MICRON TECHNOLOGY INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Micron Technology, Inc. Consolidated Statements of Operations (in millions, except per share amounts) For the year ended September 3, 2020 August 29, 2019 August 30, 2018 Revenue $ 21,435 $ 23,406 $ 30,391 Cost of goods sold 14,883 12,704 12,500 Gross margin 6,552 10,702 17,891 Research and development 2,600 2,441 2,141 Selling, general, and administrative 881 836 813 Other operating (income) expense, net 68 49 ( 57 ) Operating income 3,003 7,376 14,994 Interest income 114 205 120 Interest expense ( 194 ) ( 128 ) ( 342 ) Other non-operating income (expense), net 60 ( 405 ) ( 465 ) 2,983 7,048 14,307 Income tax (provision) benefit ( 280 ) ( 693 ) ( 168 ) Equity in net income (loss) of equity method investees 7 3 ( 1 ) Net income 2,710 6,358 14,138 Net income attributable to noncontrolling interests ( 23 ) ( 45 ) ( 3 ) Net income attributable to Micron $ 2,687 $ 6,313 $ 14,135 Earnings per share Basic $ 2.42 $ 5.67 $ 12.27 Diluted 2.37 5.51 11.51 Number of shares used in per share calculations Basic 1,110 1,114 1,152 Diluted 1,131 1,143 1,229 See accompanying notes to consolidated financial statements. 47 | 2020 10-K Micron Technology, Inc. Consolidated Statements of Comprehensive Income (in millions) For the year ended September 3, 2020 August 29, 2019 August 30, 2018 Net income $ 2,710 $ 6,358 $ 14,138 Other comprehensive income (loss), net of tax Gains (losses) on derivative instruments 46 ( 3 ) ( 15 ) Pension liability adjustments 15 ( 6 ) ( 3 ) Gains (losses) on investments 1 9 ( 2 ) Foreign currency translation adjustments — ( 1 ) 1 Other comprehensive income (loss) 62 ( 1 ) ( 19 ) Total comprehensive income 2,772 6,357 14,119 Comprehensive income attributable to noncontrolling interests ( 23 ) ( 45 ) ( 3 ) Comprehensive income attributable to Micron $ 2,749 $ 6,312 $ 14,116 See accompanying notes to consolidated financial statements. 48 Micron Technology, Inc. Consolidated Balance Sheets (in millions, except par value amounts) As of September 3, 2020 August 29, 2019 Assets Cash and equivalents $ 7,624 $ 7,152 Short-term investments 518 803 Receivables 3,912 3,195 Inventories 5,607 5,118 Other current assets 304 235 Total current assets 17,965 16,503 Long-term marketable investments 1,048 1,164 Property, plant, and equipment 31,031 28,240 Operating lease right-of-use assets 584 — Intangible assets 334 340 Deferred tax assets 707 837 Goodwill 1,228 1,228 Other noncurrent assets 781 575 Total assets $ 53,678 $ 48,887 Liabilities and equity Accounts payable and accrued expenses $ 5,817 $ 4,626 Current debt 270 1,310 Other current liabilities 548 454 Total current liabilities 6,635 6,390 Long-term debt 6,373 4,541 Noncurrent operating lease liabilities 533 — Noncurrent unearned government incentives 643 636 Other noncurrent liabilities 498 452 Total liabilities 14,682 12,019 Commitments and contingencies Redeemable noncontrolling interest — 98 Micron shareholders’ equity Common stock, $ 0.10 par value, 3,000 shares authorized, 1,194 shares issued and 1,113 outstanding ( 1,182 shares issued and 1,106 outstanding as of August 29, 2019) 119 118 Additional capital 8,917 8,214 Retained earnings 33,384 30,761 Treasury stock, 81 shares held ( 76 shares as of August 29, 2019) ( 3,495 ) ( 3,221 ) Accumulated other comprehensive income (loss) 71 9 Total Micron shareholders’ equity 38,996 35,881 Noncontrolling interest in subsidiary — 889 Total equity 38,996 36,770 Total liabilities and equity $ 53,678 $ 48,887 See accompanying notes to consolidated financial statements. 49 | 2020 10-K Micron Technology, Inc. Consolidated Statements of Changes in Equity (in millions) Micron Shareholders Common Stock Additional Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Micron Shareholders’ Equity Noncontrolling Interests in Subsidiaries Total Equity Number of Shares Amount Balance at August 31, 2017 1,116 $ 112 $ 8,287 $ 10,260 $ ( 67 ) $ 29 $ 18,621 $ 849 $ 19,470 Net income — — — 14,135 — — 14,135 3 14,138 Other comprehensive income (loss), net — — — — — ( 19 ) ( 19 ) — ( 19 ) Stock issued in public offering 34 3 1,363 — — — 1,366 — 1,366 Stock issued under stock plans 22 2 287 — — — 289 — 289 Stock-based compensation expense — — 198 — — — 198 — 198 Contributions from noncontrolling interest — — — — — — — 18 18 Repurchase of stock ( 2 ) — ( 71 ) — — — ( 71 ) — ( 71 ) Settlement of capped calls — — 429 — ( 429 ) — — — — Reclassification of redeemable convertible notes, net — — 18 — — — 18 — 18 Cash settlement and repurchase of convertible notes — — ( 2,310 ) — 67 — ( 2,243 ) — ( 2,243 ) Balance at August 30, 2018 1,170 $ 117 $ 8,201 $ 24,395 $ ( 429 ) $ 10 $ 32,294 $ 870 $ 33,164 Cumulative effect from adoption of new accounting standards — — — 92 — — 92 — 92 Net income — — — 6,313 — — 6,313 36 6,349 Other comprehensive income (loss), net — — — — — ( 1 ) ( 1 ) — ( 1 ) Stock issued under stock plans 14 1 178 — — — 179 — 179 Stock-based compensation expense — — 243 — — — 243 — 243 Repurchase of stock ( 2 ) — 103 ( 39 ) ( 2,792 ) — ( 2,728 ) — ( 2,728 ) Acquisitions of noncontrolling interest — — 1 — — — 1 ( 17 ) ( 16 ) Reclassification of redeemable convertible notes, net — — 3 — — — 3 — 3 Cash settlement of convertible notes — — ( 515 ) — — — ( 515 ) — ( 515 ) Balance at August 29, 2019 1,182 $ 118 $ 8,214 $ 30,761 $ ( 3,221 ) $ 9 $ 35,881 $ 889 $ 36,770 Net income — — — 2,687 — — 2,687 15 2,702 Other comprehensive income (loss), net — — — — — 62 62 — 62 Stock issued under stock plans 14 1 224 — — — 225 — 225 Stock-based compensation expense — — 328 — — — 328 — 328 Repurchase of stock ( 2 ) — ( 11 ) ( 64 ) ( 176 ) — ( 251 ) — ( 251 ) Settlement of capped calls — — 98 — ( 98 ) — — — — Acquisitions of noncontrolling interests — — 120 — — — 120 ( 904 ) ( 784 ) Cash settlement of convertible notes — — ( 56 ) — — — ( 56 ) — ( 56 ) Balance at September 3, 2020 1,194 $ 119 $ 8,917 $ 33,384 $ ( 3,495 ) $ 71 $ 38,996 $ — $ 38,996 See accompanying notes to consolidated financial statements. 50 Micron Technology, Inc. Consolidated Statements of Cash Flows (in millions) For the year ended September 3, 2020 August 29, 2019 August 30, 2018 Cash flows from operating activities Net income $ 2,710 $ 6,358 $ 14,138 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense and amortization of intangible assets 5,650 5,424 4,759 Amortization of debt discount and other costs 26 49 101 Stock-based compensation 328 243 198 (Gains) losses on debt prepayments, repurchases, and conversions ( 40 ) 396 385 Change in operating assets and liabilities Receivables ( 723 ) 2,431 ( 1,734 ) Inventories ( 489 ) ( 1,528 ) ( 472 ) Accounts payable and accrued expenses 725 ( 174 ) 668 Deferred income taxes, net 79 150 ( 265 ) Other 40 ( 160 ) ( 378 ) Net cash provided by operating activities 8,306 13,189 17,400 Cash flows from investing activities Expenditures for property, plant, and equipment ( 8,223 ) ( 9,780 ) ( 8,879 ) Purchases of available-for-sale securities ( 1,857 ) ( 4,218 ) ( 760 ) Proceeds from sales of available-for-sale securities 1,458 1,504 604 Proceeds from maturities of available-for-sale securities 814 1,541 320 Proceeds from government incentives 262 748 355 Other ( 43 ) 120 144 Net cash provided by (used for) investing activities ( 7,589 ) ( 10,085 ) ( 8,216 ) Cash flows from financing activities Repayments of debt ( 4,366 ) ( 3,340 ) ( 10,194 ) Acquisition of noncontrolling interest in IMFT ( 744 ) — — Payments to acquire treasury stock ( 251 ) ( 2,729 ) ( 71 ) Payments on equipment purchase contracts ( 63 ) ( 75 ) ( 206 ) Proceeds from issuance of debt 5,000 3,550 1,009 Proceeds from issuance of stock 225 179 1,655 Other ( 118 ) ( 23 ) 31 Net cash provided by (used for) financing activities ( 317 ) ( 2,438 ) ( 7,776 ) Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 11 26 ( 37 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 411 692 1,371 Cash, cash equivalents, and restricted cash at beginning of period 7,279 6,587 5,216 Cash, cash equivalents, and restricted cash at end of period $ 7,690 $ 7,279 $ 6,587 Supplemental disclosures Income taxes paid, net $ ( 167 ) $ ( 524 ) $ ( 226 ) Interest paid, net of amounts capitalized ( 165 ) ( 53 ) ( 312 ) Noncash equipment acquisitions on contracts payable 278 119 84 See accompanying notes to consolidated financial statements. 51 | 2020 10-K Micron Technology, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All tabular amounts in millions, except per share amounts) Significant Accounting Policies Basis of Presentation Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands — Micron ® and Crucial ® — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, 3D XPoint memory, and NOR, is transforming how the world uses information to enrich life for all . Backed by more than 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, 5G, machine learning, and autonomous vehicles, in key market segments like mobile, data center, client, consumer, industrial, graphics, automotive, and networking. The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to current period presentation . See “Recently Adopted Accounting Standards.” Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2020 contained 53 weeks and fiscal 2019 and 2018 each contained 52 weeks. Our fourth quarter of fiscal 2020 contained 14 weeks. All period references are to our fiscal periods unless otherwise indicated. Derivative and Hedging Instruments We use derivative instruments to manage our exposure to changes in currency exchange rates from (1) our monetary assets and liabilities denominated in currencies other than the U.S. dollar and (2) forecasted cash flows for certain capital expenditures and manufacturing costs. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the fair value of derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative instruments that are not designated for hedge accounting, gains or losses from changes in fair values are recognized in other non-operating income (expense). For derivative instruments designated as cash flow hedges, gains or losses are included as a component of accumulated other comprehensive income and reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. We enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge transactions. These master netting arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled with each counterparty have been presented in our consolidated balance sheet on a net basis. Financial Instruments Cash equivalents include highly liquid short-term investments with original maturities to us of three months or less that are readily convertible to known amounts of cash. Other investments with remaining maturities of less than one year are included in short-term investments. Investments with remaining maturities greater than one year are included in long-term marketable investments. The carrying value of investment securities sold is determined using the specific identification method. 52 Functional Currency The U.S. dollar is the functional currency for us and all of our consolidated subsidiaries. Goodwill and Non-Amortizing Intangible Assets We perform an annual impairment assessment for goodwill and non-amortizing intangible assets in our fourth quarter each year. Government Incentives We receive incentives from governmental entities related to expenses, assets, and other activities. Our government incentives may require that we meet or maintain specified spending levels and other operational metrics and may be subject to reimbursement if such conditions are not met or maintained. Government incentives are recorded in the financial statements in accordance with their purpose: as a reduction of expenses, a reduction of asset costs, or other income. Incentives related to specific operating activities are offset against the related expense in the period the expense is incurred. Incentives related to the acquisition or construction of fixed assets are recognized as a reduction in the carrying amounts of the related assets and reduce depreciation expense over the useful lives of the assets. Other incentives are recognized as other operating income. Government incentives received prior to being earned are recognized in current or noncurrent deferred income, whereas government incentives earned prior to being received are recognized in current or noncurrent receivables. Cash received from government incentives related to operating expenses is included as an operating activity in the statement of cash flows, whereas cash received from incentives related to the acquisition of property, plant, and equipment is included as an investing activity. Inventories Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. When net realizable value (which requires projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories) is below cost, we record a charge to cost of goods sold to write down inventories to their estimated net realizable value in advance of when inventories are actually sold. 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. We remove amounts from inventory and charge such amounts to cost of goods sold on an average cost basis. Leases In the first quarter of 2020, we elected new accounting policies in connection with the adoption of ASC 842 – Leases . We do not recognize a right-of-use asset or a lease liability for leases with a term of 12 months or less. For real estate and gas plant leases entered into after adoption, we do not separate lease and non-lease components. Sublease income is presented within lease expense. Product and Process Technology Costs incurred to (1) acquire product and process technology, (2) patent technology, and (3) maintain patent technology, are capitalized and amortized on a straight-line basis over periods ranging up to 12.5 years. We capitalize a portion of costs incurred to patent technology based on historical data of patents issued as a percent of patents we file. Product and process technology costs are amortized over the shorter of (1) the estimated useful life of the technology, (2) the patent term, or (3) the term of the technology agreement. Fully-amortized assets are removed from product and process technology and accumulated amortization. Product Warranty We generally provide a limited warranty that our products are in compliance with applicable specifications existing at the time of delivery. Under our standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with 53 | 2020 10-K respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that provided under our standard terms and conditions. Our warranty obligations are not material. Property, Plant, and Equipment Property, plant, and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally 10 to 30 years for buildings, 5 to 7 years for equipment, and 3 to 5 years for software. Assets held for sale are carried at the lower of cost or estimated fair value and are included in other noncurrent assets. When property, plant, or equipment is retired or otherwise disposed, the net book value is removed and we recognize any gain or loss in results of operations. We capitalize interest on borrowings during the period of time we carry out the activities necessary to bring assets to the condition of their intended use and location. Capitalized interest becomes part of the cost of assets. Research and Development Costs related to the conceptual formulation and design of products and processes are charged to R&D expense as incurred. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. Subsequent to product qualification, product costs are included in cost of goods sold. Amounts from cost-sharing arrangements are reflected as a reduction of R&D expense. Revenue Recognition Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. 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. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We use the expected value method, based on historical price adjustments and current pricing trends, to estimate the amount of revenue recognized from sales to distributors. Differences between the estimated and actual amounts are recognized as adjustments to revenue. Stock-based Compensation Stock-based compensation is measured at the grant date, based on the fair value of the award, and recognized as expense under the straight-line attribution method over the requisite service period. We account for forfeitures as they occur. We issue new shares upon the exercise of stock options or conversion of share units. Treasury Stock Treasury stock is carried at cost. When we retire our treasury stock, any excess of the repurchase price paid over par value is allocated between additional capital and retained earnings. Use of Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Actual results could differ from estimates. 54 Variable Interest Entities We have interests in entities that are variable interest entities (“VIEs”). If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgments. Unconsolidated VIE PTI Xi’an : Powertech Technology Inc. Xi’an (“PTI Xi’an”) is a wholly-owned subsidiary of Powertech Technology Inc. (“PTI”) and was created to provide assembly services to us at our manufacturing site in Xi’an, China. We do not have an equity interest in PTI Xi’an. PTI Xi’an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We do not have the power to direct the activities of PTI Xi’an that most significantly impact its economic performance, primarily because we do not have governance rights. Therefore, we do not consolidate PTI Xi’an. Our agreement for PTI to provide assembly services to us is deemed to contain an embedded lease for accounting purposes. As a result, as of September 3, 2020 and August 29, 2019, the accompanying consolidated balance sheets included net property, plant, and equipment of $ 38 million and $ 50 million, respectively, and finance lease obligations of $ 35 million and $ 47 million, respectively, in connection with this agreement. Consolidated VIE IMFT : Through October 31, 2019, IMFT was a VIE because all of its costs were passed to us and its other member, Intel, through product purchase agreements and because IMFT was dependent upon us or Intel for additional cash requirements. The primary activities of IMFT were driven by the constant introduction of product and process technology. Because we performed a significant majority of the technology development, we had the power to direct its key activities. We consolidated IMFT due to this power and our obligation to absorb losses and the right to receive benefits from IMFT that could have been potentially significant to it. We acquired Intel’s interest in IMFT on October 31, 2019, at which time IMFT, now known as MTU, became a wholly-owned subsidiary. (See “Equity – Noncontrolling Interest in Subsidiary.”) Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 – Leases (as amended, “ASC 842”), which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of lease payments. We adopted ASC 842 in the first quarter of 2020 under the modified retrospective method and elected to not recast prior periods. We elected the practical expedients available under the transition guidance, including but not limited to, not reassessing past lease accounting or using hindsight to evaluate lease term. In addition, we elected to not separate lease and non-lease components for real estate or gas plant leases. As a result of adopting ASC 842, we recognized $ 567 million for operating lease liabilities and right-of-use assets and reclassified an additional $ 66 million of other balances to right-of-use assets to conform to the new presentation requirements of ASC 842. 55 | 2020 10-K Recently Issued Accounting Standards In August 2020, the FASB issued ASU 2020-06 – Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity , which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 2023, with early adoption permitted beginning in the first quarter of 2022, and permits the use of either the modified retrospective or fully retrospective method of transition. We are evaluating the timing and effects of our adoption of this ASU on our financial statements. In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements , which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU is effective for us in the first quarter of 2021 and requires retrospective adoption to the date we adopted ASC 606, which was August 31, 2018, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. We do not anticipate the adoption of this ASU will have a significant impact on our financial statements. In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. This ASU is effective for us in the first quarter of 2021 and requires modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We do not anticipate the adoption of this ASU will have a significant impact on our financial statements. 56 Cash and Investments Substantially all of our marketable debt and equity investments were classified as available-for-sale as of the dates noted below. Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows: 2020 2019 As of Cash and Equivalents Short-term Investments Long-term Marketable Investments (1) Total Fair Value Cash and Equivalents Short-term Investments Long-term Marketable Investments (1) Total Fair Value Cash $ 3,996 $ — $ — $ 3,996 $ 2,388 $ — $ — $ 2,388 Level 1 (2) Money market funds 1,828 — — 1,828 3,418 — — 3,418 Level 2 (3) Certificates of deposits 1,740 10 2 1,752 1,292 13 1 1,306 Corporate bonds 3 266 592 861 — 550 689 1,239 Government securities 6 115 243 364 36 149 232 417 Asset-backed securities 1 31 211 243 — 67 242 309 Commercial paper 50 96 — 146 18 24 — 42 7,624 $ 518 $ 1,048 $ 9,190 7,152 $ 803 $ 1,164 $ 9,119 Restricted cash (4) 66 127 Cash, cash equivalents, and restricted cash $ 7,690 $ 7,279 (1) The maturities of long-term marketable securities range from one to four years . (2) The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets. (3) The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of September 3, 2020 or August 29, 2019. (4) Restricted cash is included in other noncurrent assets and primarily relates to certain government incentives received prior to being earned and for which restrictions lapse upon achieving certain performance conditions. Restricted cash as of August 29, 2019 also included amounts related to the corporate reorganization proceedings of MMJ. Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented. As of September 3, 2020, there were no available-for-sale securities that had been in a loss position for longer than 12 months. Receivables As of 2020 2019 Trade receivables $ 3,494 $ 2,778 Income and other taxes 232 242 Other 186 175 $ 3,912 $ 3,195 57 | 2020 10-K Inventories As of 2020 2019 Finished goods $ 1,001 $ 757 Work in process 3,854 3,825 Raw materials and supplies 752 536 $ 5,607 $ 5,118 Property, Plant, and Equipment As of 2020 2019 Land $ 352 $ 352 Buildings 13,981 10,931 Equipment (1) 48,525 44,051 Construction in progress (2) 1,600 1,700 Software 873 790 65,331 57,824 Accumulated depreciation ( 34,300 ) ( 29,584 ) $ 31,031 $ 28,240 (1) Included costs related to equipment not placed into service of $ 1.63 billion as of September 3, 2020 and $ 2.33 billion as of August 29, 2019. (2) Included building-related construction, tool installation, and software costs for assets not placed into service. Depreciation expense was $ 5.57 billion, $ 5.34 billion, and $ 4.66 billion for 2020, 2019, and 2018, respectively. Interest capitalized as part of the cost of property, plant, and equipment was $ 77 million, $ 103 million, and $ 44 million for 2020, 2019, and 2018, respectively. 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 (“R&D”) facilities from five years to seven years as of the beginning of the first quarter of 2020. This revision reduced our aggregate depreciation expense by approximately $ 675 million in 2020, of which approximately $ 165 million remained capitalized in inventory as of the end of 2020. After adjusting for the effect of the reduced amount of depreciation expense remaining in inventory, the revision in estimated useful lives benefited both operating income and net income by approximately $ 510 million and diluted earnings per share by approximately $ 0.45 for 2020. Intangible Assets and Goodwill 2020 2019 As of Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Product and process technology $ 616 $ ( 282 ) $ 583 $ ( 243 ) Goodwill 1,228 1,228 In 2020, 2019, and 2018, we capitalized $ 73 million, $ 91 million, and $ 48 million, respectively, for product and process technology with weighted-average useful lives of 10 years, 8 years, and 10 years, respectively. In 2019, we placed $ 108 million of in-process R&D in service and began amortizing it on a straight-line basis over six years . 58 Expected amortization expense is $ 73 million for 2021, $ 57 million for 2022, $ 51 million for 2023, $ 44 million for 2024, and $ 24 million for 2025. Leases We have finance and operating leases through which we acquire or utilize equipment and facilities in our manufacturing operations and R&D activities as well as office space and other facilities used in our SG&A functions. Our finance leases consist primarily of gas or other supply agreements that are deemed to contain embedded leases in which we effectively control the underlying gas plants or other assets used to fulfill the supply agreements. Our operating leases consist primarily of offices, other facilities, and land used in SG&A, R&D, and certain of our manufacturing operations. Certain of our operating leases include one or more options to extend the lease term for periods from one year to 10 years for real estate and one year to 30 years for land. Certain supply or service agreements require us to exercise significant judgment to determine whether the agreement contains a lease of a right-of-use asset. Our assessment includes determining whether we or the supplier control the assets used to fulfill the supply or service agreement by identifying whether we or the supplier have the right to change the type, quantity, timing, or location of the output of the assets. Our gas supply arrangements generally are deemed to contain a lease because we have the right to substantially all of the output of the assets used to produce the supply and we have the right to change the quantity and timing of the output of those assets. In determining the lease term, we assess whether we are reasonably certain to exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset. Measuring the present value of the initial lease liability requires exercising judgment to determine the discount rate, which we base on interest rates for similar borrowings issued by entities with credit ratings similar to ours. Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant in 2020. The components of lease expense are presented below: For the year ended 2020 Finance lease cost Amortization of right-of-use asset $ 140 Interest on lease liability 22 Operating lease cost 102 $ 264 Other information related to our leases were as follows: For the year ended 2020 Cash flows used for operating activities Finance leases $ 24 Operating leases (1) 39 Cash flows used for financing activities from financing leases 248 Noncash acquisitions of right-of-use assets Finance leases 107 Operating leases 11 (1) Included $ 48 million of reimbursements received for tenant improvements. 59 | 2020 10-K As of 2020 Finance lease right-of-use asset (included in property, plant, and equipment) ( 1) $ 426 Weighted-average remaining lease term (in years) Finance leases 5 Operating leases 7 Weighted-average discount rate Finance leases 4.51 % Operating leases 2.67 % (1) As of August 29, 2019, prior to our adoption of ASC 842, property, plant, and equipment included $ 700 million for finance leases. Maturities of lease liabilities existing as of September 3, 2020 were as follows: For the year ending Finance Leases Operating Leases 2021 $ 90 $ 70 2022 90 69 2023 70 65 2024 53 55 2025 38 47 2026 and thereafter 248 401 Less imputed interest ( 103 ) ( 120 ) $ 486 $ 587 The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of September 3, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $ 148 million for the initial 10 -year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $ 838 million over a weighted-average period of 15 years for gas supply arrangements deemed to contain embedded leases. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use. As of August 29, 2019, prior to our adoption of ASC 842, future minimum operating lease commitments with an initial term in excess of one year were $ 54 million for 2020, $ 64 million for 2021, $ 63 million for 2022, $ 59 million for 2023, $ 53 million for 2024, and $ 459 million in 2025 and thereafter. Accounts Payable and Accrued Expenses As of 2020 2019 Accounts payable $ 2,191 $ 1,677 Property, plant, and equipment 2,374 1,782 Salaries, wages, and benefits 849 695 Income and other taxes 237 309 Other 166 163 $ 5,817 $ 4,626 60 Debt 2020 2019 Net Carrying Amount Net Carrying Amount As of Stated Rate Effective Rate Principal Current Long-Term Total Principal Current Long-Term Total Finance lease obligations N/A 4.51 % $ 486 $ 76 $ 410 $ 486 $ 591 $ 223 $ 368 $ 591 2023 Notes 2.497 % 2.64 % 1,250 — 1,245 1,245 — — — — 2024 Notes 4.640 % 4.76 % 600 — 598 598 600 — 597 597 2024 Term Loan A 1.420 % 1.47 % 1,250 62 1,186 1,248 — — — — 2026 Notes 4.975 % 5.07 % 500 — 498 498 500 — 497 497 2027 Notes 4.185 % 4.27 % 900 — 895 895 900 — 895 895 2029 Notes 5.327 % 5.40 % 700 — 696 696 700 — 696 696 2030 Notes 4.663 % 4.73 % 850 — 845 845 850 — 845 845 2032D Notes 3.125 % 6.33 % 134 131 — 131 134 — 127 127 MMJ Creditor Payments N/A N/A 1 1 — 1 206 198 — 198 IMFT Member Debt N/A N/A — — — — 693 693 — 693 2025 Notes 5.500 % 5.56 % — — — — 519 — 516 516 2033F Notes 2.125 % 2.13 % — — — — 62 196 — 196 $ 6,671 $ 270 $ 6,373 $ 6,643 $ 5,755 $ 1,310 $ 4,541 $ 5,851 As of September 3, 2020, all of our debt, other than our finance leases, are unsecured obligations that rank equally in right of payment with all of our other existing and future unsecured indebtedness and are effectively subordinated to all of our other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. As of September 3, 2020, Micron had $ 6.16 billion of unsecured debt (net of unamortized discount and debt issuance costs) that was structurally subordinated to all liabilities of its subsidiaries, including trade payables. The terms of our indebtedness generally contain cross payment default and cross acceleration provisions. Micron’s guarantees of its subsidiary debt obligations are unsecured obligations ranking equally in right of payment with all of Micron’s other existing and future unsecured indebtedness. Senior Unsecured Notes Our 2023 Notes, 2024 Notes, 2026 Notes, 2027 Notes, 2029 Notes, and 2030 Notes (the “Senior Unsecured Notes”) each contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our restricted subsidiaries (which are generally domestic subsidiaries in which we own at least 80 % of the voting stock and which own principal property, as defined in the indenture governing such notes) to (1) create or incur certain liens; (2) enter into certain sale and lease-back transactions; and (3) consolidate with or merge with or into, or convey, transfer, or lease all or substantially all of our properties and assets, to another entity. These covenants are subject to a number of limitations and exceptions. Additionally, if a change of control triggering event occurs, as defined in the indentures governing our senior unsecured notes, we will be required to offer to purchase such notes at 101 % of the outstanding aggregate principal amount plus accrued interest up to the purchase date. Credit Facility Our credit facility provides for our Revolving Credit Facility and our 2024 Term Loan A, each of which generally bears interest at a rate equal to LIBOR plus 1.25 % to 2.00 %, depending on our corporate credit ratings or leverage ratio. Under the terms of the credit facility, we must maintain ratios, calculated as of the last day of each fiscal quarter, of total indebtedness to adjusted EBITDA not to exceed 2.75 to 1.00 and adjusted EBITDA to net interest expense of not less than 3.50 to 1.00. 61 | 2020 10-K As of September 3, 2020, borrowings under the credit facility were unsecured; however, a security interest may be automatically instated upon a decline below a certain level in our corporate credit rating. If the security interest is instated, any amounts drawn under the credit agreement would be collateralized by substantially all of the assets of Micron and MSP, subject to certain permitted liens. The credit agreement contains other covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our restricted subsidiaries to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer, lease, or otherwise dispose of all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications. Revolving Credit Facility : On March 13, 2020, we drew the $ 2.50 billion available under our Revolving Credit Facility and on April 24, 2020, we repaid the $ 2.50 billion. As of September 3, 2020, no amounts were outstanding under the Revolving Credit Facility and $ 2.50 billion was available to us. Any amounts outstanding under the Revolving Credit Facility would mature in July 2023 and we may repay amounts borrowed any time without penalty. The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 1.25 % based on our current corporate credit rating and leverage ratio. 2024 Term Loan A : On October 30, 2019, we drew the $ 1.25 billion available under our 2024 Term Loan A credit facility. Principal payments are due annually in an amount equal to 5.0 % of the initial principal amount with the balance due at maturity in October 2024. The 2024 Term Loan A facility bears interest at a rate equal to LIBOR plus 1.25 % based on our current corporate credit rating and leverage ratio. 2032D Convertible Senior Notes Conversion Rights : Holders of the 2032D Notes may convert them under the following circumstances: (1) if the notes are called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130 % of the conversion price (approximately $ 12.97 per share); (3) if the trading price of the 2032D Notes is less than 98 % of the product of the closing price of our common stock and the conversion rate of the notes during the period specified in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture for the notes; or (5) at any time on or after February 1, 2032. The closing price of our common stock exceeded 130 % of the conversion price for the 2032D Notes for at least 20 trading days in the 30 consecutive trading days ending on September 30, 2020. As a result, the 2032D Notes are convertible by the holders through December 31, 2020. As of September 3, 2020, the $ 46.33 trading price of our common stock was higher than the conversion price of our 2032D Notes and, as a result, the aggregate conversion value of $ 620 million exceeded the aggregate principal amount of $ 134 million by $ 486 million. It is our current intent to settle in cash the principal amount of our 2032D Notes upon conversion. As a result, only the amounts payable in excess of the principal amounts upon conversion of our 2032D Notes are considered in diluted earnings per share under the treasury stock method. We may elect to settle any amounts in excess of the principal in cash, shares of our common stock, or a combination thereof. Cash Redemption at Our Option : We may redeem for cash the 2032D Notes if the volume weighted average price of our common stock has been at least 130 % of the conversion price (approximately $ 12.97 per share) for at least 20 trading days during any 30 consecutive trading day period. The redemption price will equal the principal amount plus accrued and unpaid interest. If we redeem the 2032D Notes prior to May 4, 2021, we will also pay a make-whole premium in cash equal to the present value of the remaining scheduled interest payments from the redemption date to May 4, 2021. Cash Repurchase at the Option of the Holders : Holders of our 2032D Notes have the right to require us to repurchase for cash all or a portion of the notes on May 1, 2021. As a result, our 2032D Notes are classified as current liabilities as of September 3, 2020. Debt discount and issuance costs are amortized through the holder put date. The repurchase price would equal the principal amount plus accrued and unpaid interest. Also, upon a change in control or a termination of trading, as defined in the indenture, holders of our 2032D Notes may require us to repurchase for cash all or a portion of their notes at a repurchase price equal to the principal amount plus accrued and unpaid interest. 62 Other : Interest expense for all our convertible notes consisted of contractual interest of $ 4 million, $ 21 million, and $ 44 million for 2020, 2019, and 2018, respectively, and amortization of discount and issuance costs of $ 4 million, $ 14 million, and $ 32 million for 2020, 2019, and 2018, respectively. As of September 3, 2020 and August 29, 2019, the carrying amounts of the equity components of our convertible notes, which are included in additional capital, were $ 27 million and $ 29 million, respectively. IMFT Member Debt In connection with our purchase of Intel’s noncontrolling interest in IMFT on October 31, 2019, we extinguished the remaining IMFT Member Debt as a component of the cash consideration paid to Intel for their interest in IMFT and recognized a non-operating gain of $ 72 million for the difference between the $ 505 million of cash consideration allocated to the extinguishment of IMFT Member Debt and its $ 577 million carrying value. (See “Equity – Noncontrolling Interest in Subsidiary” for the cash consideration allocated to the repurchase of noncontrolling interest.) Prior to our acquisition of Intel’s interests in IMFT, IMFT repaid to Intel $ 116 million of IMFT Member Debt in the first quarter of 2020. Debt Activity The table below presents the effects of issuances, prepayments, and conversions of debt in 2020. When we receive a notice of conversion for any of our convertible notes and elect to settle in cash any amount of the conversion obligation in excess of the principal amount, the cash settlement obligations become derivative debt liabilities subject to mark-to-market accounting treatment based on the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Accordingly, at the date of our election to settle a conversion in cash, we reclassify the fair value of the equity component of the converted notes from additional capital to derivative debt liability within current debt in our consolidated balance sheet. Increase (Decrease) in Principal Increase (Decrease) in Carrying Value Increase (Decrease) in Cash Decrease in Equity Gain (Loss) Issuances Revolving Credit Facility $ 2,500 $ 2,493 $ 2,500 $ — $ — 2023 Notes (1) 1,250 1,245 1,245 — — 2024 Term Loan A 1,250 1,248 1,248 — — Prepayments Revolving Credit Facility ( 2,500 ) ( 2,493 ) ( 2,500 ) — — IMFT Member Debt ( 693 ) ( 693 ) ( 621 ) — 72 2025 Notes ( 519 ) ( 516 ) ( 534 ) — ( 18 ) Settled conversions 2033F Notes (2) ( 62 ) ( 196 ) ( 266 ) ( 56 ) ( 14 ) $ 1,226 $ 1,088 $ 1,072 $ ( 56 ) $ 40 (1) Issued April 24, 2020 and due April 24, 2023. (2) On March 27, 2020, we notified holders of our 2033F Notes that we would redeem all of the outstanding 2033F Notes on May 5, 2020. Holders could elect to convert these notes through May 4, 2020, at a conversion rate of 91.4808 shares of our common stock per $1,000 of principal amount. In connection with our notice, we made an irrevocable election to settle any conversions in cash. Holders converted all of the 2033F Notes and on May 5, 2020, we paid $ 64 million to settle the conversions. In 2019, we recognized aggregate non-operating losses of $ 396 million in connection with debt prepayments, repurchases, and conversions of $ 1.80 billion of principal amount of notes (carrying value of $ 1.60 billion) for an aggregate of $ 2.38 billion in cash. As of August 29, 2019, an aggregate of $ 44 million principal amount of our 2033F Notes (with a carrying value of $ 179 million) had converted but not settled. These notes settled in 2020 for $ 192 million in cash and the effect of the settlement is included in the table above. 63 | 2020 10-K In 2018, we recognized aggregate non-operating losses of $ 385 million in connection with debt prepayments, repurchases, and conversions of $ 6.96 billion of principal amount of notes (carrying value of $ 6.93 billion) for an aggregate of $ 9.42 billion in cash and 4 million shares of our treasury stock. As of August 30, 2018, an aggregate of $ 35 million principal amount of our 2033F Notes (with a carrying value of $ 165 million) had converted but not settled. These notes settled in 2019 for $ 153 million in cash and the effect of the settlement is included in the amounts in the paragraph above. Maturities of Notes Payable As of September 3, 2020, maturities of notes payable were as follows: 2021 $ 197 2022 63 2023 1,313 2024 662 2025 1,000 2026 and thereafter 2,950 Unamortized discounts ( 28 ) $ 6,157 Commitments As of September 3, 2020, we had commitments of approximately $ 5.2 billion for purchase obligations, a substantial majority of which will be due within one year . Purchase obligations include payments for the acquisition of property, plant, and equipment, and other goods or services of either a fixed or minimum quantity and exclude any lease payments for leases that have been executed but have not yet commenced. Contingencies We are currently a party to legal actions other than those described below arising from the normal course of business, none of which are expected to have a material adverse effect on our business, results of operations, or financial condition. Patent Matters As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights. On August 12, 2014, MLC Intellectual Property, LLC filed a patent infringement action against Micron in the U.S. District Court for the Northern District of California. The complaint alleges that Micron infringes a single U.S. patent and seeks damages, attorneys’ fees, and costs. On November 21, 2014, Elm 3DS Innovations, LLC (“Elm”) filed a patent infringement action against Micron; Micron Semiconductor Products, Inc.; and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys’ fees, and costs. On December 15, 2014, Innovative Memory Solutions, Inc. (“IMS”) filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys’ fees, and costs. On August 31, 2018, Micron was served with a complaint filed by IMS in Shenzhen Intermediate People’s Court in Guangdong Province, China. On 64 November 12, 2019, IMS filed an amended complaint in the same court. The amended complaint alleges that certain of our NAND flash products infringe a Chinese patent. The complaint seeks an order requiring Micron to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages and costs of 21 million Chinese yuan. On August 4, 2020, the China National Intellectual Property Administration ruled invalid each of the asserted claims in the Chinese patent matter. On August 17, 2020, IMS withdrew its complaint filed in Shenzhen Intermediate People’s Court. On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. (“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. (“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China (the “Fuzhou Court”). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. (“MSS”) was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation (“UMC”) in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 90 million Chinese yuan plus court fees incurred. On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages for each complaint of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips. On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China. The affected products made up slightly more than 1 % of our annualized revenue in 2018. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision. On May 4, 2020, Flash-Control, LLC (“Flash-Control”) filed a patent infringement action against Micron in the U.S. District Court for the Western District of Texas. The complaint alleges that four U.S. patents are infringed by unspecified DDR4 SDRAM, NVRDIMM, NVDIMM, 3D XPoint, and/or SSD products that incorporate memory controllers and flash memory. The complaint seeks damages, attorneys’ fees, and costs. Among other things, the above lawsuits pertain to substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for substantially all of our revenue. Qimonda On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera (the “Inotera Shares”), representing approximately 18 % of Inotera’s outstanding shares at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among 65 | 2020 10-K other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement. Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $ 1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda’s obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments had no immediate, enforceable effect and Micron, accordingly, has been able to continue to operate with full control of the Inotera Shares subject to further developments in the case. On April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed an independent expert to perform an evaluation of Dr. Jaffé’s claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed expert issued a report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the expert for supplemental expert opinion. On March 31, 2020, the expert presented a revised opinion to the Appeals Court which reaffirmed the earlier view that the amount paid by Micron was still within an acceptable range of fair value. Antitrust Matters On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated amended complaint that purports to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserts claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and seeks treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserts claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and seeks treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States. On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation. 66 Securities Matters On January 23, 2019, a complaint was filed against Micron and two of our officers, Sanjay Mehrotra and David Zinsner, in the U.S. District Court for the Southern District of New York. The lawsuit purported to be brought on behalf of a class of purchasers of our stock during the period from June 22, 2018 through November 19, 2018. Subsequently two substantially similar cases were filed in the same court adding one of our former officers, Ernie Maddock, as a defendant and alleging a class action period from September 26, 2017 through November 19, 2018. The separate cases were joined, and a consolidated amended complaint was filed on June 15, 2019. The consolidated amended complaint alleged that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and sought compensatory and punitive damages, fees, interest, costs, and other appropriate relief. On October 2, 2019, the parties submitted a joint stipulation to dismiss the complaint. The Court approved the stipulation and dismissed the complaint on October 3, 2019. On March 5, 2019, a derivative complaint was filed by a shareholder in the U.S. District Court for the District of Delaware, based on similar allegations to the securities fraud cases, allegedly on behalf of and for the benefit of Micron, against certain current and former officers and directors of Micron for alleged breaches of their fiduciary duties and other violations of law. The complaint seeks damages, fees, interest, costs, and other appropriate relief. Similar shareholder derivative complaints were subsequently filed in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of Idaho. On November 20, 2019, the plaintiff in the second action filed in the U.S. District Court for the District of Delaware voluntarily dismissed his complaint. On November 21, 2019, the plaintiff voluntarily dismissed his complaint that was filed in the U.S. District Court for the District of Idaho. Other On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California’s Uniform Trade Secrets Act by misappropriating Micron’s trade secrets and other misconduct. Micron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief. On June 13, 2019, current Micron employee Chris Manning filed a putative class action lawsuit on behalf of Micron employees subject to the Idaho Wage Claim Act who earned a performance-based bonus after the conclusion of 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On July 12, 2019, Manning and three other Company employees filed an amended complaint as putative class action representatives. On behalf of themselves and the putative class, Manning and the three other plaintiffs assert claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud. On June 24, 2020, the court entered judgment in favor of Micron based on the statute of limitations, and the plaintiffs filed a notice of appeal on July 23, 2020. On July 31, 2020, Micron and Intel entered into a binding arbitration agreement under which the parties agreed to present to an arbitral panel various financial disputes related to the IMFT joint venture between Micron and Intel, which ended October 31, 2019, and to other agreements relating to the joint development, production, and sale of non-volatile memory products. Each party alleges that the other owes damages relating to allegations of breach of one or more agreements. In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify another party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition. We are unable to predict the outcome of the patent matters, Qimonda matter, antitrust matters, securities matter, binding arbitration with Intel, or any other matters noted above, and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing, as well 67 | 2020 10-K as the resolution of any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition. Redeemable Noncontrolling Interest Redeemable noncontrolling interest as of August 29, 2019 reflected 100,000 preferred shares authorized and issued by Micron Semiconductor Asia Operations Pte. Ltd. (“MSAO”) in 2018 for net proceeds of $ 97 million. Holders of the preferred shares were entitled to receive a cumulative dividend of 7.75 % per annum. On August 31, 2020, we redeemed the shares for $ 102 million. Equity Micron Shareholders’ Equity Common Stock Repurchases : Our Board of Directors has authorized the discretionary repurchase of up to $ 10 billion of our outstanding common stock beginning in 2019. We may purchase shares through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. We repurchased 3.6 million shares of our common stock for $ 176 million in 2020 and 66.4 million shares for $ 2.66 billion in 2019. Through September 3, 2020, we had repurchased an aggregate of $ 2.84 billion under the authorization. The repurchased shares were recorded as treasury stock. Common Stock Issuance : In 2018, we issued 34 million shares of our common stock for $ 41.00 per share in a public offering, for net proceeds of $ 1.36 billion, net of underwriting fees and other offering costs. Capped Calls : In 2020, we share-settled all outstanding capped calls upon their expiration and received an aggregate of 1.7 million shares of our common stock, equal to a value of $ 98 million. In 2018, we share-settled certain other capped calls upon their expirations, and received 9.2 million shares, equal to a value of $ 429 million. Amounts received upon settlement were based on volume-weighted-average trading prices of our stock at the expiration dates. The shares received in all periods were recorded as treasury stock. Accumulated Other Comprehensive Income : Changes in accumulated other comprehensive income by component for the year ended September 3, 2020 were as follows: Gains (Losses) on Derivative Instruments Pension Liability Adjustments Unrealized Gains (Losses) on Investments Cumulative Foreign Currency Translation Adjustment Total As of August 29, 2019 $ ( 1 ) $ 4 $ 7 $ ( 1 ) $ 9 Other comprehensive income before reclassifications 51 25 8 — 84 Amount reclassified out of accumulated other comprehensive income 4 ( 3 ) ( 6 ) — ( 5 ) Tax effects ( 9 ) ( 7 ) ( 1 ) — ( 17 ) Other comprehensive income (loss) 46 15 1 — 62 As of September 3, 2020 $ 45 $ 19 $ 8 $ ( 1 ) $ 71 68 Noncontrolling Interest in Subsidiary 2020 2019 As of Balance Percentage Balance Percentage IMFT $ — — % $ 889 49 % On October 31, 2019, we purchased Intel’s noncontrolling interest in IMFT, now known as MTU, and IMFT Member Debt for $ 1.25 billion. In connection therewith, we recognized a $ 160 million adjustment to equity for the difference between the $ 744 million of cash consideration allocated to Intel’s noncontrolling interest and its $ 904 million carrying value. (See “Debt” for the cash consideration allocated to, and extinguishment of, IMFT Member Debt.) IMFT manufactured semiconductor products exclusively for its members under a long-term supply agreement at prices approximating cost. In 2018, IMFT discontinued production of NAND and subsequent to that time manufactured 3D XPoint memory. IMFT sales to Intel were $ 158 million through the date of our purchase of Intel’s noncontrolling interest in 2020, $ 731 million in 2019, and $ 507 million in 2018. Fair Value Measurements The estimated fair values and carrying values of our outstanding debt instruments (excluding the carrying value of equity components of our convertible notes) were as follows: 2020 2019 As of Fair Value Carrying Value Fair Value Carrying Value Notes and MMJ Creditor Payments $ 6,710 $ 6,026 $ 5,194 $ 4,937 Convertible notes 634 131 852 323 The fair values of our convertible notes were determined based on Level 2 inputs, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash flows, the trading price of our notes when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours. Other operating (income) expense, net included unrealized losses primarily from semiconductor equipment held for sale of $ 71 million and $ 82 million in 2020 and 2019, respectively. The fair values were based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment (Level 3). Assets held for sale were not significant as of the end of either period reported. 69 | 2020 10-K Derivative Instruments Gross Notional Amount Fair Value of Assets (1) Liabilities (2) As of September 3, 2020 Derivative instruments with hedge accounting designation Cash flow currency hedges $ 1,845 $ 41 $ ( 2 ) Derivative instruments without hedge accounting designation Non-designated currency hedges 1,587 4 ( 1 ) $ 45 $ ( 3 ) As of August 29, 2019 Derivative instruments with hedge accounting designation Cash flow currency hedges $ 146 $ 1 $ — Derivative instruments without hedge accounting designation Non-designated currency hedges 1,871 1 ( 9 ) Convertible notes settlement obligation (3) — ( 179 ) 1 ( 188 ) $ 2 $ ( 188 ) (1) Included in receivables – other and other noncurrent assets. (2) Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations. (3) As of August 29, 2019, the notional amount of settlement obligation for notes that had been converted was 4 million shares of our common stock. Derivative Instruments with Hedge Accounting Designation We utilize currency forward contracts that generally mature within two years to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes. Cash Flow Hedges : We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures and manufacturing costs. We recognized gains of $ 51 million and losses of $ 3 million and $ 17 million for 2020, 2019, and 2018, respectively, in accumulated other comprehensive income from cash flow hedges. The reclassifications from accumulated other comprehensive income to earnings were not significant in 2020, 2019, or 2018. As of September 3, 2020, we expect to reclassify $ 24 million of pre-tax gains related to cash flow hedges from accumulated other comprehensive income into earnings in the next 12 months. Derivative Instruments without Hedge Accounting Designation Currency Derivatives : We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense), net. For derivative instruments 70 without hedge accounting designation, we recognized gains of $ 21 million, and losses of $ 32 million and $ 38 million for 2020, 2019, and 2018, respectively. Convertible Notes Settlement Obligations : For settlement obligations associated with our convertible notes subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts were based on the volume-weighted-average trading price of our common stock (Level 2). (See “Debt.”) We recognized losses of $ 14 million, $ 58 million, and $ 124 million for 2020, 2019 and 2018, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. Derivative Counterparty Credit Risk and Master Netting Arrangements Our derivative instruments expose us to credit risk to the extent counterparties may be unable to meet the terms of the contracts. Our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts would generally equal the fair value of assets for these contracts as listed in the tables above. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple financial institutions. As of September 3, 2020 and August 29, 2019, amounts netted under our master netting arrangements were not material. Equity Plans As of September 3, 2020, 90 million shares of our common stock were available for future awards under our equity plans, including 26 million shares approved for issuance under our employee stock purchase plan (“ESPP”). Restricted Stock and Restricted Stock Units (“Restricted Stock Awards”) As of September 3, 2020, there were 17 million shares of Restricted Stock Awards outstanding, 15 million of which contained only service conditions. For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth or one-third increments during each year of employment after the grant date. Restrictions lapse on Restricted Stock granted in 2020 with performance or market conditions over a three -year period if conditions are met. At the end of the performance period, the number of actual shares to be awarded will vary between 0 % and 200 % of target amounts, depending upon the achievement level. Restricted Stock Awards activity for 2020 is summarized as follows: Number of Shares Weighted-Average Grant Date Fair Value Per Share Outstanding as of August 29, 2019 16 $ 34.72 Granted 8 46.44 Restrictions lapsed ( 6 ) 29.34 Canceled ( 1 ) 40.59 Outstanding as of September 3, 2020 17 42.13 For the year ended 2020 2019 2018 Restricted stock award shares granted 8 9 4 Weighted-average grant-date fair value per share $ 46.44 $ 41.11 $ 42.48 Aggregate vesting-date fair value of shares vested $ 294 $ 248 $ 259 71 | 2020 10-K Employee Stock Purchase Plan Our ESPP was offered to substantially all employees beginning in August 2018 and permits eligible employees to purchase shares of our common stock through payroll deductions of up to 10 % of their eligible compensation, subject to certain limitations. The purchase price of the shares under the ESPP equals 85 % of the lower of the fair market value of our common stock on either the first or last day of each six -month offering period. Compensation expense is calculated as of the beginning of the offering period as the fair value of the employees’ purchase rights utilizing the Black-Scholes option valuation model and is recognized over the offering period. Grant-date fair value and assumptions used in the Black-Scholes option valuation model were as follows: For the year ended 2020 2019 2018 Weighted-average grant-date fair value per share $ 14.24 $ 11.60 $ 14.55 Average expected life in years 0.5 0.5 0.5 Weighted-average expected volatility 45.0 % 45.0 % 43.0 % Weighted-average risk-free interest rate 0.8 % 2.2 % 2.2 % Expected dividend yield 0.0 % 0.0 % 0.0 % Under the ESPP, employees purchased 3 million shares of common stock for $ 118 million in 2020 and 3 million shares for $ 95 million in 2019. Stock Options As of September 3, 2020, there were 7 million stock options outstanding, which are generally exercisable in increments of either one-fourth or one-third per year beginning one year from the date of grant. Stock options expire 8 years from the date of grant. In 2020, we did not grant any stock options and 5 million stock options were exercised. The total intrinsic value for options exercised was $ 130 million, $ 108 million, and $ 446 million in 2020, 2019, and 2018, respectively. Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows: For the year ended 2019 2018 Stock options granted — 2 Weighted-average grant-date fair value per share $ 19.50 $ 18.65 Average expected life in years 5.4 5.5 Weighted-average expected volatility 44.0 % 44.0 % Weighted-average risk-free interest rate 2.9 % 2.2 % Expected dividend yield 0.0 % 0.0 % Stock price volatility was based on an average of historical volatility and the implied volatility derived from traded options on our stock. The expected lives of options granted were based, in part, on historical experience and on the terms and conditions of the options. The risk-free interest rates utilized were based on the U.S. Treasury yield in effect at each grant date. 72 Stock-based Compensation Expense For the year ended 2020 2019 2018 Stock-based compensation expense by caption Cost of goods sold $ 139 $ 102 $ 83 Selling, general, and administrative 103 73 61 Research and development 86 68 54 $ 328 $ 243 $ 198 Stock-based compensation expense by type of award Restricted stock awards $ 272 $ 178 $ 140 ESPP 39 32 3 Stock options 17 33 55 $ 328 $ 243 $ 198 Income tax benefits related to the tax deductions for share-based awards are recognized only upon the settlement of the related share-based awards. Income tax benefits for share-based awards were $ 72 million, $ 66 million and $ 158 million for 2020, 2019 and 2018, respectively. Stock-based compensation expense of $ 42 million and $ 30 million was capitalized and remained in inventory as of September 3, 2020 and August 29, 2019, respectively. As of September 3, 2020, $ 512 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the fourth quarter of 2024, resulting in a weighted-average period of 1.2 years. Employee Benefit Plans We have employee retirement plans at our U.S. and international sites. Details of the more significant plans are discussed as follows: Employee Savings Plan for U.S. Employees We have a 401(k) retirement plan under which U.S. employees may contribute up to 75 % of their eligible pay, subject to Internal Revenue Service annual contribution limits, to various savings alternatives, none of which include direct investment in our stock. We match in cash eligible contributions from employees up to 5 % of the employee’s annual eligible earnings. Contribution expense for the 401(k) plan was $ 66 million, $ 67 million, and $ 61 million in 2020, 2019, and 2018, respectively. Retirement Plans We have pension plans available to employees at various foreign sites. As of September 3, 2020, the projected benefit obligations of our plans were $ 202 million and plan assets were $ 222 million. As of August 29, 2019, the projected benefit obligations of our plans were $ 206 million and plan assets were $ 195 million. Pension expense was not material for 2020, 2019, or 2018. 73 | 2020 10-K Revenue and Customer Contract Liabilities Revenue by technology is presented in the table below (See “Segment and Other Information” for disclosure of disaggregated revenue by market segments.): For the year ended 2020 2019 2018 DRAM $ 14,510 $ 16,841 $ 22,625 NAND 6,131 5,355 6,510 Other (primarily 3D XPoint memory and NOR) 794 1,210 1,256 $ 21,435 $ 23,406 $ 30,391 Beginning in 2020, revenues for MCPs and SSDs, which contain both DRAM and NAND, are disaggregated into DRAM and NAND based on the relative values of each component. The amounts for 2019 and 2018 in the table above have been conformed to current period presentation. As of 2020 2019 Contract liabilities from customer advances $ 40 $ 61 Other contract liabilities 25 69 $ 65 $ 130 Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods. Other contract liabilities consist of amounts received in advance of satisfying performance obligations. These balances are reported within other current liabilities and other noncurrent liabilities. Revenue recognized during 2020 from the ending balance of 2019 included $ 81 million from meeting performance obligations of other contract liabilities and shipments against customer advances. Contract liabilities from customer advances also decreased $ 22 million due to the return of an unutilized customer advance upon expiration of a contract. Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Substantially all contracts with our customers are short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. From time to time, we have contracts with initial terms that include performance obligations that extend, in some cases, beyond one year. As of September 3, 2020, we expect future revenue related to these longer-term contracts of approximately $ 498 million, of which approximately 72 % relates to performance obligations and product shipments we expect to satisfy within the next 12 months and 28 % beyond 12 months. As of September 3, 2020, other current liabilities included $ 466 million for estimates of consideration payable to customers, including estimates for pricing adjustments and returns. Research and Development 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 and $ 201 million for 2019 and 2018, respectively, pursuant to reimbursements under these arrangements. Reimbursements were not significant for 2020. 74 Other Operating (Income) Expense, Net For the year ended 2020 2019 2018 Restructure and asset impairments $ 60 $ ( 29 ) $ 28 (Gain) loss on disposition of property, plant, and equipment ( 3 ) 43 ( 96 ) Other 11 35 11 $ 68 $ 49 $ ( 57 ) Restructure and asset impairments for 2020 primarily related to asset impairments and employee relocation and severance costs related to right-sizing our Lehi, Utah facility. Restructure and asset impairments for 2019 and 2018 primarily related to our continued emphasis to centralize certain key functions. In addition, in 2019, we finalized the sale of our 200mm fabrication facility in Singapore and recognized restructure gains of $ 128 million. Other Non-Operating Income (Expense), Net For the year ended 2020 2019 2018 Gain (loss) on debt prepayments, repurchases, and conversions $ 40 $ ( 396 ) $ ( 385 ) Gain (loss) from changes in currency exchange rates ( 8 ) ( 9 ) ( 75 ) Other 28 — ( 5 ) $ 60 $ ( 405 ) $ ( 465 ) Income Taxes Our income tax (provision) benefit consisted of the following: For the year ended 2020 2019 2018 Income (loss) before income taxes, net income (loss) attributable to noncontrolling interests, and equity in net income (loss) of equity method investees U.S. $ 308 $ ( 67 ) $ 141 Foreign 2,675 7,115 14,166 $ 2,983 $ 7,048 $ 14,307 Income tax (provision) benefit Current U.S. federal $ ( 20 ) $ ( 36 ) $ ( 54 ) State ( 2 ) ( 2 ) 1 Foreign ( 148 ) ( 319 ) ( 374 ) ( 170 ) ( 357 ) ( 427 ) Deferred U.S. federal 39 ( 146 ) 232 State 23 91 101 Foreign ( 172 ) ( 281 ) ( 74 ) ( 110 ) $ ( 336 ) 259 Income tax (provision) benefit $ ( 280 ) $ ( 693 ) $ ( 168 ) 75 | 2020 10-K 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”). We recognize the Foreign Minimum Tax in the period the tax is incurred. Pursuant to SEC Staff Accounting Bulletin No. 118, measurement period adjustments in 2019 included $ 47 million of benefit for the Repatriation Tax, net of adjustments related to uncertain tax positions. Provisional estimates in 2018 included $ 1.34 billion of benefit for the release of the valuation allowance on the net deferred tax assets of our U.S. operations and $ 1.03 billion of provision for the Repatriation Tax, net of adjustments related to uncertain tax positions. The table below reconciles our tax (provision) benefit based on the U.S. federal statutory rate to our effective rate: For the year ended 2020 2019 2018 U.S. federal income tax (provision) benefit at statutory rate $ ( 626 ) 21.0 % $ ( 1,480 ) 21.0 % $ ( 3,677 ) 25.7 % Change in unrecognized tax benefits ( 33 ) 1.1 % ( 59 ) 0.8 % 60 ( 0.4 ) % Change in valuation allowance ( 20 ) 0.7 % ( 40 ) 0.6 % 2,079 ( 14.5 ) % U.S. tax on foreign operations ( 14 ) 0.5 % ( 327 ) 4.6 % ( 20 ) 0.1 % Foreign tax rate differential 253 ( 8.5 ) % 993 ( 14.1 ) % 2,606 ( 18.2 ) % Foreign derived intangible income deduction 67 ( 2.2 ) % — — % — — % Research and development tax credits 62 ( 2.1 ) % 92 ( 1.3 ) % 67 ( 0.5 ) % State taxes, net of federal benefit 23 ( 0.8 ) % 102 ( 1.4 ) % ( 84 ) 0.6 % Repatriation Tax related to the Tax Act — — % ( 10 ) 0.1 % ( 1,049 ) 7.3 % Remeasurement of deferred tax assets and liabilities related to the Tax Act — — % — — % ( 179 ) 1.3 % Other 8 ( 0.3 ) % 36 ( 0.5 ) % 29 ( 0.2 ) % Income tax (provision) benefit $ ( 280 ) 9.4 % $ ( 693 ) 9.8 % $ ( 168 ) 1.2 % We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements. These arrangements 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. As of September 3, 2020, certain non-U.S. subsidiaries had cumulative undistributed earnings of $ 2.70 billion that were deemed to be indefinitely reinvested. A provision has not been recognized to the extent that distributions from such subsidiaries are subject to additional foreign withholding or state income tax. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable. 76 Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards. Deferred tax assets and liabilities consist of the following: As of 2020 2019 Deferred tax assets Net operating loss and tax credit carryforwards $ 912 $ 1,045 Accrued salaries, wages, and benefits 176 122 Operating lease liabilities 114 — Property, plant, and equipment — 80 Other 91 110 Gross deferred tax assets 1,293 1,357 Less valuation allowance ( 294 ) ( 277 ) Deferred tax assets, net of valuation allowance 999 1,080 Deferred tax liabilities Right-of-use assets ( 95 ) — Product and process technology ( 57 ) ( 138 ) Property, plant, and equipment ( 50 ) — Other ( 99 ) ( 109 ) Deferred tax liabilities ( 301 ) ( 247 ) Net deferred tax assets $ 698 $ 833 Reported as Deferred tax assets $ 707 $ 837 Deferred tax liabilities (included in other noncurrent liabilities) ( 9 ) ( 4 ) Net deferred tax assets $ 698 $ 833 We assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not that existing deferred tax assets will be realized. As of September 3, 2020, and August 29, 2019, we had a valuation allowance of $ 294 million and $ 277 million, respectively, against our net deferred tax assets, primarily related to net operating loss carryforwards in Japan. Changes in 2020 in the valuation allowance were due to adjustments based on management’s assessment of tax credits and net operating losses that are more likely than not to be realized. As of September 3, 2020, our net operating loss carryforward amounts and expiration periods, as reported to tax authorities, were as follows: Year of Expiration State Japan Singapore Other Total 2021 - 2025 $ 49 $ 1,224 $ — $ 20 $ 1,293 2026 - 2030 313 84 — 10 407 2031 - 2035 337 — — 1 338 2036 - 2040 30 — — — 30 Indefinite 1 — 621 119 741 $ 730 $ 1,308 $ 621 $ 150 $ 2,809 77 | 2020 10-K As of September 3, 2020, our federal and state tax credit carryforward amounts and expiration periods, as reported to tax authorities, were as follows: Year of Tax Credit Expiration U.S. Federal State Total 2021 - 2025 $ — $ 43 $ 43 2026 - 2030 — 71 71 2031 - 2035 — 131 131 2036 - 2040 321 4 325 Indefinite — 81 81 $ 321 $ 330 $ 651 Below is a reconciliation of the beginning and ending amount of our unrecognized tax benefits: For the year ended 2020 2019 2018 Beginning unrecognized tax benefits $ 383 $ 261 $ 327 Increases related to tax positions from prior years 14 124 — Increases related to tax positions taken in current year 27 44 68 Decreases related to tax positions from prior years ( 13 ) ( 46 ) ( 126 ) Settlements with tax authorities — — ( 8 ) Ending unrecognized tax benefits $ 411 $ 383 $ 261 As of September 3, 2020, gross unrecognized tax benefits were $ 411 million, substantially all of which would affect our effective tax rate in the future, if recognized. Amounts accrued for interest and penalties related to uncertain tax positions were not material for any period presented. The resolution of tax audits or expiration of statute of limitations could also reduce our unrecognized tax benefits. Although the timing of final resolution is uncertain, the estimated potential reduction in our unrecognized tax benefits in the next 12 months would not be material. We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states, and various foreign jurisdictions throughout the world. We regularly engage in discussions and negotiations with tax authorities regarding tax matters, including transfer pricing, and we continue to defend any and all such claims presented. Our U.S. federal and state tax returns remain open to examination for 2016 through 2020. In addition, tax returns that remain open to examination in Japan range from the years 2014 to 2020 and in Singapore and Taiwan from 2015 to 2020. We believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations, or financial condition. Earnings Per Share For the year ended 2020 2019 2018 Net income attributable to Micron – Basic $ 2,687 $ 6,313 $ 14,135 Assumed conversion of debt ( 4 ) ( 12 ) — Net income attributable to Micron – Diluted $ 2,683 $ 6,301 $ 14,135 Weighted-average common shares outstanding – Basic 1,110 1,114 1,152 Dilutive effect of equity plans and convertible notes 21 29 77 Weighted-average common shares outstanding – Diluted 1,131 1,143 1,229 Earnings per share Basic $ 2.42 $ 5.67 $ 12.27 Diluted 2.37 5.51 11.51 78 Listed below are the potential common shares, as of the end of the periods shown, that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive: For the year ended 2020 2019 2018 Equity plans 5 8 3 Segment and Other Information Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments: Compute and Networking Business Unit (“CNBU”) : Includes memory products sold into client, cloud server, enterprise, graphics, and networking markets and sales of certain 3D XPoint products. Mobile Business Unit (“MBU”) : Includes memory products sold into smartphone and other mobile-device markets. Storage Business Unit (“SBU”) : Includes SSDs and component-level solutions sold into enterprise and cloud, client, and consumer storage markets, other discrete storage products sold in component and wafer form to the removable storage market, and sales of certain 3D XPoint products. Embedded Business Unit (“EBU”) : Includes memory and storage products sold into automotive, industrial, and consumer markets. Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments. As of September 3, 2020 and August 29, 2019, CNBU, MBU, SBU, and EBU had goodwill of $ 832 million, $ 198 million, $ 101 million, and $ 97 million, respectively. 79 | 2020 10-K For the year ended 2020 2019 2018 Revenue CNBU $ 9,184 $ 9,968 $ 15,252 MBU 5,702 6,403 6,579 SBU 3,765 3,826 5,022 EBU 2,759 3,137 3,479 All Other 25 72 59 $ 21,435 $ 23,406 $ 30,391 Operating income (loss) CNBU $ 2,010 $ 4,645 $ 9,773 MBU 1,074 2,606 3,033 SBU 36 ( 386 ) 964 EBU 301 923 1,473 All Other ( 2 ) 13 — 3,419 7,801 15,243 Unallocated Stock-based compensation ( 328 ) ( 243 ) ( 198 ) Restructure and asset impairments ( 60 ) 32 ( 28 ) Employee severance — ( 116 ) — Start-up and preproduction costs — ( 58 ) — Other ( 28 ) ( 40 ) ( 23 ) ( 416 ) ( 425 ) ( 249 ) Operating income $ 3,003 $ 7,376 $ 14,994 Depreciation and amortization expense included in operating income was as follows: For the year ended 2020 2019 2018 CNBU $ 2,318 $ 1,833 $ 1,755 MBU 1,436 1,235 1,077 SBU 1,115 1,555 1,295 EBU 741 748 603 All Other 12 27 18 Unallocated 28 26 11 $ 5,650 $ 5,424 $ 4,759 80 Certain Concentrations Revenue by market segment as an approximate percent of total revenue is presented in the table below: For the year ended 2020 2019 2018 Mobile 25 % 25 % 20 % Client and graphics 20 % 20 % 25 % Enterprise and cloud server 20 % 20 % 25 % SSDs and other storage 20 % 15 % 15 % Automotive, industrial, and consumer 15 % 15 % 10 % Revenue from Kingston Technology Company, Inc. was 11 %, 11 %, and 10 % of total revenue for 2020, 2019, and 2018, respectively. Revenue from Huawei Technologies Co. Ltd. was 12 % of total revenue for 2019. Our sales to Kingston were included in our CNBU, MBU, and SBU segments and our sales to Huawei were included in our MBU, CNBU, SBU, and EBU segments. We generally have multiple sources of supply for our raw materials and production equipment; however, only a limited number of suppliers are capable of delivering certain raw materials and production equipment that meet our standards and, in some cases, materials or production equipment are provided by a single supplier. Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, money market accounts, certificates of deposit, fixed-rate debt securities, trade receivables, share repurchase, and derivative contracts. We invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting investments with any single obligor and monitoring credit risk of bank counterparties on an ongoing basis. A concentration of credit risk may exist with respect to receivables of certain customers. We perform ongoing credit evaluations of customers worldwide and generally do not require collateral from our customers. Historically, we have not experienced material losses on receivables. A concentration of risk may also exist with respect to our foreign currency hedges as the number of counterparties to our hedges is limited and the notional amounts are relatively large. We seek to mitigate such risk by limiting our counterparties to major financial institutions and through entering into master netting arrangements. Geographic Information Revenue based on the geographic location of our customers’ headquarters was as follows: For the year ended 2020 2019 2018 United States $ 10,381 $ 12,451 $ 17,116 Taiwan 3,657 2,703 3,918 Mainland China (excluding Hong Kong) 2,337 3,595 3,607 Hong Kong 1,792 1,614 1,761 Japan 1,387 958 1,265 Other Asia Pacific 1,157 1,032 1,458 Other 724 1,053 1,266 $ 21,435 $ 23,406 $ 30,391 81 | 2020 10-K Long-lived assets by geographic area consisted of property, plant, and equipment and right-of-use assets and were as follows: As of 2020 2019 Taiwan $ 10,516 $ 9,397 Singapore 8,161 7,986 Japan 6,478 5,202 United States 5,434 5,048 China 478 370 Other 548 237 $ 31,615 $ 28,240 Quarterly Financial Information (in millions, except per share amounts) (Unaudited) 2020 Fourth Quarter Third Quarter Second Quarter First Quarter Revenue $ 6,056 $ 5,438 $ 4,797 $ 5,144 Gross margin 2,068 1,763 1,355 1,366 Operating income 1,157 888 440 518 Net income 990 805 407 508 Net income attributable to Micron 988 803 405 491 Earnings per share Basic $ 0.89 $ 0.72 $ 0.37 $ 0.44 Diluted 0.87 0.71 0.36 0.43 2019 Fourth Quarter Third Quarter Second Quarter First Quarter Revenue $ 4,870 $ 4,788 $ 5,835 $ 7,913 Gross margin 1,395 1,828 2,864 4,615 Operating income 650 1,010 1,957 3,759 Net income 586 851 1,625 3,296 Net income attributable to Micron 561 840 1,619 3,293 Earnings per share Basic $ 0.51 $ 0.76 $ 1.45 $ 2.91 Diluted 0.49 0.74 1.42 2.81 82 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Micron Technology, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Micron Technology, Inc. and its subsidiaries (the “Company”) as of September 3, 2020 and August 29, 2019, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended September 3, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended September 3, 2020 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of September 3, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 3, 2020 and August 29, 2019 , and the results of its operations and its cash flows for each of the three years in the period ended September 3, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 3, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in the Recently Adopted Accounting Standards note to the consolidated financial statements, the Company changed the manner in which it accounts for leases in the year ended September 3, 2020. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting 83 | 2020 10-K includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revised Useful Lives of Equipment in the NAND Wafer Fabrication Facilities As described in the Significant Accounting Policies and Property, Plant, and Equipment notes to the consolidated financial statements, the Company periodically assesses the estimated useful lives of its property, plant, and equipment. The Company’s consolidated property, plant, and equipment, net balance as of September 3, 2020 was $31 billion. Based on management’s assessment of planned technology node transitions, capital spending, and re-use rates, management revised the estimated useful lives of existing equipment in the NAND wafer fabrication facilities from five years to seven years as of the beginning of fiscal year 2020. The principal considerations for our determination that performing procedures relating to the revised useful lives of equipment in the NAND wafer fabrication facilities is a critical audit matter are the significant judgment by management in developing the revised estimate of useful lives, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures to evaluate the reasonableness of the significant assumptions used to estimate the revised useful lives of the equipment related to planned technology node transitions, capital spending, and re-use rates. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of the revised useful lives, significant assumptions, and data used to estimate the revised useful lives of equipment in the NAND wafer fabrication facilities. These procedures also included, among others, (i) testing management’s process for developing the seven year useful life, (ii) testing the completeness, accuracy, and relevance of underlying data used in the assessment, and (iii) evaluating the reasonableness of the significant assumptions used by management related to planned technology node transitions, capital spending, and re-use rates. Evaluating management’s assumptions related to planned technology node transitions, capital spending, and re-use rates involved evaluating whether the assumptions used by management were reasonable considering (i) planned technology node transitions based on industry data as compared to historical technology node transitions, (ii) historical trends of capital spending, and (iii) historical length of service of previously purchased equipment and re-use rates of equipment based on technology node transitions. Valuation of Inventories (Finished goods and Work in process) As described in the Significant Accounting Policies and Inventories notes to the consolidated financial statements, as of September 3, 2020, the Company had a net inventory balance for finished goods and work in process inventory totaling approximately $4.9 billion. As disclosed by management, determining the net realizable value of the Company’s net inventories involves significant judgments, including projecting future average selling prices and future sales volumes. 84 The principal considerations for our determination that performing procedures relating to the valuation of finished goods and work in process inventories is a critical audit matter are the significant judgment by management in determining the net realizable value of inventories, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures over the reasonableness of the significant assumptions related to future average selling prices and future sales volumes, used to estimate the net realizable value of finished goods and work in process inventories. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimate of the net realizable value of finished goods and work in process inventories, significant assumptions, and data used to value the inventories. These procedures also included, among others, testing management’s process for developing the net realizable value estimate of finished goods and work in process inventories; evaluating the appropriateness of management’s estimated net realizable value methodology; testing the completeness, accuracy, and relevance of underlying data used in the estimate of net realizable value of finished goods and work in process inventories; and evaluating the reasonableness of management’s assumptions, related to future average selling prices and future sales volumes. Evaluating management’s assumptions related to future average selling prices and future sales volumes involved evaluating whether the assumptions used by management were reasonable considering (i) current and past results, including recent sales, (ii) the consistency with external market, industry data and current contract prices, (iii) a comparison of the prior year estimates to actual results in the current year, and (iv) and whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ PricewaterhouseCoopers LLP San Jose, California October 19, 2020 We have served as the Company’s auditor since 1984. 85 | 2020 10-K ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.