangements by $60 million , $201 million , and $213 million for 2019 , 2018 , and 2017 , respectively.

The decrease in R&D reimbursements for 2019 was primarily due to reductions in our joint development activities with Intel for 3D NAND and 3D XPoint technologies.

In 2018, we and Intel agreed to independently develop subsequent generations of 3D NAND and we substantially completed this cost-sharing agreement in the third quarter of 2019.

In 2018, we announced that we and Intel will no longer jointly develop 3D XPoint technology beyond the second generation and we substantially completed this cost-sharing agreement in the first quarter of 2020.

On December 22, 2017, the United States enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which imposed a one-time transition tax in 2018 (the "Repatriation Tax") and, beginning in 2019, created a new minimum tax on certain foreign earnings (the "Foreign Minimum Tax").

In connection with the provisions of the Tax Act, we made an accounting policy election to treat the Foreign Minimum Tax provision as a period cost in the period the tax is incurred.

SEC Staff Accounting Bulletin No.

118 ("SAB 118") allowed the use of provisional amounts (reasonable estimates) if the analyses of the impacts of the Tax Act had not been completed when financial statements were issued.

2019, we finalized the computations of the income tax effects of the Tax Act.

As such, in accordance with SAB 118, our accounting for the effects of the Tax Act is complete.

R&D expenses for 2020 were 7% higher as compared to 2019 primarily due to increases in volumes of development and pre-qualification wafers, a reduction of R&D reimbursements from our partners, increases in employee compensation, and increases in subcontractor expense, partially offset by lower depreciation expense from the revision of the estimated useful lives of equipment.

R&D expenses were reduced by $110 million in 2020 due to the revision of the estimated useful lives of equipment.

R&D expenses for 2019 were 14% higher as compared to 2018 primarily due to decreases in reimbursements from our R&D cost-sharing arrangements, increases in depreciation expense as a result of increases in capital spending, and increases in employee compensation.

We shared the cost of certain product and process development activities with development partners, including agreements to jointly develop NAND and 3D XPoint technologies with Intel.

We substantially completed our cost-sharing agreements with Intel to develop 3D NAND and 3D XPoint technology in 2019 and 2020, respectively.

Our R&D expenses were reduced by $60 million for 2019 and $201 million for 2018 from reimbursements under these arrangements.

Reimbursements were not significant in 2020.

Selling, General, and Administrative :

SG&A expenses for 2020 were 5% higher as compared to 2019 due to increases in employee compensation and legal costs, partially offset by a reduction in consulting fees.

SG&A expenses for 2019 were 3% higher as compared to 2018 primarily due to increases in legal costs and consulting fees, partially offset by a reduction in employee compensation and sales commissions.

Income Taxes :

Our income tax (provision) benefit consisted of the following:

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Income tax (provision) benefit, excluding items below

$ (117) $ (530) $ (274)

Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW

(163) (173) (68)

Repatriation Tax, net of adjustments related to uncertain tax positions

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corporate tax rates — — (133)

$ (280) $ (693) $ (168)

Effective tax rate

Our effective tax rate increased in 2019 primarily as a result of the Foreign Minimum Tax.

Our income tax rates include operations outside the United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.

As a result of the Tax Act, we reevaluated our indefinite reinvestment assertion in 2018 and deemed a portion of our accumulated foreign earnings to be no longer indefinitely reinvested.

Although these earnings have been subject to U.S.

federal income tax under the Repatriation Tax, the repatriation to the United States of all or a portion of these earnings would potentially be subject to foreign withholding and state income tax.

As of August 29, 2019 , we had a deferred tax liability of $10 million associated with our undistributed earnings.

We operate in a number of jurisdictions outside the Unites States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2034, that are conditional, in part, upon meeting certain business operations and employment thresholds.

The effect of tax incentive arrangements reduced our tax provision by $756 million (benefiting our diluted earnings per share by $0.66 ) for 2019 , by $1.96 billion ( $1.59 per diluted share) for 2018 , and by $742 million ( $0.64 per diluted share) for 2017 .

9.4 % 9.8 % 1.2 %

Our income tax provision decreased in 2020 as compared to 2019 primarily as a result of reductions in our profit before tax.

Our effective tax rate increased in 2019 as compared to 2018 primarily as a result of the Foreign Minimum Tax.

In December 2017, the United States enacted the Tax Cuts and Jobs Act (the “Tax Act”), which imposed a one-time transition tax in 2018 (the “Repatriation Tax”) and, beginning in 2019, created a new minimum tax on certain foreign earnings (the “Foreign Minimum Tax”).

We recognize the Foreign Minimum Tax in the period the tax is incurred.

We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements.

These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds.

The effect of tax incentive arrangements reduced our tax provision by $215 million (benefiting our diluted earnings per share by $0.19) for 2020, by $756 million ($0.66 per diluted share) for 2019, and by $1.96 billion ($1.59 per diluted share) for 2018.

(See “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes.”)

Interest income increased 71% for 2019 as compared to 2018 primarily due to increases in interest rates.

Interest expense decreased 63% as compared to 2018 primarily due to prepayments, repurchases, and conversions of debt in 2018 and 2019 and increases in capitalized interest from higher levels of capital spending, partially offset by the issuance of the 2024 Notes, 2026 Notes, 2027 Notes, 2029 Notes, and 2030 Notes in 2019.

Interest income increased 193% for 2018 as compared to 2017 primarily due to increases in marketable investments and interest rates.

Interest expense decreased 43% as compared to 2017 primarily due to decreases in debt obligations.

Interest expense for 2020 increased 52% as compared to 2019 primarily due to an increase in the average level of outstanding debt obligations in 2020 as compared to 2019 and to a reduction in the amount of interest expense capitalized in 2020 as compared to 2019 resulting from lower levels of capital projects in process.

Interest income for 2020 decreased 44% as compared to 2019 as a result of decreases in interest rates, partially offset by higher average levels of cash and investment balances.

Interest expense for 2019 decreased 63% as compared to 2018 primarily due to prepayments, repurchases, and conversions of debt and to an increase in the amount of interest expense capitalized from higher levels of capital spending, partially offset by increases in debt obligations.

Interest income for 2019 increased 71% as compared to 2018 primarily due to increases in interest rates.

39 | 2020 10-K

Further discussion of other operating and non-operating income and expenses can be found in the following notes contained in “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements”:

• Equity Plans

• Research and Development

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We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities.

As of August 29, 2019 , we had undrawn credit facilities totaling $3.75 billion consisting of (1) an undrawn revolving credit facility that matures in July 2023 and provides for borrowings of up to $2.50 billion and (2) a term loan facility of up to $1.25 billion available to be drawn in a single advance prior to November 9, 2019 which matures on the fifth anniversary of the funding date.

We expect to draw under the term loan facility prior to acquiring Intel's interest in IMFT in the first quarter of 2020.

As of September 3, 2020, $2.50 billion was available to draw under our Revolving Credit Facility.

We 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.

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 that capital expenditures in 2020 for property, plant, and equipment, net of partner contributions, to be $7 billion to $8 billion, focused on technology transitions and product enablement.

The actual amounts for 2020 will vary depending on market conditions.

As of August 29, 2019 , we had commitments of approximately $4.3 billion for the acquisition of property, plant, and equipment, approximately $3.2 billion is expected to be paid in 2020 and the remainder in 2021.

Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in 2019, which we may purchase on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to a Rule 10b5-1 trading plan, subject to market conditions and our ongoing determination of the best use of available cash.

The repurchase authorization does not obligate us to acquire any common stock.

In 2019, we repurchased 67 million shares of our common stock for $2.66 billion under an accelerated share repurchase agreement, Rule 10b5-1 plans, and through open market repurchases.

We estimate capital expenditures in 2021 for property, plant, and equipment, net of partner contributions, to be approximately $9 billion, focused on technology transitions and product enablement, and expect the timing of our capital expenditures to be more heavily weighted toward the first half of 2021.

Actual amounts for 2021 will vary depending on market conditions.

As of September 3, 2020, we had purchase obligations of approximately $2.95 billion for the acquisition of property, plant, and equipment, of which approximately $2.76 billion is expected to be paid within one year.

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 a Rule 10b5-1 trading plan.

The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash.

Through September 3, 2020, we had repurchased an aggregate of $2.84 billion of the authorized amount.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity.”

In January 2019, we exercised our option to acquire Intel's interest in IMFT.

Intel has set the closing date to occur on October 31, 2019.

In connection with our acquisition, in the first quarter of 2020, we expect to pay Intel approximately $1.4 billion for Intel's interest in IMFT as well as IMFT member debt owed to Intel.

As of August 29, 2019, current debt included $693 million of IMFT member debt.

Cash and marketable investments totaled $9.12 billion as of August 29, 2019 and $7.28 billion as of August 30, 2018 .

Our investments consist primarily of money market funds and liquid investment-grade, fixed-income securities, diversified among industries and individual issuers.

Cash and marketable investments totaled $9.19 billion as of September 3, 2020 and $9.12 billion as of August 29, 2019.

Our 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 August 29, 2019 , $2.50 billion of our cash and marketable investments was held by our foreign subsidiaries.

Limitations on the Use of Cash and Investments

Cash and marketable investments as of August 29, 2019 included $536 million held by the MMJ Group.

As a result of the corporate reorganization proceedings of MMJ initiated in March 2012, and for so long as such proceedings are continuing, the MMJ Group is prohibited from paying dividends to us.

In addition, pursuant to an order of the Tokyo District Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Tokyo District Court 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, may require consent of MMJ's trustees and/or the Tokyo District Court.

Cash and marketable investments included $130 million held by IMFT as of August 29, 2019 .

Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations.

Amounts held by IMFT are not anticipated to be available to finance our other operations.

As of September 3, 2020, $3.30 billion of our cash and marketable investments was held by our foreign subsidiaries.

For the year ended 2020 2019 2018

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Operating Activities :

For 2019, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included a $2.43 billion decrease in receivables due to a lower level of net sales and a $1.53 billion increase in inventory due to higher levels of work in process and raw materials inventories.

For 2018, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included a $1.73 billion increase in receivables due to a higher level of net sales.

For 2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included a $1.65 billion increase in receivables due to a higher level of net sales, $361 million of payments attributed to intercompany balances in connection with the Inotera Acquisition, and a $456 million increase in accounts payable and accrued expenses.

Cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effects of changes in operating assets and liabilities.

The decrease in cash provided by operating activities for 2020 and 2019 was primarily due to lower net income compared with the prior period and changes in working capital.

Investing Activities :

For 2020, net cash used for investing activities consisted primarily of $7.91 billion of expenditures for property, plant, and equipment (net of partner contributions), partially offset by $415 million of net inflows from sales, maturities, and purchases of available-for-sale securities.

For 2019, net cash used for investing activities consisted primarily of $9.03 billion of expenditures for property, plant, and equipment (net of partner contributions) and $1.17 billion of net outflows from sales, maturities, and purchases of available-for-sale securities.

For 2018, net cash used for investing activities consisted primarily of $7.99 billion of expenditures for property, plant, and equipment (net of partner contributions), partially offset by $164 million of net inflows from sales, maturities, and purchases of available-for-sale securities.

For 2017, net cash used for investing activities consisted primarily of $4.73 billion of expenditures for property, plant, and equipment (net of partner contributions), $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 $269 million of net outflows from sales, maturities, and purchases of available-for-sale securities.

Financing Activities :

For 2020, net cash used for financing activities consisted primarily of $4.37 billion of cash payments to reduce our debt, including $2.50 billion to pay down borrowings under our Revolving Credit Facility, $621 million for IMFT Member Debt repayments, $534 million to prepay our 2025 Notes, $266 million to settle conversions of notes, and $248 million for scheduled repayment of finance leases;

$744 million for the acquisition of Intel’s noncontrolling interest in IMFT;

and $176 million for the acquisition of 3.6 million shares of our common stock under our $10 billion share repurchase authorization.

Cash used for financing activities was partially offset by proceeds of $2.50 billion from our Revolving Credit Facility, $1.25 billion from the 2023 Notes, and $1.25 billion from the 2024 Term Loan A.

For 2019, net cash used for financing activities consisted primarily of $2.66 billion for the acquisition of 67 million shares of treasury stock under our $10 billion share repurchase authorization and cash payments to reduce our debt, including $1.65 billion to settle conversions of notes, $728 million to prepay the 2022 Term Loan B, $316 million for IMFT Member Debt repayments, and $643 million for scheduled repayment of other notes and capital leases.

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Cash used for financing activities was 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 $1.01 billion of proceeds from IMFT Member Debt.

For 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan, and $795 million of net proceeds from the 2021 MSAC Term Loan, partially offset by $1.63 billion to repurchase notes, repayments of $381 million of capital lease obligations, repayments of $550 million of other debt and convertible notes, and payments of $519 million on equipment purchase contracts.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

Potential Settlement Obligations of Convertible Notes :

Since the closing price of our common stock exceeded 130% of the conversion price per share of all our convertible notes for at least 20 trading days in the 30 trading day period ended on September 30, 2019, holders may convert these notes through the calendar quarter ended December 31, 2019.

The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending December 31, 2019 if all holders converted their notes.

The amounts in the table below are based on our closing share price of $44.67 as of August 29, 2019 .

Settlement Option

If Settled With Minimum Cash Required

If Settled Entirely With Cash

Principal Amount

Amount in Excess of Principal

Underlying Shares

Remainder in Shares

Cash and/or shares

As of August 29, 2019 , convertible notes in the table above included an aggregate of $179 million net carrying amount for the settlement obligation (including principal and amounts in excess of principal) for conversions of 2033F Notes.

The 20 consecutive trading day measurement period ended in the first quarter of 2020, and we settled the conversion for $192 million in cash in the first quarter of 2020.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – 2032D Convertible Senior Notes.”

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Contractual Obligations :

Payments Due by Period

As of August 29, 2019

Less than 1 year

More than 5 years

As of September 3, 2020 Total Less than 1 year 1-3 years 3-5 years More than 5 years

Notes payable (1)

Capital lease obligations (2)

Operating leases (3)

$ 7,522 $ 417 $ 1,805 $ 1,972 $ 3,328

Finance lease obligations (1)

589 90 160 91 248

Operating lease obligations (2)

707 70 134 102 401

Purchase obligations (3)

5,987 4,398 871 128 590

Other long-term liabilities (4)

Amounts include MMJ Creditor Payments, convertible notes, and other notes.

358 168 161 12 17

Total $ 15,163 $ 5,143 $ 3,131 $ 2,305 $ 4,584

(1) Amounts include principal and interest.

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Contracted minimum amounts specified in any take-or-pay contracts were included in the above table as they represent the portion of each contract that is a firm commitment.

Purchase obligations also included $838 million for leases that have been executed but have not yet commenced.

Such amounts will be reclassified as lease obligations in the table above at the time such assets become available for our use.

(4) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, including $168 million for the current portion of these long-term liabilities.

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However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and deferred tax liabilities.

The timing of payment amounts of the obligations discussed above is based on current information.

Any redemptions, repurchases, or conversions of debt could impact the amount and timing of our cash payments.

Off-Balance Sheet Arrangements

In connection with our 2033F Notes, we entered into the 2033F Capped Calls, which are intended to reduce the effect of potential dilution.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Micron Shareholders' Equity – Outstanding Capped Calls."

Critical Accounting Estimates

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Consolidation :

We have interests in entities that are VIEs.

We have interests in entities that are Variable Interest Entities (“VIEs”).

Determining whether to consolidate a VIE requires judgment in assessing whether an entity is a VIE and if we are the entity’s primary beneficiary.

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An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.

We accrue a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.

In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods.

Goodwill and intangible assets :

We test goodwill for impairment in the fourth quarter of our fiscal year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value.

We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value.

For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test.

Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit.

For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested

for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit.

For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit.

If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired.

If the carrying value of the reporting unit exceeds its fair value, then we would record an impairment loss up to the difference between the carrying value and implied fair value.

If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.

Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions.

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Actual future results may differ from those estimates.

During the fourth quarter of 2019, we performed a sensitivity analysis for goodwill impairment with respect to each of our respective reporting units and determined that a hypothetical 10% decline in the fair value of each reporting unit would not result in an impairment of goodwill for any reporting unit.

We test other identified intangible assets with definite useful lives when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.

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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 the applicable fiscal year.

Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable 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.

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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 the United States.

In recent periods, our results of operations have benefited 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 the United States.

Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions.

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Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded.

For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately $469 million as of August 29, 2019.

For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately $525 million as of September 3, 2020.

Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes;

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The amount of any inventory write-down can vary significantly depending on the determination of inventory categories.

We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize inventories primarily as memory (including DRAM, NAND, and other memory).

We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group.

Property, plant, and equipment :

We periodically assess the estimated useful lives of our property, plant, and equipment based on technology node transitions, capital spending, and equipment re-use rates.

Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of the existing equipment in our NAND wafer fabrication facilities and our research and development (“R&D”) facilities from five years to seven years as of the beginning of the first quarter of 2020.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Property, Plant, and Equipment.”

We also review the carrying value of property, plant, and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition.

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Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery.

We estimate a liability for returns using the expected value method based on historical rates of return.

We estimate a liability for returns using the expected value method

based on historical rates of return.

In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price.

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Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards.”

Recently Issued Accounting Standards Not Yet Adopted

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards Not Yet Adopted."

Recently Issued Accounting Standards

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards.”

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