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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended September 3, 2020. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2020 contains 53 weeks and our fiscal 2019 and 2018 each contain 52 weeks. Our fourth quarter of fiscal 2020 contained 14 weeks. All tabular dollar amounts are in millions, except per share amounts.

For an overview of our business, see “Part I – Item 1. Business – Overview.”

Impact of COVID-19 on Our Business

Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe, which has affected demand for certain of our products. While we have observed demand increases in some areas of our business that support a stay-at-home economy, such as products used in data center infrastructure, notebook computers, and similar applications, we have also observed demand decreases in other categories such as smartphones, consumer electronics, automotive, desktop PCs, and enterprise markets. The ultimate extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including new information that may emerge concerning the severity of the coronavirus and actions to contain and treat its impacts.

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While all our global sites are currently operating with close to full staff and at normal capacity levels, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates. We may be required to, or deem it to be in the best interest of our employees, customers, partners, suppliers, and stakeholders, to alter our business operations in order to maintain a healthy and safe environment. It is not clear what potential effects any such alterations or modifications may have on our business, including effects on our customers, employees, and prospects, or on our financial results. We are following government policies and recommendations designed to slow the spread of COVID-19 and remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities.

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

•We have put health screenings in place, required physical distancing, established team separation protocols, and made equipment upgrades at our facilities. We are also prohibiting visitors, have significantly decreased business travel, and are generally requiring team members to work from home where possible. Where work from home is not possible, all on-site team members must pass thermal scanning equipment to ensure they do not have an elevated body temperature and must wear a mask at all times.

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

•We have evaluated our supply chain and communicated with our suppliers to identify supply gaps and taken steps to ensure continuity. In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.

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

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

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

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

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

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Results of Operations

Consolidated Results

Other operating (income) expense, net 68 — % 49 — % (57) — %

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

Other non-operating income (expense), net 60 — % (405) (2) % (465) (2) %

Income tax (provision) benefit (280) (1) % (693) (3) % (168) (1) %

Equity in net income (loss) of equity method investees 7 — % 3 — % (1) — %

Net income attributable to noncontrolling interests (23) — % (45) — % (3) — %

Total Revenue:Total revenue for 2020 decreased 8% as compared to 2019 primarily due to a decline in DRAM sales partially offset by an increase in NAND sales. Sales of DRAM products for 2020 decreased 14% as compared to 2019 as average selling prices declined in the mid-30% range due to challenging market conditions, partially offset by growth in bit shipments in the low-30% range driven by cloud server, enterprise server, and mobile markets. Sales of NAND products for 2020 increased 14% as compared to 2019 primarily due to increases in bit shipments in the mid-20% range driven by sales of SSDs to data center customers and sales of managed NAND products, partially offset by a high-single digit percent decline in average selling prices.

The U.S. Bureau of Industry and Security (“BIS”) enacted broad trade restrictions with respect to Huawei (which represented approximately 10% of our revenue in the fourth quarter of 2020 and 12% in 2019) that took effect on September 15, 2020 and currently prevent us from shipping products to Huawei. We cannot predict the duration these restrictions will remain in place and whether the BIS will grant us licenses to ship products to Huawei. We may not be able to replace the lost revenue opportunities associated with such restrictions.

Total revenue for 2019 decreased 23% as compared to 2018 primarily due to pricing declines resulting from the challenging memory market environment in 2019. Sales of DRAM products for 2019 decreased 28% as compared to 2018 primarily due to declines in average selling prices of approximately 30% resulting from supply and demand imbalances, customer inventory corrections, and CPU shortages. Sales of NAND products for 2019 decreased 12% as compared to 2018 primarily due to declines in average selling prices in the mid-40% range resulting from supply and demand imbalances, which were partially offset by significant increases in sales volumes. In addition, demand for our NAND products was adversely affected by the transition from SATA SSDs to NVMe SSDs. The higher NAND sales volumes in 2019 were driven by increases in sales of high-value mobile managed NAND products as well as discrete NAND products enabled by our execution in ramping 64- and 96-layer TLC 3D NAND.

Overall Gross Margin:Our overall gross margin percentage decreased to 31% for 2020 from 46% for 2019, primarily due to declines in average selling prices, partially offset by the effect of decreases in non-cash depreciation expense from the revision in estimated useful lives of equipment in our NAND wafer fabrication facilities described below, cost reductions resulting from strong execution in delivering products featuring advanced technologies, and continuous improvement initiatives to reduce production costs. Our gross margins included the impact of underutilization costs at MTU of $557 million for 2020, $384 million for 2019, and $262 million for 2018. We expect underutilization costs at MTU to gradually decline through 2021 as we redeploy equipment and continue to right-size our capacity.

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

We periodically assess the estimated useful lives of our property, plant, and equipment. Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of the existing equipment in our NAND wafer fabrication facilities and our research and development facilities from five years to seven years as of the beginning of the first quarter of 2020. The revision in estimated useful lives reduced NAND manufacturing depreciation expense by approximately $565 million in 2020, of which approximately $165 million remained capitalized in inventory as of the end of 2020. Adjusting for the effect of the reduced amount of depreciation expense remaining in inventory, the revision in estimated useful lives benefited cost of goods sold by approximately $400 million for 2020.

Revenue by Business Unit

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

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

•CNBU revenue decreased 8% primarily due to DRAM price declines driven by imbalances in supply and demand, partially offset by bit sales growth across key markets, particularly in cloud server and graphics markets. In addition, in the second quarter of 2020, we determined that the 3D XPoint technology and product roadmap are more closely aligned with our CNBU strategy than our SBU strategy and 3D XPoint became an integral part of CNBU. Accordingly, we began to report all 3D XPoint activities within CNBU from that date.

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

•SBU revenue decreased 2% primarily due to the decline in 3D XPoint revenue in SBU after the first quarter of 2020 as noted above and NAND selling price declines, partially offset by bit sales growth for SSDs. SBU revenue included products manufactured and sold to Intel under a long-term supply agreement at prices approximating cost, which included 3D XPoint memory and NAND, aggregating $124 million, $682 million, and $541 million, for 2020, 2019, and 2018, respectively.

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

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

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

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

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

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

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Operating Income (Loss) by Business Unit

All Other (2) (8) % 13 18 % — — %

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

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

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

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

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

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

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

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

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

•SBU operating margin declined primarily due to declines in pricing, which were partially offset by manufacturing cost reductions and increases in sales volumes. SBU operating results for 2019 and 2018 were adversely impacted by the underutilization costs at IMFT.

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

Operating Expenses and Other

Research and Development:R&D expenses vary primarily with the number of development and pre-qualification wafers processed, amounts reimbursed under R&D cost-sharing agreements, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.

R&D expenses for 2020 were 7% higher as compared to 2019 primarily due to increases in volumes of development and pre-qualification wafers, a reduction of R&D reimbursements from our partners, increases in employee compensation, and increases in subcontractor expense, partially offset by lower depreciation expense from the revision of the estimated useful lives of equipment. R&D expenses were reduced by $110 million in 2020 due to the revision of the estimated useful lives of equipment. R&D expenses for 2019 were 14% higher as compared to 2018 primarily due to decreases in reimbursements from our R&D cost-sharing arrangements, increases in depreciation expense as a result of increases in capital spending, and increases in employee compensation.

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We shared the cost of certain product and process development activities with development partners, including agreements to jointly develop NAND and 3D XPoint technologies with Intel. We substantially completed our cost-sharing agreements with Intel to develop 3D NAND and 3D XPoint technology in 2019 and 2020, respectively. Our R&D expenses were reduced by $60 million for 2019 and $201 million for 2018 from reimbursements under these arrangements. Reimbursements were not significant in 2020.

Selling, General, and Administrative:SG&A expenses for 2020 were 5% higher as compared to 2019 due to increases in employee compensation and legal costs, partially offset by a reduction in consulting fees. SG&A expenses for 2019 were 3% higher as compared to 2018 primarily due to increases in legal costs and consulting fees, partially offset by a reduction in employee compensation and sales commissions.

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

Income tax (provision) benefit, excluding items below $ (117) $ (530) $ (274)

Effective tax rate 9.4 % 9.8 % 1.2 %

Our income tax provision decreased in 2020 as compared to 2019 primarily as a result of reductions in our profit before tax. Our effective tax rate increased in 2019 as compared to 2018 primarily as a result of the Foreign Minimum Tax. In December 2017, the United States enacted the Tax Cuts and Jobs Act (the “Tax Act”), which imposed a one-time transition tax in 2018 (the “Repatriation Tax”) and, beginning in 2019, created a new minimum tax on certain foreign earnings (the “Foreign Minimum Tax”). We recognize the Foreign Minimum Tax in the period the tax is incurred.

We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements reduced our tax provision by $215 million (benefiting our diluted earnings per share by $0.19) for 2020, by $756 million ($0.66 per diluted share) for 2019, and by $1.96 billion ($1.59 per diluted share) for 2018.

(See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes.”)

Other: Interest expense for 2020 increased 52% as compared to 2019 primarily due to an increase in the average level of outstanding debt obligations in 2020 as compared to 2019 and to a reduction in the amount of interest expense capitalized in 2020 as compared to 2019 resulting from lower levels of capital projects in process. Interest income for 2020 decreased 44% as compared to 2019 as a result of decreases in interest rates, partially offset by higher average levels of cash and investment balances.

Interest expense for 2019 decreased 63% as compared to 2018 primarily due to prepayments, repurchases, and conversions of debt and to an increase in the amount of interest expense capitalized from higher levels of capital spending, partially offset by increases in debt obligations. Interest income for 2019 increased 71% as compared to 2018 primarily due to increases in interest rates.

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Further discussion of other operating and non-operating income and expenses can be found in the following notes contained in “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements”:

•Equity Plans

•Research and Development

•Other Operating Income (Expense), Net

•Other Non-Operating Income (Expense), Net

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. As of September 3, 2020, $2.50 billion was available to draw under our Revolving Credit Facility. We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.

To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate capital expenditures in 2021 for property, plant, and equipment, net of partner contributions, to be approximately $9 billion, focused on technology transitions and product enablement, and expect the timing of our capital expenditures to be more heavily weighted toward the first half of 2021. Actual amounts for 2021 will vary depending on market conditions. As of September 3, 2020, we had purchase obligations of approximately $2.95 billion for the acquisition of property, plant, and equipment, of which approximately $2.76 billion is expected to be paid within one year.

Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to a Rule 10b5-1 trading plan. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. Through September 3, 2020, we had repurchased an aggregate of $2.84 billion of the authorized amount. See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity.”

Cash and marketable investments totaled $9.19 billion as of September 3, 2020 and $9.12 billion as of August 29, 2019. Our investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor. As of September 3, 2020, $3.30 billion of our cash and marketable investments was held by our foreign subsidiaries.

Cash Flows:

Net cash provided by (used for) investing activities (7,589) (10,085) (8,216)

Net cash provided by (used for) financing activities (317) (2,438) (7,776)

Net increase in cash, cash equivalents, and restricted cash $ 411 $ 692 $ 1,371

Operating Activities: Cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effects of changes in operating assets and liabilities. The decrease in cash provided by operating activities for 2020 and 2019 was primarily due to lower net income compared with the prior period and changes in working capital.

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

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

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

Financing Activities: For 2020, net cash used for financing activities consisted primarily of $4.37 billion of cash payments to reduce our debt, including $2.50 billion to pay down borrowings under our Revolving Credit Facility, $621 million for IMFT Member Debt repayments, $534 million to prepay our 2025 Notes, $266 million to settle conversions of notes, and $248 million for scheduled repayment of finance leases; $744 million for the acquisition of Intel’s noncontrolling interest in IMFT; and $176 million for the acquisition of 3.6 million shares of our common stock under our $10 billion share repurchase authorization. Cash used for financing activities was partially offset by proceeds of $2.50 billion from our Revolving Credit Facility, $1.25 billion from the 2023 Notes, and $1.25 billion from the 2024 Term Loan A.

For 2019, net cash used for financing activities consisted primarily of $2.66 billion for the acquisition of 67 million shares of treasury stock under our $10 billion share repurchase authorization and cash payments to reduce our debt, including $1.65 billion to settle conversions of notes, $728 million to prepay the 2022 Term Loan B, $316 million for IMFT Member Debt repayments, and $643 million for scheduled repayment of other notes and capital leases. Cash used for financing activities was partially offset by net proceeds of $3.53 billion from the aggregate issuance of the 2024 Notes, 2026 Notes, 2027 Notes, 2029 Notes, and 2030 Notes.

For 2018, net cash used for financing activities consisted primarily of cash payments to reduce our debt, including $9.42 billion to prepay or repurchase debt and settle conversions of notes and $774 million for scheduled repayment of other notes and capital leases. Cash used for financing activities was partially offset by net proceeds of $1.36 billion from the issuance of 34 million shares of our common stock for $41.00 per share in a public offering and $1.01 billion of proceeds from IMFT Member Debt.

See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

Potential Settlement Obligations of Convertible Notes:See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – 2032D Convertible Senior Notes.”

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Contractual Obligations:

Payments Due by Period

(1)Amounts include principal and interest.

(2)Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year.

(3)Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make specified minimum payments even if we do not take delivery of the contracted products or services. If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table. If the obligation is cancelable, but we would incur a penalty if canceled, only the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in any take-or-pay contracts were included in the above table as they represent the portion of each contract that is a firm commitment. Purchase obligations also included $838 million for leases that have been executed but have not yet commenced. Such amounts will be reclassified as lease obligations in the table above at the time such assets become available for our use.

(4)Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, including $168 million for the current portion of these long-term liabilities. We are unable to reliably estimate the timing of future certain payments related to uncertain tax positions and deferred tax liabilities; therefore, the amount has been excluded from the preceding table. However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and deferred tax liabilities.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires 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 vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments.

Business acquisitions: Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially affect the amount and timing of costs recognized in subsequent periods. Accounting for acquisitions can also involve significant judgment to determine when control of the acquired entity is transferred. We typically obtain independent third-party valuation studies to assist in determining fair values, including assistance in determining future cash flows, discount rates, and comparable market values. Items involving significant assumptions, estimates, and judgments include the following:

•Debt, including discount rate and timing of payments;

•Deferred tax assets, including projections of future taxable income and tax rates;

•Fair value of consideration paid or transferred;

•Intangible assets, including valuation methodology, estimations of future revenue and costs, profit allocation rates attributable to the acquired technology, and discount rates;

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•Inventory, including estimated future selling prices, timing of product sales, and completion costs for work in process; and

•Property, plant, and equipment, including determination of values in a continued-use model.

Consolidation: We have interests in entities that are Variable Interest Entities (“VIEs”). Determining whether to consolidate a VIE requires judgment in assessing whether an entity is a VIE and if we are the entity’s primary beneficiary. 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.

Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods.

Goodwill and intangible assets: We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.

Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, and other expenses and are developed as part of our long-range planning process. The same estimates are used in business planning, forecasting, and capital budgeting as part of our long-term manufacturing capacity analysis. We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts’ consensus pricing, and management’s expectations. These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value. The discount rate requires determination of appropriate market comparables. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

We test other identified intangible assets with definite useful lives when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. Estimating fair values involves significant assumptions, including future sales prices, sales volumes, costs, and discount rates.

Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which

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requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefited from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and the United States. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.

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. Determining net realizable value of inventories involves significant judgments, including projecting future average selling prices and future sales volumes. To project average selling prices and sales volumes, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. When these analyses reflect estimated net realizable values below our manufacturing costs, we record a charge to cost of goods sold in advance of when inventories are actually sold. Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately $525 million as of September 3, 2020. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly.

U.S. GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group.

Property, plant, and equipment: We periodically assess the estimated useful lives of our property, plant, and equipment based on technology node transitions, capital spending, and equipment re-use rates. Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of the existing equipment in our NAND wafer fabrication facilities and our research and development (“R&D”) facilities from five years to seven years as of the beginning of the first quarter of 2020. See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Property, Plant, and Equipment.”

We also review the carrying value of property, plant, and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimate of future cash flows involves numerous assumptions which require significant judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products, and future production and sales volumes. In addition, significant judgment is required in determining the groups of assets for which impairment tests are separately performed.

Research and development: Costs related to the conceptual formulation and design of products and processes are expensed as R&D as incurred. Determining when product development is complete requires significant judgment. We deem development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. Subsequent to product qualification, product costs are included in cost of goods sold.

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

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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 estimated at the grant date based on the fair value of the award and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-based stock awards, the expense recognized is dependent on our assessment of the likelihood of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires significant judgment.

Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires significant judgment, including estimating stock price volatility and expected option life. We develop these estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock options and awards granted under our employee stock purchase plan. We estimate stock price volatility based on an average of historical volatility and the implied volatility derived from traded options on our stock.

Recently Adopted Accounting Standards

See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards.”

Recently Issued Accounting Standards

See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk related to our indebtedness and our investment portfolio. As of September 3, 2020 and August 29, 2019, we had fixed-rate debt of $4.9 billion and $5.3 billion, respectively, and as a result, the fair value of our debt fluctuates with changes in market interest rates. We estimate that, as of September 3, 2020 and August 29, 2019, a decrease in market interest rates of 1% would increase the fair value of our fixed-rate debt by nearly $300 million. As of September 3, 2020, we had variable-rate debt of $1.25 billion and, therefore, a 1% increase in the interest rates of our variable-rate debt would result in an increase in annual interest expense of approximately $13 million. As of August 29, 2019, we had no variable rate debt.

Foreign Currency Exchange Rate Risk

The information in this section should be read in conjunction with the information related to changes in the currency exchange rates in “Part I – Item 1A. Risk Factors.” Changes in currency exchange rates could materially adversely affect our results of operations or financial condition.

The functional currency for all of our operations is the U.S. dollar. The substantial majority of our sales are transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases, and certain assets and liabilities, are incurred in or exposed to other currencies, primarily the euro, New Taiwan dollar, Singapore dollar, and yen. We have established currency risk management programs for our monetary assets and liabilities denominated in foreign currencies to hedge against fluctuations in the fair value and volatility of future cash flows caused by changes in currency exchange rates. We generally utilize currency forward contracts in these

45 | 2020 10-K

hedging programs, which reduce, but do not always entirely eliminate, the impact of currency exchange rate movements. We do not use derivative financial instruments for trading or speculative purposes.

Based on monetary assets and liabilities denominated in foreign currencies, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $98 million as of September 3, 2020 and $149 million as of August 29, 2019. We hedge our exposure to changes in currency exchange rates by utilizing a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within three months. The effectiveness of our hedges is dependent, among other factors, upon our ability to accurately measure exposures on a timely basis. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital expenditures and manufacturing costs, we may utilize currency forward contracts that generally mature within two years. (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Derivative Instruments.”)

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Micron Technology, Inc.

Consolidated Statements of Operations

(in millions, except per share amounts)

Selling, general, and administrative 881 836 813

Other operating (income) expense, net 68 49 (57)

Other non-operating income (expense), net 60 (405) (465)

Income tax (provision) benefit (280) (693) (168)

Equity in net income (loss) of equity method investees 7 3 (1)

Net income attributable to noncontrolling interests (23) (45) (3)

Earnings per share

Number of shares used in per share calculations

See accompanying notes to consolidated financial statements.

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Micron Technology, Inc.

Consolidated Statements of Comprehensive Income

(in millions)

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)

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.

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Micron Technology, Inc.

Consolidated Balance Sheets

(in millions, except par value amounts)

Assets

Long-term marketable investments 1,048 1,164

Operating lease right-of-use assets 584 —

Other noncurrent assets 781 575

Liabilities and equity

Accounts payable and accrued expenses $ 5,817 $ 4,626

Other current liabilities 548 454

Noncurrent operating lease liabilities 533 —

Noncurrent unearned government incentives 643 636

Other noncurrent liabilities 498 452

Commitments and contingencies

Redeemable noncontrolling interest — 98

Micron shareholders’ equity

Accumulated other comprehensive income (loss) 71 9

Noncontrolling interest in subsidiary — 889

See accompanying notes to consolidated financial statements.

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Micron Technology, Inc.

Consolidated Statements of Changes in Equity

(in millions)

Micron Shareholders

Numberof Shares Amount

Other comprehensive income (loss), net — — — — — (19) (19) — (19)

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

Cumulative effect from adoption of new accounting standards — — — 92 — — 92 — 92

Other comprehensive income (loss), net — — — — — (1) (1) — (1)

Stock-based compensation expense — — 243 — — — 243 — 243

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)

Other comprehensive income (loss), net — — — — — 62 62 — 62

Stock-based compensation expense — — 328 — — — 328 — 328

Settlement of capped calls — — 98 — (98) — — — —

Acquisitions of noncontrolling interests — — 120 — — — 120 (904) (784)

Cash settlement of convertible notes — — (56) — — — (56) — (56)

See accompanying notes to consolidated financial statements.

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Micron Technology, Inc.

Consolidated Statements of Cash Flows

(in millions)

Cash flows from operating activities

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

(Gains) losses on debt prepayments, repurchases, and conversions (40) 396 385

Change in operating assets and liabilities

Accounts payable and accrued expenses 725 (174) 668

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

Net cash provided by (used for) investing activities (7,589) (10,085) (8,216)

Cash flows from financing activities

Acquisition of noncontrolling interest in IMFT (744) — —

Payments to acquire treasury stock (251) (2,729) (71)

Payments on equipment purchase contracts (63) (75) (206)

Net cash provided by (used for) financing activities (317) (2,438) (7,776)

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.

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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 XPointmemory, 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.

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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.

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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.

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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.

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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:

Cash, cash equivalents, and restricted cash $ 7,690 $ 7,279

(1)The maturities of long-term marketable securities range fromone tofour 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

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Inventories

Raw materials and supplies 752 536

Property, Plant, and Equipment

(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

As of GrossAmount AccumulatedAmortization GrossAmount AccumulatedAmortization

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.

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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

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.

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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

Less imputed interest (103) (120)

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

Property, plant, and equipment 2,374 1,782

Salaries, wages, and benefits 849 695

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Debt

Net Carrying Amount Net Carrying Amount

IMFT Member Debt N/A N/A — — — — 693 693 — 693

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.

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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.

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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.

Issuances

Prepayments

Settled conversions

(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.

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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:

Unamortized discounts (28)

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

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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

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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.

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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

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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:

Other comprehensive income before reclassifications 51 25 8 — 84

Tax effects (9) (7) (1) — (17)

Other comprehensive income (loss) 46 15 1 — 62

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Noncontrolling Interest in Subsidiary

As of Balance Percentage Balance Percentage

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:

As of FairValue CarryingValue FairValue CarryingValue

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.

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Derivative Instruments

Gross Notional Amount Fair Value of

Assets(1) Liabilities(2)

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)

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)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

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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

Restrictions lapsed (6) 29.34

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

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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:

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:

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.

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Stock-based Compensation Expense

Stock-based compensation expense by caption

Selling, general, and administrative 103 73 61

Research and development 86 68 54

Stock-based compensation expense by type of award

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.

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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.):

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.

Contract liabilities from customer advances $ 40 $ 61

Other contract liabilities 25 69

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.

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Other Operating (Income) Expense, Net

Restructure and asset impairments $ 60 $ (29) $ 28

(Gain) loss on disposition of property, plant, and equipment (3) 43 (96)

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

Gain (loss) from changes in currency exchange rates (8) (9) (75)

Income Taxes

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

Income tax (provision) benefit

Current

U.S. federal $ (20) $ (36) $ (54)

Deferred

Income tax (provision) benefit $ (280) $ (693) $ (168)

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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:

Change in unrecognized tax benefits (33) 1.1 % (59) 0.8 % 60 (0.4) %

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 %

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.

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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:

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

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) —

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

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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

Below is a reconciliation of the beginning and ending amount of our unrecognized tax benefits:

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

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