UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
x☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OFIF 1934
For the quarterly period ended March 1, 2018
November 28, 2019
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission file number 1-10658
mu-20191128_g1.jpg
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware75-1618004
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
incorporation or organization)
8000 S. Federal Way, Boise, Idaho83716-9632
(Address of principal executive offices)(Zip Code)
Registrant'sRegistrant’s telephone number, including area code(208) 368-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.10 per shareMUNASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Tx No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Tx No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filerx
Accelerated Filero
Non-Accelerated Filero
(Do not check if a smaller reporting company)
Smaller Reporting Companyo
Emerging Growth Companyo
☒☐☐☐☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No x

The number of outstanding shares of the registrant's common stock as of March 16, 2018December 13, 2019 was 1,159,764,549.1,110,873,554.




Micron
Company
Profile
mu-20191128_g2.jpg
Founded over 40 years ago
on October 5, 1978
Headquartered in
Boise, Idaho, USA
4th
Largest semiconductor company
in the world*
18
Countries*
13
Manufacturing sites and
13 customer labs*
37,000
Team members*
It’s All About Data
Data is today’s new business currency, and memory and storage are emerging as strategic differentiators that will redefine how we extract value from data to learn, explore, communicate, and experience.
Who We Are
For over 40 years, Micron’s memory and storage solutions have been foundational to innovations that have transformed the world in countless ways. Our technology and expertise are core to computers that boot up in an instant and work harder and faster; mobile phones with brilliant screen resolution and longer battery life; and new business models that are disrupting entire industries faster than ever – such as entertainment, manufacturing, and finance.
Our Vision
As a global leader in memory and storage solutions, we are transforming how the world uses information to enrich life by enabling technologies to collect, store, and manage data with unprecedented speed and efficiency. We are accelerating the transformation of information into intelligence – inspiring the world to learn, communicate, and advance faster than ever.
Our Commitment
*Micron data as of August 29, 2019.
Gartner Market Share: Semiconductors by End Market, Worldwide, 2018 (April 2019)
Micron’s dedication to employee health and safety, environmental quality, diversity and inclusion, and community engagement is part of our commitment worldwide. This dedication includes working toward building and maintaining sustainable operations, products, and supply chains around the globe. Through the Micron Foundation, we provide opportunities for learning and enrichment by sharing our resources and people in the communities where our team members live and work.
Media Inquiries
mediarelations@micron.com
Government Inquiries
govaffairs@micron.com
Investor Inquiries
investorrelations@micron.com

Global Product Portfolio
DRAM | NAND | 3D XPointTM Memory | NOR | Solid-State Drives
Multichip Packages | Advanced Solutions | High Bandwidth Memory (HBM)
Connect with us on micron.com
© 2019 Micron Technology, Inc. All rights reserved. Micron and the Micron logo are trademarks of Micron Technology, Inc. All other trademarks are the property of their respective owners. Products are warranted only to meet Micron’s production data sheet specifications. Products and specifications are subject to change without notice. Rev 10/19


Table of Contents

Introduction
2
Part I. Financial Statements

Item 1.Financial Statements:
Consolidated Statements of Operations
3
Consolidated Statements of Comprehensive Income
4
Consolidated Balance Sheets
5
Consolidated Statements of Changes in Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
8
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
Results of Operations
26
Liquidity and Capital Resources
29
Item 3.Quantitative and Qualitative Disclosures about Market Risk
31
Item 4.Controls and Procedures
31
Part II. Other Information

Item 1.Legal Proceedings
31
Item 1A.Risk Factors
32
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
48
Item 6.Exhibits
48
Signatures
49


mu-20191128_g3.jpg1

Definitions of Commonly Used Terms

As used herein, “we,” “our,” “us,” and similar terms include Micron Technology, Inc. and our consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
TermDefinitionTermDefinition
2022 Term Loan BSenior Secured Term Loan B due 2022IMFTIM Flash Technologies, LLC
2024 Term Loan ASenior Term Loan A due 2024IntelIntel Corporation
2024 Notes5.25% Senior Notes due 2024MCPMulti-Chip Package
2025 Notes5.50% Senior Notes due 2025MicronMicron Technology, Inc. (Parent Company)
2026 Notes5.63% Senior Notes due 2026MMJMicron Memory Japan, G.K.
2027 Notes4.19% Senior Notes due 2027MMTMicron Memory Taiwan Co., Ltd.
2029 Notes5.33% Senior Notes due 2029MTTWMicron Technology Taiwan, Inc.
2030 Notes4.66% Senior Notes due 2030MTUMicron Technology Utah, LLC
2032D Notes3.13% Convertible Senior Notes due 2032QimondaQimonda AG
2033F Notes2.13% Convertible Senior Notes due 2033SSDSolid State Drive
DDRDouble Data RateVIEVariable Interest Entity
GDDRGraphics Double Data Rate





Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands –— Micron,®, Crucial,®, and Ballistix® – — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash,3D XPointmemory, and 3D XPointTM memory,NOR, is transforming how the world uses information to enrich life. Backed by nearly 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 cloud,mobile, data center, networking,client, consumer, industrial, graphics, automotive, and mobile.networking.


Micron Crucial, Ballistix, any associated logos, and all otherthe Micron orbit logo are trademarks are the property of Micron.Micron Technology, Inc. 3D XPoint is a trademark of Intel in the United States and/or other countries. Other product names orAll other trademarks that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarksproperty of their respective owners.


Forward-Looking Statements


This Form 10-Q contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made regarding timingchanges in underutilization of product introductions; our expected NAND development activities with Intel; the effect of U.S. tax reform; our expectation to engage, from time to time, in additional financing transactions;Lehi, Utah manufacturing capacity (previously known as IMFT and now known as MTU); the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements for at least the next 12 months;financing; and capital spending in 2018.2020. We are under no obligation to update these forward-looking statements. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Part“Part II, Other Information – Item 1A. Risk Factors."”

Definitions of Commonly Used Terms

As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and our consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
2 | 2020 Q1 10-Q
TermDefinitionTermDefinition
2021 MSAC Term LoanVariable Rate MSAC Senior Secured Term Loan due 2021IntelIntel Corporation
2021 MSTW Term LoanVariable Rate MSTW Senior Secured Term Loan due 2021Japan CourtTokyo District Court
2022 Term Loan BSenior Secured Term Loan B due 2022MicronMicron Technology, Inc. (Parent Company)
2023 Notes5.25% Senior Notes due 2023MMJMicron Memory Japan, Inc.
2023 Secured Notes7.50% Senior Secured Notes due 2023MMJ GroupMMJ and its subsidiaries
2024 Notes5.25% Senior Notes due 2024MMTMicron Memory Taiwan Co., Ltd.
2025 Notes5.50% Senior Notes due 2025MSPMicron Semiconductor Products, Inc.
2026 Notes5.63% Senior Notes due 2026MSTWMicron Semiconductor Taiwan Co., Ltd.
2032C Notes2.38% Convertible Senior Notes due 2032MTTWMicron Technology Taiwan, Inc.
2032D Notes3.13% Convertible Senior Notes due 2032QimondaQimonda AG
2033 Notes2033E and 2033F NotesR&DResearch and Development
2033E Notes1.63% Convertible Senior Notes due 2033SG&ASelling, General, and Administrative
2033F Notes2.13% Convertible Senior Notes due 2033SSDSolid-State Drive
2043G Notes3.00% Convertible Senior Notes due 2043Tera ProbeTera Probe, Inc.
IMFTIM Flash Technologies, LLCTLCTriple-Level Cell
InoteraInotera Memories, Inc.VIEVariable Interest Entity




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


MICRON TECHNOLOGY, INC.Micron Technology, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONSConsolidated Statements of Operations
(inIn millions, except per share amounts)
(Unaudited)


Three months endedNovember 28,
2019		November 29,
2018
Revenue$5,144  $7,913  
Cost of goods sold3,778  3,298  
Gross margin1,366  4,615  
Selling, general, and administrative211  209  
Research and development640  611  
Other operating (income) expense, net(3) 36  
Operating income518  3,759  
Interest income44  38  
Interest expense(47) (33) 
Other non-operating income (expense), net46  9  
561  3,773  
Income tax (provision) benefit(55) (477) 
Equity in net income (loss) of equity method investees2  —  
Net income508  3,296  
Net income attributable to noncontrolling interests(17) (3) 
Net income attributable to Micron$491  $3,293  
Earnings per share
Basic$0.44  $2.91  
Diluted0.43  2.81  
Number of shares used in per share calculations
Basic1,107  1,133  
Diluted1,129  1,174  
 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Net sales$7,351
 $4,648
 $14,154
 $8,618
Cost of goods sold3,081
 2,944
 6,137
 5,903
Gross margin4,270
 1,704
 8,017
 2,715
        
Selling, general, and administrative196
 187
 387
 346
Research and development523
 473
 971
 943
Other operating (income) expense, net(16) —
 (5) 23
Operating income3,567
 1,044
 6,664
 1,403
        
Interest income27
 8
 50
 15
Interest expense(88) (161) (212) (300)
Other non-operating income (expense), net(53) 34
 (257) 20
 3,453
 925
 6,245
 1,138
        
Income tax (provision) benefit(143) (38) (257) (69)
Equity in net income (loss) of equity method investees1
 7
 1
 5
Net income3,311
 894
 5,989
 1,074
        
Net (income) attributable to noncontrolling interests(2) —
 (2) —
Net income attributable to Micron$3,309
 $894
 $5,987
 $1,074
        
Earnings per share       
Basic$2.86
 $0.81
 $5.23
 $1.00
Diluted2.67
 0.77
 4.86
 0.95
        
Number of shares used in per share calculations       
Basic1,156
 1,099
 1,145
 1,070
Diluted1,238
 1,160
 1,232
 1,125




















See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.
mu-20191128_g4.jpg3


Micron Technology, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEConsolidated Statements of Comprehensive Income
(inIn millions)
(Unaudited)


Three months endedNovember 28,
2019		November 29,
2018
Net income$508  $3,296  
Other comprehensive income (loss), net of tax
Gains (losses) on investments(5) (3) 
Pension liability adjustments(1) —  
Gains (losses) on derivative instruments3  (12) 
Other comprehensive income (loss)(3) (15) 
Total comprehensive income505  3,281  
Comprehensive income attributable to noncontrolling interests(17) (3) 
Comprehensive income attributable to Micron$488  $3,278  
 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Net income$3,311
 $894
 $5,989
 $1,074
        
Other comprehensive income (loss), net of tax       
Gain (loss) on derivatives, net18
 —
 15
 (7)
Pension liability adjustments2
 —
 1
 (1)
Gain (loss) on investments, net(1) —
 (2) (1)
Foreign currency translation adjustments—
 —
 —
 37
Other comprehensive income (loss)19
 —
 14
 28
Total comprehensive income3,330
 894
 6,003
 1,102
Comprehensive (income) attributable to noncontrolling interests(2) —
 (2) —
Comprehensive income attributable to Micron$3,328
 $894
 $6,001
 $1,102





































































See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.
4| 2020 Q1 10-Q


Micron Technology, Inc.
CONSOLIDATED BALANCE SHEETSConsolidated Balance Sheets
(inIn millions, except par value amounts)
(Unaudited)

As of March 1,
2018		 August 31,
2017
Assets    
Cash and equivalents $7,828
 $5,109
Short-term investments 214
 319
Receivables 4,437
 3,759
Inventories 3,184
 3,123
Other current assets 173
 147
Total current assets 15,836
 12,457
Long-term marketable investments 520
 617
Property, plant, and equipment, net 21,864
 19,431
Intangible assets, net 348
 387
Deferred tax assets 1,026
 766
Goodwill 1,228
 1,228
Other noncurrent assets 441
 450
Total assets $41,263
 $35,336
     
Liabilities and equity    
Accounts payable and accrued expenses $4,194
 $3,664
Deferred income 427
 408
Current debt 1,514
 1,262
Total current liabilities 6,135
 5,334
Long-term debt 7,802
 9,872
Other noncurrent liabilities 746
 639
Total liabilities 14,683
 15,845
     
Commitments and contingencies 

 

     
Redeemable convertible notes 14
 21
     
Micron shareholders' equity    
Common stock, $0.10 par value, 3,000 shares authorized, 1,165 shares issued and 1,158 outstanding (1,116 shares issued and 1,112 outstanding as of August 31, 2017) 116
 112
Additional capital 9,604
 8,287
Retained earnings 16,247
 10,260
Treasury stock, 7 shares (4 shares as of August 31, 2017) (313) (67)
Accumulated other comprehensive income 43
 29
Total Micron shareholders' equity 25,697
 18,621
Noncontrolling interests in subsidiaries 869
 849
Total equity 26,566
 19,470
Total liabilities and equity $41,263
 $35,336



As ofNovember 28,
2019		August 29,
2019
Assets
Cash and equivalents$6,969  $7,152  
Short-term investments619  803  
Receivables3,419  3,195  
Inventories4,943  5,118  
Other current assets217  235  
Total current assets16,167  16,503  
Long-term marketable investments599  1,164  
Property, plant, and equipment29,352  28,240  
Intangible assets333  340  
Deferred tax assets783  837  
Goodwill1,228  1,228  
Operating lease right-of-use assets608  —  
Other noncurrent assets579  575  
Total assets$49,649  $48,887  
Liabilities and equity
Accounts payable and accrued expenses$5,408  $4,626  
Current debt462  1,310  
Other current liabilities447  454  
Total current liabilities6,317  6,390  
Long-term debt5,188  4,541  
Noncurrent operating lease liabilities511  —  
Noncurrent unearned government incentives609  636  
Other noncurrent liabilities426  452  
Total liabilities13,051  12,019  
Commitments and contingencies
Redeemable noncontrolling interest98  98  
Micron shareholders’ equity
Common stock, $0.10 par value, 3,000 shares authorized, 1,185 shares issued and 1,108 outstanding (1,182 shares issued and 1,106 outstanding as of August 29, 2019)119  118  
Additional capital8,428  8,214  
Retained earnings31,218  30,761  
Treasury stock, 77 shares held (76 shares as of August 29, 2019)(3,271) (3,221) 
Accumulated other comprehensive income6  9  
Total Micron shareholders’ equity36,500  35,881  
Noncontrolling interest in subsidiary—  889  
Total equity36,500  36,770  
Total liabilities and equity$49,649  $48,887  
See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.
mu-20191128_g5.jpg5


Micron Technology, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWSConsolidated Statements of Changes in Equity
(inIn millions)
(Unaudited)
Six months ended March 1,
2018		 March 2,
2017
Cash flows from operating activities    
Net income $5,989
 $1,074
Adjustments to reconcile net income to net cash provided by operating activities  
  
Depreciation expense and amortization of intangible assets 2,241
 1,774
Amortization of debt discount and other costs 55
 63
Loss on debt repurchases and conversions 218
 1
Stock-based compensation 103
 101
Gain on remeasurement of previously-held equity interest in Inotera —
 (71)
Change in operating assets and liabilities  
  
Receivables (630) (773)
Inventories (62) 174
Accounts payable and accrued expenses 93
 399
Payments attributed to intercompany balances with Inotera —
 (361)
Deferred income taxes, net (262) 59
Other noncurrent liabilities 229
 (23)
Other 10
 126
Net cash provided by operating activities 7,984
 2,543
     
Cash flows from investing activities  
  
Expenditures for property, plant, and equipment (4,217) (2,428)
Purchases of available-for-sale securities (502) (803)
Payments to settle hedging activities (28) (249)
Acquisition of Inotera —
 (2,634)
Proceeds from sales of available-for-sale securities 562
 548
Proceeds from maturities of available-for-sale securities 138
 72
Proceeds from settlement of hedging activities 111
 74
Other 93
 35
Net cash provided by (used for) investing activities (3,843) (5,385)
     
Cash flows from financing activities  
  
Repayments of debt (3,379) (556)
Payments on equipment purchase contracts (153) (33)
Proceeds from issuance of stock 1,554
 68
Proceeds from issuance of debt 650
 2,961
Other (92) (99)
Net cash provided by (used for) financing activities (1,420) 2,341
     
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 4
 (33)
     
Net increase (decrease) in cash, cash equivalents, and restricted cash 2,725
 (534)
Cash, cash equivalents, and restricted cash at beginning of period 5,216
 4,263
Cash, cash equivalents, and restricted cash at end of period $7,941
 $3,729


Micron Shareholders  
Common StockAdditional CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive
Income (Loss)		Total Micron Shareholders’ EquityNoncontrolling Interest in SubsidiaryTotal Equity
Number
of Shares		Amount
Balance at August 29, 20191,182  $118  $8,214  $30,761  $(3,221) $9  $35,881  $889  $36,770  
Net income491  491  15  506  
Other comprehensive income (loss), net(3) (3) (3) 
Stock issued under stock plans3  1  31  32  32  
Stock-based compensation expense72  72  72  
Repurchase of stock—  —  (6) (34) (50) (90) (90) 
Acquisition of noncontrolling interest123  123  (904) (781) 
Conversion and repurchase of convertible notes(6) (6) (6) 
Balance at November 28, 20191,185  $119  $8,428  $31,218  $(3,271) $6  $36,500  $—  $36,500  

Micron Shareholders  
Common StockAdditional CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive
Income (Loss)		Total Micron Shareholders’ EquityNoncontrolling Interests in SubsidiariesTotal Equity
Number
of Shares		Amount
Balance at August 30, 20181,170  $117  $8,201  $24,395  $(429) $10  $32,294  $870  $33,164  
Cumulative effect of adopting new accounting standards92  92  92  
Net income3,293  3,293  —  3,293  
Other comprehensive income (loss), net(15) (15) (15) 
Stock issued under stock plans3  —  15  15  15  
Stock-based compensation expense61  61  61  
Repurchase of stock(1) —  108  (11) (1,933) (1,836) (1,836) 
Reclassification of redeemable convertible notes, net1  1  1  
Conversion and repurchase of convertible notes(36) (36) (36) 
Balance at November 29, 20181,172  $117  $8,350  $27,769  $(2,362) $(5) $33,869  $870  $34,739  












See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.
6 | 2020 Q1 10-Q


Micron Technology, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

Three months endedNovember 28,
2019		November 29,
2018
Cash flows from operating activities
Net income$508  $3,296  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation expense and amortization of intangible assets1,296  1,335  
Amortization of debt discount and other costs10  18  
Stock-based compensation72  61  
Gain on debt prepayments, repurchases, and conversions(42) (14) 
Change in operating assets and liabilities  
Receivables(208) 189  
Inventories175  (286) 
Accounts payable and accrued expenses178  (46) 
Deferred income taxes, net19  192  
Other3  65  
Net cash provided by operating activities2,011  4,810  
Cash flows from investing activities  
Expenditures for property, plant, and equipment(1,943) (2,700) 
Purchases of available-for-sale securities(407) (2,047) 
Proceeds from sales of available-for-sale securities988  77  
Proceeds from maturities of available-for-sale securities163  60  
Proceeds from government incentives22  236  
Other(12) (53) 
Net cash provided by (used for) investing activities(1,189) (4,427) 
Cash flows from financing activities  
Repayments of debt(1,415) (577) 
Acquisition of noncontrolling interest in IMFT(744) —  
Payments to acquire treasury stock(89) (1,836) 
Payments on equipment purchase contracts(11) (20) 
Proceeds from issuance of debt1,250  —  
Other17  (2) 
Net cash provided by (used for) financing activities(992) (2,435) 
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash(14) (10) 
Net decrease in cash, cash equivalents, and restricted cash(184) (2,062) 
Cash, cash equivalents, and restricted cash at beginning of period7,279  6,587  
Cash, cash equivalents, and restricted cash at end of period$7,095  $4,525  


See accompanying notes to consolidated financial statements.
mu-20191128_g6.jpg7

Micron Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions, except per share amounts)
(Unaudited)



Basis of Presentation


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 consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended August 31, 2017.29, 2019, except for changes related to recently adopted accounting standards. See “Recently Adopted Accounting Standards” note. Prior year information is presented in accordance with the accounting guidance in effect during that period and has not been recast for recently adopted accounting standards. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.


Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 2018year 2020 contains 53 weeks and 2017the fourth quarter of 2020 will contain 14 weeks. The first quarters of fiscal 2020 and 2019 each contain 52contained 13 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended August 31, 2017.29, 2019.




Significant Accounting Policies

For a discussion of our significant accounting policies, see "Part I – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended August 29, 2019. Except for the significant accounting policy associated with leases as discussed below, there have been no material changes to our significant accounting policies since our Annual Report on Form 10-K for the year ended August 29, 2019.

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 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.


Variable Interest Entities


We have interests in entities that are 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'sVIE’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.


8 | 2020 Q1 10-Q

Unconsolidated VIE


PTI Xi'anXi’an: Powertech Technology Inc. Xi'an ("Xi’an (“PTI Xi'an"Xi’an”) is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI"(“PTI”) and was created to provide assembly services to us at our manufacturing site in Xi'an,Xi’an, China. We do not have an equity interest in PTI Xi'an.Xi’an. PTI Xi'anXi’an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We have determined that we do not have the power to direct the activities of PTI Xi'anXi’an that most significantly impact its economic performance, primarily because we do not have no governance rights. Therefore, we do not consolidate PTI Xi'an.Xi’an. In connection therewith,with our assembly services with PTI, as of November 28, 2019 and August 29, 2019, we had capital lease obligations and net property, plant, and equipment of $78$47 million and $74$50 million, respectively, asand capital lease obligations of March 1, 2018, and $80$44 million and $76$47 million, respectively, as of August 31, 2017.respectively.


Consolidated VIE


IMFT:Through the date we acquired Intel's noncontrolling interest in IMFT, isIMFT was a VIE because all of its costs arewere passed to us and its other member, Intel, through product purchase agreements and because IMFT iswas dependent upon us or Intel for additional cash requirements. The primary activities of IMFT arewere driven by the constant introduction of product and process technology. Because we performperformed a significant majority of the technology development, we havehad the power to direct its key activities. We consolidatePrior to October 31, 2019, we consolidated IMFT because we havehad the power to direct the activities of IMFT that most significantly impactimpacted its economic performance and because we havehad the obligation to absorb losses and the right to receive benefits from IMFT that could have been potentially be significant to it. On October 31, 2019, we acquired Intel’s interest in IMFT at which time IMFT, now known as MTU, became a wholly-owned subsidiary. (See "Equity“Equity – Noncontrolling InterestsInterest in Subsidiaries – IMFT"Subsidiary” note.)






Recently IssuedAdopted Accounting Standards


In OctoberFebruary 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16ASU 2016-02 – Intra-Entity Transfers Other Than InventoryLeases (as amended, “ASC 842”), which requires an entityamends 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 income tax consequencespresent 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 intra-entity transferadditional $66 million of an asset other than inventorybalances to right-of-use assets to conform to the new presentation requirements of ASC 842.


Recently Issued Accounting Standards

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 transfer occurs.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 will be effective for us in the first quarter of 2019 and2021 with early adoption permitted. This ASU requires modified retrospective adoption.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 are evaluatingdo not anticipate the effects of our adoption of this ASU will have a material 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 expected 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
mu-20191128_g6.jpg9

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 will be effective for us in the first quarter of 2021 with early adoption permitted as early as the first quarter of 2020.permitted. This ASU 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 are evaluating the timing and effects of our adoption of this ASU on our financial statements.


In February 2016, the FASB issued ASU 2016-02 – Leases, 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 liability, measured at the present value of the lease payments. This ASU will be effective for us in the first quarter of 2020 with early adoption permitted and requires modified retrospective adoption. The adoption of this ASU will result in an increase in right-of-use assets and corresponding liabilities. We are evaluating the timing and other effects of our adoption of this ASU on our financial statements.

In January 2016, the FASB issued ASU 2016-01 – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for us in the first quarter of 2019 and requires modified retrospective adoption. Our assets and liabilities subject to this standard are not material.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of this ASU, as amended, is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This ASU will be effective for us in the first quarter of 2019 and we expect to elect the modified retrospective adoption method.

As a result of the adoption of this ASU, we expect to recognize revenue from sales of products to our distributors (which generally have agreements allowing rights of return or price protection) at the time control transfers to our distributors, which is generally earlier than recognizing revenue only upon resale by our distributors under existing revenue recognition guidance. Revenue recognized upon resale by our distributors under these arrangements was 17% and 19% of our consolidated revenue for the second quarter and first six months of 2018, respectively, and 20% and 22% of our consolidated revenue for the second quarter and first six months of 2017, respectively. On the date of initial application of this ASU, we will derecognize the deferred income on sales made to our distributors through a cumulative adjustment to retained earnings. We expect the revenue deferral, historically recognized in the following period, to be offset by the earlier recognition of revenue as described above as control of product transfers to our distributors. As a result of the adoption of this ASU, we expect to recognize interest expense from the financing component for contracts with advanced payments under which we transfer control of our products to our customers for periods extending beyond one year, although historically such arrangements would not have resulted in significant amounts of interest expense. As a result of the adoption of this ASU, we expect that revenue recognized under our current license agreements will not change materially.




Acquisition of Inotera

Through December 6, 2016, we held a 33% ownership interest in Inotera, now known as Micron Technology Taiwan, Inc. ("MTTW") and accounted for our ownership interest under the equity method. On December 6, 2016, we acquired the remaining 67% ownership interest in Inotera not owned by us (the "Inotera Acquisition") and began consolidating Inotera's operating results. Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and previously sold such products exclusively to us through supply agreements, under which we purchased $504 million of DRAM products in the first quarter of 2017, based on a pricing formula that equally shared margin between Inotera and us.

Pro Forma Financial Information

The following pro forma financial information presents the combined results of operations as if the Inotera Acquisition had occurred on September 4, 2015. The pro forma financial information includes the accounting effects of the business combination, including adjustments for depreciation of property, plant, and equipment, interest expense, elimination of intercompany activities, and revaluation of inventories. The pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Inotera Acquisition occurred on September 4, 2015.
 Quarter ended Six months ended
 March 2,
2017		 March 2,
2017
Net sales$4,648
 $8,613
Net income890
 1,080
Net income attributable to Micron890
 1,080
Earnings per share   
Basic0.81
 0.98
Diluted0.77
 0.93
The pro forma financial information includes our results for the quarter and six months ended March 2, 2017 (which includes the results of Inotera since our acquisition of Inotera on December 6, 2016), the results of Inotera for the three months ended November 30, 2016, and the adjustments described above.




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:
November 28, 2019August 29, 2019
As ofCash and Equivalents  Short-term Investments  
Long-term Marketable Investments (1)
Total Fair Value  Cash and Equivalents  Short-term Investments  
Long-term Marketable Investments (1)
Total Fair Value  
Cash$2,319  $—  $—  $2,319  $2,388  $—  $—  $2,388  
Level 1 (2)
Money market funds2,565  —  —  2,565  3,418  —  —  3,418  
Level 2 (3)
Certificates of deposits2,063  223  5  2,291  1,292  13  1  1,306  
Corporate bonds—  271  299  570  —  550  689  1,239  
Government securities—  80  159  239  36  149  232  417  
Asset-backed securities—  30  136  166  —  67  242  309  
Commercial paper22  15  —  37  18  24  —  42  
6,969  $619  $599  $8,187  7,152  $803  $1,164  $9,119  
Restricted cash (4)
126  127  
Cash, cash equivalents, and restricted cash$7,095  $7,279  
As of March 1, 2018 August 31, 2017
  Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(1)
 Total Fair Value Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(1)
 Total Fair Value
Cash $2,496
 $—
 $—
 $2,496
 $2,237
 $—
 $—
 $2,237
Level 1(2)
                
Money market funds 5,099
 —
 —
 5,099
 2,332
 —
 —
 2,332
Level 2(3)
                
Corporate bonds —
 122
 299
 421
 —
 193
 315
 508
Government securities 39
 55
 95
 189
 1
 90
 126
 217
Certificates of deposit 172
 7
 1
 180
 483
 24
 3
 510
Asset-backed securities —
 14
 125
 139
 —
 2
 173
 175
Commercial paper 22
 16
 —
 38
 56
 10
 —
 66
  7,828
 $214
 $520
 $8,562
 5,109
 $319
 $617
 $6,045
Restricted cash(4)
 113
       107
      
Cash, cash equivalents, and restricted cash $7,941
       $5,216
      
(1)The maturities of long-term marketable investments range from one year to four years.
(1)
The maturities of long-term marketable securities range from one to four years.
(2)
The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(3)
The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analyses to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of March 1, 2018 or August 31, 2017.
(4)
Restricted cash is included in other noncurrent assets and primarily represents balances related to the MMJ Creditor Payments and interest reserve balances related to the 2021 MSTW Term Loan.

(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 analyses to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of November 28, 2019 or August 29, 2019.
(4)Restricted cash is included in other noncurrent assets and primarily relates to the MMJ Creditor Payments and certain government incentives received prior to being earned. The restrictions lapse on the MMJ Creditor Payments upon approval by the trustees and/or Tokyo District Court and for the government incentives upon achieving certain performance conditions.

Gross realized gains and losses from sales of available-for-sale securities were not materialsignificant for any period presented. As of March 1, 2018,November 28, 2019, there were no0 available-for-sale securities that had been in a loss position for longer than 12 months.




10 | 2020 Q1 10-Q

Receivables

As ofNovember 28,
2019		August 29,
2019
Trade receivables$3,030  $2,778  
Income and other taxes194  242  
Other195  175  
$3,419  $3,195  

As of March 1,
2018		 August 31,
2017
Trade receivables $4,050
 $3,490
Income and other taxes 134
 100
Other 253
 169
  $4,437
 $3,759





Inventories

As ofNovember 28,
2019		August 29,
2019
Finished goods$630  $757  
Work in process3,724  3,825  
Raw materials and supplies589  536  
$4,943  $5,118  

As of March 1,
2018		 August 31,
2017
Finished goods $876
 $856
Work in process 1,974
 1,968
Raw materials and supplies 334
 299
  $3,184
 $3,123


Property, Plant, and Equipment

As ofNovember 28,
2019		August 29,
2019
Land$352  $352  
Buildings11,441  10,931  
Equipment (1)
45,637  44,051  
Construction in progress (2)
1,795  1,700  
Software793  790  
 60,018  57,824  
Accumulated depreciation(30,666) (29,584) 
 $29,352  $28,240  
(1)Included costs related to equipment not placed into service of $1.80 billion as of November 28, 2019 and $2.33 billion as of August 29, 2019.
As of March 1,
2018		 August 31,
2017
Land $345
 $345
Buildings 8,367
 7,958
Equipment(1)
 35,600
 32,187
Construction in progress(2)
 599
 499
Software 611
 544
  45,522
 41,533
Accumulated depreciation (23,658) (22,102)
  $21,864
 $19,431
(1)
Included costs related to equipment not placed into service of $1.92 billion and $994 million, as of March 1, 2018 and August 31, 2017, respectively.
(2)
Includes building-related construction and tool installation costs for assets not placed into service.

(2)Included building-related construction, tool installation, and software costs for assets not placed into service.


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 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 in the first quarter of 2020. As a result, we estimate the reduction in non-cash depreciation expense benefited operating income and net income by approximately $74 million and diluted earnings per share by approximately $0.07 for the first quarter of 2020.


Intangible Assets and Goodwill

November 28, 2019August 29, 2019
As of
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Product and process technology$584  $(251) $583  $(243) 
Goodwill1,228  N/A1,228  N/A

mu-20191128_g6.jpg11

As of March 1, 2018 August 31, 2017
  
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Amortizing assets        
Product and process technology $731
 $(491) $756
 $(477)
Non-amortizing assets        
In-process R&D 108
 —
 108
 —
         
Total intangible assets $839
 $(491) $864
 $(477)
         
Goodwill $1,228
   $1,228
  

DuringIn the first six monthsquarters of 20182020 and 2017,2019, we capitalized $15$12 million and $14$49 million, respectively, for product and process technology with weighted-average useful lives of 1211 years and 107 years, respectively. Expected amortization expense for our intangible assets is $45$56 million for the remainder of 2018, $50 million for 2019, $35 million for 2020, $29$63 million for 2021, and $20$51 million for 2022.2022, $45 million for 2023, and $41 million for 2024.






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 selling, general, and administrative ("SG&A") functions.

Our finance leases consist primarily of equipment used in our manufacturing operations and gas or other supply agreements that are deemed to be 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. 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 at the time of issuance.

Measuring the initial lease liability and corresponding right-of-use asset also requires us to exercise judgment to estimate the present value of lease payments.

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 the period presented below. The components of lease expenses are presented below:

Three months endedNovember 28,
2019
Finance lease cost
Amortization of right-of-use asset$40 
Interest on lease liability6 
Operating lease cost24 
$70 

12 | 2020 Q1 10-Q

Other information related to our leases were as follows:
Three months endedNovember 28,
2019
Cash flows used for operating activities
Finance leases$6 
Operating leases17 
Cash flows used for financing activities
Finance leases (1)
64 
Noncash acquisitions of right of use assets
Operating leases13 
(1)Included in repayments of debt in the accompanying statement of cash flows.

As ofNovember 28,
2019
Weighted-average remaining lease term (in years)
Finance leases3.6
Operating leases7.8
Weighted-average discount rate
Finance leases4.84 %
Operating leases2.66 %

Maturities of lease liabilities were as follows:
For the year endingOperating LeasesFinance Leases
Remainder of 2020  $49  $174  
2021  66  107  
2022  64  75  
2023  61  48  
2024  52  37  
2025 and thereafter436  191  
Less imputed interest and reimbursement of tenant improvements (1)
(178) (103) 
$550  $529  
(1)Includes $50 million under operating leases for the reimbursement due in 2020 of tenant improvements.

Prior to adopting ASC 842, future minimum operating lease commitments under all noncancelable operating leases with an initial term in excess of one year as of August 29, 2019 were as follows:
For the year endingOperating Leases
2020  $54  
2021  64  
2022  63  
2023  59  
2024  53  
2025 and thereafter459  
$752  


mu-20191128_g6.jpg13

Accounts Payable and Accrued Expenses

As ofNovember 28,
2019		August 29,
2019
Accounts payable$1,879  $1,677  
Property, plant, and equipment2,425  1,782  
Salaries, wages, and benefits557  695  
Income and other taxes336  309  
Other211  163  
$5,408  $4,626  

As of March 1,
2018		 August 31,
2017
Accounts payable $1,557
 $1,333
Property, plant, and equipment payables 1,351
 1,018
Salaries, wages, and benefits 517
 603
Income and other taxes 288
 163
Customer advances 176
 197
Other 305
 350
  $4,194
 $3,664


Debt

November 28, 2019August 29, 2019
Net Carrying Amount  Net Carrying Amount  
As ofStated Rate  Effective Rate  Current  Long-Term  Total  Current  Long-Term  Total  
Finance lease obligationsN/A  4.84 %$185  $344  $529  $223  $368  $591  
MMJ Creditor PaymentsN/A  9.76 %197  —  197  198  —  198  
2024 Notes4.64 %4.76 %—  597  597  —  597  597  
2024 Term Loan A3.05 %3.10 %62  1,186  1,248  —  —  —  
2026 Notes4.98 %5.07 %—  497  497  —  497  497  
2027 Notes4.19 %4.27 %—  895  895  —  895  895  
2029 Notes5.33 %5.40 %—  696  696  —  696  696  
2030 Notes4.66 %4.73 %—  845  845  —  845  845  
2032D Notes (1)
3.13 %6.33 %—  128  128  —  127  127  
2033F Notes (1)
2.13 %4.93 %18  —  18  196  —  196  
IMFT Member DebtN/A  N/A  —  —  —  693  —  693  
2025 Notes5.50 %5.56 %—  —  —  —  516  516  
 $462  $5,188  $5,650  $1,310  $4,541  $5,851  
(1)Since the closing price of our common stock exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading day period ended on September 30, 2019, these notes are convertible by the holders through the calendar quarter ended December 31, 2019. Additionally, the closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2019; therefore, these notes are convertible by the holders at any time through March 31, 2020.
As of March 1, 2018 August 31, 2017
Instrument Stated Rate Effective Rate Current Long-Term Total Current Long-Term Total
MMJ Creditor Payments N/A
 6.52% $238
 $261
 $499
 $157
 $474
 $631
Capital lease obligations N/A
 3.75% 371
 679
 1,050
 357
 833
 1,190
2021 MSAC Term Loan 3.89% 4.13% 199
 578
 777
 99
 697
 796
2021 MSTW Term Loan 2.85% 3.01% —
 2,716
 2,716
 —
 2,640
 2,640
2022 Term Loan B 3.65% 4.06% 5
 723
 728
 5
 725
 730
2023 Notes 5.25% 5.43% —
 —
 —
 —
 991
 991
2023 Secured Notes 7.50% 7.69% —
 —
 —
 —
 1,238
 1,238
2024 Notes 5.25% 5.38% —
 546
 546
 —
 546
 546
2025 Notes 5.50% 5.56% —
 515
 515
 —
 515
 515
2026 Notes 5.63% 5.73% —
 129
 129
 —
 128
 128
2032C Notes(1)
 2.38% 5.95% —
 165
 165
 —
 211
 211
2032D Notes(1)
 3.13% 6.33% —
 161
 161
 —
 159
 159
2033E Notes(1)(2)
 1.63% 1.63% 197
 —
 197
 202
 —
 202
2033F Notes(1)(2)
 2.13% 4.93% 378
 —
 378
 278
 —
 278
2043G Notes(1)
 3.00% 6.76% —
 679
 679
 —
 671
 671
IMFT Member Debt 0.00% 0.00% —
 650
 650
 —
 —
 —
Other notes 2.09% 2.65% 126
 —
 126
 164
 44
 208
      $1,514
 $7,802
 $9,316
 $1,262
 $9,872
 $11,134
(1)
Since the closing price of our common stock exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading day period ended on December 31, 2017, these notes are convertible by the holders through the calendar quarter ended March 31, 2018. The 2033 Notes were classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes and holders of these notes had the right to convert their notes as of the dates presented.
(2)
Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. Amounts as of August 31, 2017 include $88 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes that had been converted but not settled.


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 Repurchasesas a component of the cash consideration paid to Intel for their interest in IMFT and Conversions

Duringrecognized 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" note for the cash consideration allocated to the repurchase of noncontrolling interest.) Prior to our acquisition of Intel's interests in IMFT, IMFT repaid Intel $116 million of IMFT Member Debt in the first six monthsquarter of 2018, we repurchased or settledfiscal 2020.

14 | 2020 Q1 10-Q

Convertible Senior Notes

As of November 28, 2019, the $48.16 trading price of our common stock was higher than the conversion prices of our convertible notes and, as a result, the aggregate conversion value of conversion an$718 million exceeded the aggregate of $2.42 billion principal amount of $151 million by $567 million.

Credit Facility

Our credit facility provides for a term loan and a committed revolving credit facility. On October 30, 2019, we drew all of the $1.25 billion available under our debt.term loan 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 term loan facility generally bears interest at a rate equal to LIBOR plus 1.25% to 2.00%, depending on our corporate credit ratings or leverage ratio. Our revolving credit facility provides for borrowings of up to $2.50 billion at the same rates as the term loan credit facility and matures in July 2023. As of November 28, 2019, there were 0 outstanding amounts drawn under our revolving credit facility.

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 and adjusted EBITDA to net interest expense.

Debt Activity

The table below presents the effects of issuances, prepayments, and conversions of debt in the first quarter of 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.


The following table presents the effects of repurchases and conversions of our debt in the first six months of 2018:
Three months ended November 28, 2019Increase (Decrease) in PrincipalIncrease (Decrease) in Carrying ValueIncrease (Decrease) in CashDecrease in EquityGain (Loss)
Issuances
2024 Term Loan A$1,250  $1,248  $1,248  $—  $—  
Prepayments
2025 Notes(519) (516) (534) —  (18) 
IMFT Member Debt(693) (693) (621) —  72  
Settled conversions
2033F Notes(45) (180) (196) (5) (12) 
Conversions not settled
2033F Notes—  1  —  (1) —  
$(7) $(140) $(103) $(6) $42  

Six months ended March 1, 2018 Decrease in Principal Increase (Decrease) in Carrying Value Decrease in Cash Decrease in Equity Gain (Loss)
Repurchases          
2023 Notes $(1,000) $(991) $(1,046) $—
 $(55)
2023 Secured Notes (1,250) (1,238) (1,373) —
 (135)
Settled Conversions          
2032C Notes (52) (49) (240) (195) 4
2033E Notes(1)
 (113) (143) (249) (97) (9)
2033F Notes (5) (5) (22) (17) —
Conversions not settled          
2033E Notes(2)
 —
 137
 —
 (124) (13)
2033F Notes(2)
 —
 101
 —
 (91) (10)
  $(2,420) $(2,188) $(2,930) $(524) $(218)
(1)
Settlement included 4 million shares of our treasury stock in addition to cash.
(2)
As of March 1, 2018, $41 million in principal amount of the 2033E Notes and $30 million in principal amount of the 2033F Notes had converted but not settled. These notes will settle in cash in the third quarter of 2018.


IMFT Member Debt

In November 2017 and December 2017, Intel provided debt financing ("IMFT Member Debt") of $150 million and $500 million, respectively, to IMFT pursuant to the terms of the IMFT joint venture agreement. IMFT Member Debt bears no interest, matures upon the completion of the auction and the sale of assets of IMFT prior to the dissolution, liquidation, or other wind-up of IMFT, and is convertible, at the election of Intel, in whole or in part, into a capital contribution to IMFT. Additionally, to the extent IMFT distributes cash to its members under the terms of the IMFT joint venture agreement, Intel may, at its option, designate any portion of the distribution to be a repayment of the IMFT Member Debt. In the event Intel exercises its right to put its interest in IMFT to us, or if we exercise our right to call from Intel its interest in IMFT, Intel will transfer to Micron any IMFT Member Debt outstanding at the time of the closing of the put or call transaction. (See "Equity – Noncontrolling Interest in Subsidiaries – IMFT" note.)

2022 Senior Secured Term Loan B Repricing Amendment

On October 26, 2017, we amended our 2022 Term Loan B, substantially all of which was treated as a debt modification, to reduce the interest rate margins. As of March 1, 2018, the 2022 Term Loan B bears interest at LIBOR plus 2.00%.
Convertible Senior Notes

As of March 1, 2018, the trading price of our common stock was higher than the initial conversion prices of our convertibles notes. As a result, the conversion values for these notes exceeded the principal amounts by $3.18 billion as of March 1, 2018.


Contingencies


We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which areis expected to have a material adverse effect on our business, results of operations, or financial condition.




mu-20191128_g6.jpg15

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 United States 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"(“Elm”) filed a patent infringement action against Micron; Micron MSP,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'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 eight8 U.S. patents and seeks damages, attorneys'attorneys’ fees, and costs.

On June 24, 2016, the President and Fellows of Harvard University filedJuly 23, 2018, IMS served a patent infringement action againstcomplaint on Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited in the U.S. DistrictRegional Court, for the District of Massachusetts.Mannheim, Germany alleging that products including our SSDs infringe a European patent. The complaint allegedseeks unspecified damages and an order forbidding Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited from offering to sell, using, and importing the accused products. On June 7, 2019, the Regional Court found no infringement and dismissed the case. On August 31, 2018, Micron was served with a complaint filed by IMS in Shenzhen Intermediate People’s Court in Guangdong Province, China. On November 12, 2019 , IMS filed an amended complaint in the same court. The amended complaint alleges that a varietycertain of our DRAMNAND flash products infringed two U.S. patentsinfringe a Chinese patent. The complaint seeks an order requiring Micron to stop manufacturing, using, selling, and soughtoffering for sale the accused products in China, and to pay damages injunctive relief, and other unspecified relief. On March 1, 2018, we executed a settlement agreement resolving this litigation. The settlement amount did not have a material effect on our business, resultscosts of operations, or financial condition.21 million Chinese yuan.


On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. ("MXA"(“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua"(“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China.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 Micron Semiconductor (Shanghai) Co., Ltd.MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring the defendantsMXA 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"(“UMC”) in the Fuzhou Intermediate People's Court in Fujian Province, China.Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and Micron Semiconductor (Shanghai) Co., Ltd.MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring the defendantsMXA 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.

16 | 2020 Q1 10-Q

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 Ballistic-branded DRAM modules and solid-state drives in China. The affected products make up slightly more than 1% of our annualized revenues. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.

Among other things, the above lawsuits pertain to certainsubstantially all of our DDR DRAM, DDR2 DRAM, DDR3 DRAM, DDR4 DRAM, SDR SDRAM, PSRAM, RLDRAM, LPDRAM, NAND, and certain other memory and storage products we manufacture, which account for a significant portion of our net sales.revenue.

We are unable to predict the outcome of assertions of infringement made against us 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 could have a material adverse effect on our business, results of operations, or financial condition.


Qimonda


On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda'sQimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("(“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'sQimonda’s shares of Inotera (the "Inotera Shares"“Inotera Shares”), representing approximately 18% of Inotera'sInotera’s outstanding shares as of March 1, 2018,at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among 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'sQimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda'sQimonda’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 have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We haveOn 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 two independent experts 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 experts issued their 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 experts for supplemental expert opinion.

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, 2 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, 4 substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The complaints assert 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
mu-20191128_g6.jpg17

1, 2018, and seek treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief.

Additionally, 6 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.

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 purports 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 alleges that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and seek compensatory and punitive damages, fees, interest, costs, and other appropriate relief. On October 2, 2019, the parties have submitted briefsa 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 appeals court.

We are unable to predictsecurities fraud cases, allegedly on behalf of and for the outcomebenefit of the matterMicron, against certain current and therefore cannot estimate the rangeformer officers and directors of possible loss.Micron for alleged breaches of their fiduciary duties and other violations of law. The final resolution of this lawsuit could resultcomplaint seeks damages, fees, interest, costs, and other appropriate relief. Similar shareholder derivative complaints were subsequently filed in the lossU.S. District Court for the District of Delaware and the Inotera Shares or monetary damages, unspecified damages based onU.S. District Court for the benefits derived by Micron B.V. fromDistrict of Idaho. On November 20, 2019, the ownershipplaintiff in the second action filed in the U.S. District Court for the District of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition.Delaware voluntarily dismissed his complaint.


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'sCalifornia’s Uniform Trade Secrets Act by misappropriating Micron'sMicron’s trade secrets and other misconduct. Micron'sMicron’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 fiscal year 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On behalf of himself and the putative class, Manning asserts claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud.

In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other 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, the Qimonda matter, antitrust matters, securities matters, and 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 as the resolution of
18 | 2020 Q1 10-Q

any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition.


Equity


Micron Shareholders'Shareholders’ Equity


Common Stock IssuanceRepurchases: 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 Rule 10b5-1 trading plans. The repurchase authorization 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. In October 2017,the first quarters of 2020 and 2019, we issued 34repurchased 1 million shares of our common stock for $41.00 per share in a public offering for proceeds of $1.36 billion, net of underwriting fees$50 million, and other offering costs.

Outstanding Capped Calls: In connection with certain42 million shares of our convertible notes,common stock for $1.8 billion, respectively. Through November 28, 2019, we entered into capped call transactions, which are intended to reducehad repurchased an aggregate of $2.71 billion under the effect of potential dilution.authorization. The capped calls provide for our receipt of cash or shares at our election, from our counterparties if the trading price of our stock is above the strike prices on the expiration dates. As of March 1, 2018, the dollar value of cash or shares that we would receive from our outstanding capped calls upon their expiration dates range from $0, if the trading price of our stock is below the strike prices for all capped calls at expiration, to $214 million, if the trading price of our stock is at or above the cap prices for all capped calls. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration.

Settlement of Capped Calls: During the first six months of 2018, we share-settled portions of our capped calls upon expiration, and received 7 million shares (equal to a value of $313 million) based on the volume-weighted trading stock prices at the expiration dates. Shares received were recorded as treasury stock.




Noncontrolling InterestsInterest in SubsidiariesSubsidiary


November 28, 2019August 29, 2019
As ofBalance  Percentage  Balance  Percentage  
IMFT$—  — %$889  49 %
As of March 1, 2018 August 31, 2017
  Noncontrolling Interest Balance Noncontrolling Interest Percentage Noncontrolling Interest Balance Noncontrolling Interest Percentage
IMFT $852
 49% $832
 49%
Other 17
 Various
 17
 Various
  $869
   $849
  


IMFT:Since 2006,On October 31, 2019, we have owned 51%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" note for the cash consideration allocated to, and extinguishment of, IMFT a joint venture between us and Intel.Member Debt.)

Pursuant to the terms of the IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. IMFT manufactures semiconductor products exclusively for its members under a long-termwafer supply agreement, Intel will receive supply from MTU from November 2019 through April 2020 at prices approximating cost.

IMFT's capital requirements are generally determined based on an annual plan approved by the members, and capital contributionsa volume equal to IMFT are requested as needed. Capital requests are made to the members in proportion toapproximately 50% of their then-current ownership interest. Members may elect to not contribute their proportional share, and in such event, the contributing member may elect to contribute any amount of the remaining capital request, eithervolume from IMFT in the form of an equity contribution or member debt financing. Under the supply agreement, the members have rights and obligationssix-month period prior to the capacity of IMFT in proportion to their investment, including member debt financing. Any capital contribution or member debt financing results in a proportionate adjustment to the sharing of output on an eight-month lag. Members pay their proportionate share of fixed costs associated with IMFT's capacity.

closing. IMFT sales to Intel were $115 million and $227 million for the second quarter and first six months of 2018, respectively, and $142 million and $252 million for the second quarter and first six months of 2017, respectively. Inin the first quarter of 2018, IMFT discontinued production2020 through the date of NAND and subsequent to that time is entirely focused on 3D XPoint memory production.

The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. At any time through December 2018, Intel can put to us, and from January 2019 through December 2021, we can call from Intel,our acquisition of Intel's noncontrolling interest in IMFT in either case, for a price that approximates Intel's interestwere $158 million. IMFT sales to Intel in the net book valuefirst quarter of IMFT plus member debt at the time of the closing. If Intel exercises its put right, we can elect to set the closing date of the transaction any time between six months and two years following such election by Intel and we can elect to receive financing of the purchase price from Intel for one to two years from the closing date. If we exercise our call right, Intel can elect to set the closing date of the transaction to be any time between six months and one year following such election. Following the closing date resulting from exercise of either the put or the call, we will continue to supply to Intel for a period of one year, at Intel's choice, between 50% and 100% of Intel's immediately preceding six-month period pre-closing volumes of IMFT products for the first six-month period following the closing and, at Intel's choice, between 0% and 100% of Intel's first six-month period following the closing volumes of IMFT products for the second six-month period following the closing, at a margin that varies depending on whether the put or call was exercised.2019 were $175 million.





Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets. The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
As of March 1,
2018		 August 31,
2017
Assets    
Cash and equivalents $317
 $87
Receivables 87
 81
Inventories 99
 128
Other current assets 5
 7
Total current assets 508
 303
Property, plant, and equipment, net 2,496
 1,852
Other noncurrent assets 43
 49
Total assets $3,047
 $2,204
     
Liabilities  
  
Accounts payable and accrued expenses $472
 $299
Deferred income 10
 6
Current debt 19
 19
Total current liabilities 501
 324
Long-term debt 715
 75
Other noncurrent liabilities 79
 88
Total liabilities $1,295
 $487
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

Restrictions on Net Assets

As a result of the corporate reorganization proceedings of MMJ, the 2021 MSTW Term Loan covenants, and the IMFT joint venture agreement, our total restricted net assets (excluding intercompany balances and noncontrolling interests) as of March 1, 2018 were $3.86 billion for the MMJ Group, $2.54 billion for MSTW and MTTW, and $900 million for IMFT.


Fair Value Measurements


All of our marketable debt and equity investments were classified as available-for-sale and carried at fair value. Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair valuevalues of our convertible and other notes were determined based on Level 2 inputs and, together with the carrying value of our outstanding debt instruments (excluding the carrying value of equity and mezzanine equity components of our convertible notes), were as follows:
November 28, 2019August 29, 2019
As of
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Notes and MMJ Creditor Payments$5,294  $4,975  $5,194  $4,937  
Convertible notes719  146  852  323  
As of March 1, 2018 August 31, 2017
  
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes and MMJ Creditor Payments$6,792
 $6,686
 $8,793
 $8,423
Convertible notes 4,922
 1,580
 3,901
 1,521


The fair values of our convertible notes in the table above 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, including the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours.





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Derivative Instruments

Gross Notional Amount  Fair Value of  
Current Assets (1)
Current Liabilities (2)
As of November 28, 2019
Derivative instruments with hedge accounting designation
Cash flow currency hedges$553  $4  $(2) 
Derivative instruments without hedge accounting designation
Non-designated currency hedges1,864  2  (3) 
Convertible notes settlement obligation (3)
—  (2) 
2  (5) 
$6  $(7) 
As of August 29, 2019
Derivative instruments with hedge accounting designation
Cash flow currency hedges$146  $1  $—  
Derivative instruments without hedge accounting designation
Non-designated currency hedges1,871  1  (9) 
Convertible notes settlement obligation (3)
—  (179) 
1  (188) 
$2  $(188) 
(1)Included in receivables – other.
  
Gross Notional Amount(1)
 Fair Value of
Current Assets(2)
 
Current Liabilities(3)
 
Noncurrent Assets(4)
As of March 1, 2018        
Derivative instruments with hedge accounting designation        
Cash flow currency hedges $565
 $20
 $(1) $—
Fair value currency hedges 2,567
 44
 (2) —
  $3,132
 64
 (3) —
         
Derivative instruments without hedge accounting designation        
Non-designated currency hedges $1,763
 11
 (3) —
Convertible notes settlement obligation 6
 —
 (309) —
    11
 (312) —
         
    $75
 $(315) $—
         
As of August 31, 2017        
Derivative instruments with hedge accounting designation        
Cash flow currency hedges $456
 $17
 $—
 $—
         
Derivative instruments without hedge accounting designation        
Non-designated currency hedges $4,847
 34
 (5) 1
Convertible notes settlement obligation 2
 —
 (47) —
    34
 (52) 1
         
    $51
 $(52) $1
(2)Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.
(1)
Notional amounts of currency forward hedge contracts in U.S. dollars and convertible notes settlement obligations in shares.
(2)
Included in receivables – other.
(3)
Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.
(4)
Included in other noncurrent assets.

(3)Notional amounts of convertible notes settlement obligations were not significant as of November 28, 2019 and were 4 million shares of our common stock as of August 29, 2019.

Derivative Instruments with Hedge Accounting Designation


We utilize currency forward contracts that generally mature within twelve13 months 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 to hedgefor our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures. For derivative instruments designated as cash flow hedges, the effective portion of the realizedexpenditures and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income. Amounts in accumulated other comprehensive income are reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. For the periods presented prior to the second quarter of 2018, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the second quarter of 2018, such amounts are included in the same line item in which the underlying transactions affect earnings.

manufacturing costs. We recognized gains of $3 million and losses of $13 million for the first quarters of 2020 and 2019, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges of $21 million and $17 million for the second quarter and first six months of 2018, respectively, and losses of $9 million in the first six months of 2017.hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material in the secondfirst quarters of 2020 or first six months of 2018 and 2017.2019. The amounts


from cash flow hedges included in accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not material.significant.


Fair Value Hedges:We utilize fair value hedges to hedge our exposure to certain changes in fair values from changes in currency exchange rates for certain monetary assets and liabilities. For derivative forward contracts designated as fair value hedges, hedge effectiveness is determined by the change of the fair value of the undiscounted spot rate of the forward contract. The change in fair value of the hedge instrument attributed to changes in the undiscounted spot rate is recognized in other non-operating income (expense). The time value associated with the hedge instrument is excluded from the assessment of the effectiveness of the hedge and is recognized on a straight-line basis over the life of the hedge to other non-operating income (expense). Amounts recorded to other comprehensive income (loss) for the second quarter of 2018 were not material. The effects of fair value hedges on our consolidated statements of operations were as follows:
20 | 2020 Q1 10-Q
Quarter ended March 1, 2018 
Other
Non-Operating
Income (Expense)
Gain (loss) on remeasurement of hedged assets and liabilities $(56)
Gain (loss) on derivatives designated as hedging instruments 56
Amortization of amounts excluded from hedge effectiveness (19)
  $(19)


Derivative Instruments without Hedge Accounting Designation


Currency Derivatives: Except for certain asset and liabilities hedged using fair value hedges, weWe generally utilize a rolling hedge strategy with currency forward contracts that mature within ninethree months to hedge our exposures of monetary assets and liabilities tofrom 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 due tofrom changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized gains of $50 million and $52 million for the second quarter and first six months of 2018, respectively, and gains of $61$5 million and losses of $117$11 million forin the second quarterfirst quarters of 2020 and first six months of 2017,2019, respectively.


Convertible Notes Settlement Obligations:For settlement obligations associated with our convertible notes that become derivative debt liabilities 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 of our convertible note settlement obligations were based on the volume-weighted-average trading price of our common stock price (Level 2). (See "Debt"“Debt” note.) We recognized losses of $20$12 million and $24gains of $16 million for the second quarterfirst quarters of 2020 and first six months of 2018,2019, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations in other non-operating income (expense), net.obligations.




Equity Plans


As of March 1, 2018, November 28, 2019, 94 million shares of our common stock were available for future awards under our equity plans.



Stock Options

 Quarter ended Six months ended
 March 1, 2018 March 2, 2017 March 1, 2018 March 2, 2017
Stock options granted1
 4
 2
 6
Weighted-average grant-date fair value per share$18.61
 $8.37
 $18.13
 $8.15
Average expected life in years5.5
 5.5
 5.5
 5.5
Weighted-average expected volatility44% 47% 44% 47%
Weighted-average risk-free interest rate2.2% 1.9% 2.2% 1.8%
Expected dividend yield0.0% 0.0% 0.0% 0.0%


Restricted Stock and Restricted Stock Units ("(“Restricted Stock Awards"Awards”)


Restricted Stock Awards activity is summarized as follows:
Quarter ended Six months ended
Three months endedThree months endedNovember 28,
2019		November 29,
2018
March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Restricted stock award shares granted2
 5
 4
 8
Restricted stock award shares granted86
Weighted-average grant-date fair value per share$43.21
 $18.67
 $41.51
 $18.52
Weighted-average grant-date fair value per share$46.16  $39.02  


Stock-based Compensation Expense


Three months endedNovember 28,
2019		November 29,
2018
Stock-based compensation expense by caption
Cost of goods sold$31  $26  
Selling, general, and administrative22  19  
Research and development19  16  
$72  $61  
Stock-based compensation expense by type of award
Restricted stock awards$57  $41  
ESPP8  8  
Stock options7  12  
$72  $61  

mu-20191128_g6.jpg21

 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Stock-based compensation expense by caption       
Cost of goods sold$22
 $23
 $42
 $42
Selling, general, and administrative16
 18
 34
 33
Research and development14
 14
 27
 26
 $52
 $55
 $103
 $101
        
Stock-based compensation expense by type of award 
  
    
Stock options$14
 $18
 $31
 $35
Restricted stock awards38
 37
 72
 66
 $52
 $55
 $103
 $101

The income tax benefit related to share-based compensation expense was $58 million and $116 million for the second quarter and first six months of 2018, respectively, and $42 million and $63 million for the second quarter and first six months of 2017, respectively. The income tax benefits related to share-based compensation expensewere $26 million and $23 million for the periods presented prior to the second quarterfirst quarters of 2018 were offset by an increase in the U.S. valuation allowance.2020 and 2019, respectively. As of March 1, 2018, $402November 28, 2019, $719 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the secondfirst quarter of 2022,2024, resulting in a weighted-average period of 1.41.5 years.




ResearchRevenue and DevelopmentContract Liabilities


We shareRevenue by technology is presented in the costtable below. (See "Segment and Other Information" note for disclosure of certaindisaggregated revenue by market segments.)
Three months endedNovember 28,
2019		November 29,
2018
DRAM$3,469  $5,893  
NAND1,422  1,660  
Other (primarily 3D XPoint memory and NOR)253  360  
$5,144  $7,913  
Revenue for MCPs and SSDs, which contain both DRAM and NAND, are disaggregated into DRAM and NAND in the table above based on the relative values of each component. The three months ended November 29, 2018 have been conformed to current period presentation.

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 process development activitiesother noncurrent liabilities. Revenue and interest expense associated with development partners. Our R&D expensescontract liabilities for the time value of advance payments was not significant in any period presented. As of November 28, 2019, our future performance obligations beyond one year were reduced by reimbursements under these arrangementsnot significant. Contract liabilities were as follows:
As ofNovember 28,
2019		August 29,
2019
Contract liabilities from customer advances$39  $61  
Other contract liabilities49  69  
$88  $130  

Revenue recognized during the first quarter of $582020 from the beginning balance as of August 29, 2019 included $24 million from meeting performance obligations of other contract liabilities and $114shipments against customer advances. Contract liabilities from customer advances also decreased $22 million due to the return of unutilized customer advances upon expiration of the contract.

As of November 28, 2019, other current liabilities included $363 million for the second quarterestimates of consideration payable to customers, including estimates for pricing adjustments and first six months of 2018, respectively, and $59 million and $115 million for the second quarter and first six months of 2017, respectively.returns.






Other Operating (Income) Expense, Net
Three months endedNovember 28,
2019		November 29,
2018
Restructure and asset impairments$(4) $33  
Other1  3  
$(3) $36  



22 | 2020 Q1 10-Q

Other Non-Operating Income (Expense), Net

Three months endedNovember 28,
2019		November 29,
2018
Gain on debt prepayments, repurchases, and conversions$42  $14  
Loss from changes in currency exchange rates(2) (5) 
Other6  —  
$46  $9  

 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Loss on debt repurchases and conversions$(23) $—
 $(218) $(2)
Loss from changes in currency exchange rates(27) (28) (36) (40)
Gain on remeasurement of previously-held equity interest in Inotera—
 71
 —
 71
Other(3) (9) (3) (9)
 $(53) $34
 $(257) $20


In connection with the Inotera Acquisition, we revalued our previously-held 33% equity interest to its fair value. In determining the fair value, we used various valuation techniques, including the share price of Inotera prior to the announcement of the acquisition and discounted cash flow projections using inputs including discount rate and terminal growth rate (Level 3). As a result, we recognized a non-operating gain of $71 million in the second quarter of 2017.


Income Taxes


On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxed in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a one-time transition tax in 2018 on the higher of our accumulated foreign income, as determined as of November 2, 2017 or December 31, 2017 (the "Repatriation Tax"); provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a new minimum tax on certain foreign earnings in excess of a deemed return on tangible assets (the "Foreign Minimum Tax"). The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period cost or in our measurement of deferred taxes.

The Securities and Exchange Commission's Staff Accounting Bulletin No. 118 ("SAB 118") allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.



In accordance with SAB 118, we recorded certain provisional estimates included in the table below. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatory and legislative guidance related to the Tax Act. Our income tax (provision) benefit consisted of the following:
Three months endedNovember 28,
2019		November 29,
2018
Income tax provision, excluding items below$(31) $(378) 
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW(24) (52) 
Repatriation tax, net of adjustments related to uncertain tax positions—  (47) 
$(55) $(477) 
 Quarter ended Six months ended
 March 1, 2018 March 2, 2017 March 1, 2018 March 2, 2017
Provisional estimate for the Repatriation Tax on substantially all of our accumulated foreign earnings, net of adjustments related to uncertain tax positions$(1,335) $—
 $(1,335) $—
Remeasurement of deferred tax assets and liabilities reflecting the lower U.S. corporate tax rates(133) —
 (133) —
Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations1,337
 —
 1,337
 —
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW(17) (8) (43) (21)
Other income tax (provision) benefit5
 (30) (83) (48)
 $(143) $(38) $(257) $(69)


As noted above, provisional estimates were recorded forThe decrease in our income tax provision in the Repatriation Taxfirst quarter of 2020 was due primarily to reductions in profit before tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.minimum tax.


As of March 1, 2018, we hadNovember 28, 2019, gross unrecognized income tax benefits of $209were $385 million, substantially all of which $196 million would affect our effective tax rate in the future, if recognized. The Tax Act reduced unrecognized tax benefits by $123 million. The amount accrued for interest and penalties related to uncertain tax positions was not materialsignificant for any period presented.


We operate in a number of tax jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2034, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements which expire in whole or in part at various dates through 2030,were not significant to our tax provision for the first quarter of 2020. These arrangements reduced our tax provision for the first quarter of 2019 by $436$427 million (benefitting(benefiting our diluted earnings per share by $0.35) and $827 million ($0.67 per diluted share) for the second quarter and first six months of 2018, respectively, and $132 million ($0.11 per diluted share) and $172 million ($0.15 per diluted share), for the second quarter and first six months of 2017, respectively.$0.36).






Earnings Per Share

Three months endedNovember 28,
2019		November 29,
2018
Net income attributable to Micron – Basic$491  $3,293  
Assumed conversion of debt(4) —  
Net income attributable to Micron – Diluted$487  $3,293  
Weighted-average common shares outstanding – Basic1,107  1,133  
Dilutive effect of equity plans and convertible notes22  41  
Weighted-average common shares outstanding – Diluted1,129  1,174  
Earnings per share
Basic$0.44  $2.91  
Diluted0.43  2.81  

mu-20191128_g6.jpg23
 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Net income attributable to Micron – Basic and Diluted$3,309
 $894
 $5,987
 $1,074
        
Weighted-average common shares outstanding – Basic1,156
 1,099
 1,145
 1,070
Dilutive effect of equity plans and convertible notes82
 61
 87
 55
Weighted-average common shares outstanding – Diluted1,238
 1,160
 1,232
 1,125
        
Earnings per share       
Basic$2.86
 $0.81
 $5.23
 $1.00
Diluted2.67
 0.77
 4.86
 0.95


Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 36 million for the second quarterfirst quarters of 2020 and first six months of 2018, and 60 million and 62 million for the second quarter and first six months of 2017, respectively.2019.



Segment and Other Information


Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:


Compute and Networking Business Unit ("CNBU"(“CNBU”):Includes memory products sold into compute, networking,client, cloud server, enterprise, graphics, and cloud server markets.networking markets and sales of certain 3D XPoint products.
Mobile Business Unit ("MBU"(“MBU”):Includes memory products sold into smartphone tablet, and other mobile-device markets.
Storage Business Unit ("SBU"(“SBU”):Includes SSDs and component-level solutions sold into enterprise and cloud, client, and consumer storage markets, other discrete storage products sold in component and wafer form to the removable storage market, and sales of certain 3D XPoint products.
Embedded Business Unit (“EBU”):Includes memory and storage products sold into enterprise, client, cloud, and removable storage markets.
Embedded Business Unit ("EBU"):Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.


Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.

Three months endedNovember 28,
2019		November 29,
2018
Revenue
CNBU$1,979  $3,604  
MBU1,457  2,212  
SBU968  1,143  
EBU734  933  
All Other6  21  
$5,144  $7,913  
Operating income (loss)
CNBU$401  $2,211  
MBU295  1,203  
SBU(217) 80  
EBU113  387  
All Other2  6  
594  3,887  
Unallocated
Stock-based compensation(72) (61) 
Employee severance(1) (20) 
Restructure and asset impairments4  (30) 
Other(7) (17) 
(76) (128) 
Operating income$518  $3,759  



24 | 2020 Q1 10-Q

 Quarter ended Six months ended
 March 1,
2018		 March 2,
2017		 March 1,
2018		 March 2,
2017
Net sales       
CNBU$3,691
 $1,917
 $6,903
 $3,387
MBU1,566
 1,082
 2,931
 2,114
SBU1,254
 1,041
 2,637
 1,901
EBU829
 590
 1,659
 1,168
All Other11
 18
 24
 48
 $7,351
 $4,648
 $14,154
 $8,618
        
Operating income (loss)       
CNBU$2,329
 $736
 $4,243
 $940
MBU689
 170
 1,194
 259
SBU251
 71
 651
 26
EBU363
 193
 705
 371
All Other(2) 7
 (6) 19
 3,630
 1,177
 6,787
 1,615
        
Unallocated       
Stock-based compensation(52) (55) (103) (101)
Restructure and asset impairments(7) (4) (13) (33)
Flow-through of Inotera inventory step-up—
 (60) —
 (60)
Other(4) (14) (7) (18)
 (63) (133) (123) (212)
        
Operating income$3,567
 $1,044
 $6,664

$1,403
Certain Concentrations




Revenue from Kingston Technology Company, Inc. was 11% of total revenue for the first quarter of 2020. No other customer exceeded 10% of our total revenue for the first quarter of 2020.



ITEM 2. MANAGEMENT'SMANAGEMENT’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 included in our Annual Report on Form 10-K for the year ended August 31, 2017.29, 2019. 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. OurFiscal year 2020 contains 53 weeks and the fourth quarter of 2020 will contain 14 weeks. The first quarters of fiscal 20182020 and 20172019 each contain 52contained 13 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions, except per share amounts.

Our Management's Discussion and Analysis is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. This discussion is organized as follows:

Overview: Overview of our operations, business, and highlights of key events.
Results of Operations: An analysis of our financial results consisting of the following:
◦Consolidated results;
◦Operating results by business segment;
◦Operating results by product; and
◦Operating expenses and other.
Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and liquidity.
Critical Accounting Estimates
Recently Issued Accounting Standards



Overview


Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands –— Micron, Crucial, and Ballistix– — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash,3D XPointmemory, and 3D XPoint memory,NOR, is transforming how the world uses information to enrich life. Backed by nearly 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 cloud,mobile, data center, networking,client, consumer, industrial, graphics, automotive, and mobile.networking.


We manufacture our products at our worldwide wholly-owned facilities and joint venture facilities.also utilize subcontractors to perform certain manufacturing processes. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements. On October 31, 2019, we purchased Intel’s noncontrolling interest in IMFT and IMFT Member Debt for $1.25 billion, at which time IMFT, now known as MTU, became a wholly-owned subsidiary.


We make significant investments to develop the proprietary product and process technology, which isare implemented in our manufacturing facilities. We generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge line-width process technology and 3D NAND architecture. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, reduced package size,advanced packaging solutions to meet industry standards, lower power consumption, improved read/write reliability, and increased memory density. StorageOur managed NAND and SSD storage products, incorporatingwhich incorporate NAND, a controller, and firmware, constitute a significant portion of our sales.revenues. We generally develophave developed proprietary firmware and expect to introduce proprietary controllers, intowhich are included in certain of our SSDs in new products starting in 2018.SSDs. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and to target high-growth markets.


We market our products through our internal sales force, independent sales representatives, and distributors primarily to original equipment manufacturers and retailers located around the world. We face intense competition in the semiconductor memory and storage markets and, in order to remain competitive, we must continuously develop and implement new products and technologies and decrease manufacturing costs. Our success is largely dependent on obtaining returns on our R&D investments, efficient utilization of our manufacturing infrastructure, development and integration of advanced product and process technologies, market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, efficient utilization of our manufacturing infrastructure, successful ongoing development and integration of advanced product and process technology, return-driven capital spending, and successful R&D investments.spending.


To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory and storage product and process technology with third parties. In addition,


from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.
mu-20191128_g6.jpg25


Results of Operations


Consolidated Results

First QuarterFourth QuarterFirst Quarter
202020192019
Revenue$5,144  100 %$4,870  100 %$7,913  100 %
Cost of goods sold3,778  73 %3,475  71 %3,298  42 %
Gross margin1,366  27 %1,395  29 %4,615  58 %
Selling, general, and administrative211  4 %212  4 %209  3 %
Research and development640  12 %623  13 %611  8 %
Other operating (income) expense, net(3) — %(90) (2)%36  — %
Operating income518  10 %650  13 %3,759  48 %
Interest income (expense), net(3) — %18  — %5  — %
Other non-operating income (expense), net46  1 %(13) — %9  — %
Income tax (provision) benefit(55) (1)%(71) (1)%(477) (6)%
Equity in net income (loss) of equity method investees2  — %2  — %—  — %
Net income attributable to noncontrolling interests(17) — %(25) (1)%(3) — %
Net income attributable to Micron$491  10 %$561  12 %$3,293  42 %
 Second Quarter First Quarter Six Months
 2018 % of Net Sales 2017 % of Net Sales 2018 % of Net Sales 2018 % of Net Sales 2017 % of Net Sales
Net sales$7,351
 100 % $4,648
 100 % $6,803
 100 % $14,154
 100 % $8,618
 100 %
Cost of goods sold3,081
 42 % 2,944
 63 % 3,056
 45 % 6,137
 43 % 5,903
 68 %
Gross margin4,270
 58 % 1,704
 37 % 3,747
 55 % 8,017
 57 % 2,715
 32 %
                    
SG&A196
 3 % 187
 4 % 191
 3 % 387
 3 % 346
 4 %
R&D523
 7 % 473
 10 % 448
 7 % 971
 7 % 943
 11 %
Other operating (income) expense, net(16) — % —
 — % 11
 — % (5) — % 23
 — %
Operating income3,567
 49 % 1,044
 22 % 3,097
 46 % 6,664
 47 % 1,403
 16 %
   

                
Interest income (expense), net(61) (1)% (153) (3)% (101) (1)% (162) (1)% (285) (3)%
Other non-operating income (expense), net(53) (1)% 34
 1 % (204) (3)% (257) (2)% 20
 — %
Income tax (provision) benefit(143) (2)% (38) (1)% (114) (2)% (257) (2)% (69) (1)%
Equity in net income (loss) of equity method investees1
 — % 7
 — % —
 — % 1
 — % 5
 — %
Net income attributable to noncontrolling interests(2) — % —
 — % —
 — % (2) — % —
 — %
Net income attributable to Micron$3,309
 45 % $894
 19 % $2,678
 39 % $5,987
 42 % $1,074
 12 %


Total Revenue: Total revenue for the first quarter of 2020 increased 6% as compared to the fourth quarter of 2019 as a result of increases in sales of both DRAM and NAND products. Sales of DRAM products for the first quarter of 2020 increased 2% from the fourth quarter of 2019 primarily due to an approximate 10% increase in bit shipments, partially offset by an upper-single-digit percentage decline in average selling prices. Sales of NAND products for the first quarter of 2020 increased 18% from the fourth quarter of 2019 primarily due to a mid-teen percentage increase in bit shipments driven by increases in sales of high-value SSD and mobile managed NAND products enabled by strong market demand and our transition to NVMe SSDs. NAND average selling prices for the first quarter of 2020 increased in the low-single digits from the fourth quarter of 2019.
Net Sales
 Second Quarter First Quarter Six Months
 2018 % of Total 2017 % of Total 2018 % of Total 2018 % of Total 2017 % of Total
CNBU$3,691
 50% $1,917
 41% $3,212
 47% $6,903
 49% $3,387
 39%
MBU1,566
 21% 1,082
 23% 1,365
 20% 2,931
 21% 2,114
 25%
SBU1,254
 17% 1,041
 22% 1,383
 20% 2,637
 19% 1,901
 22%
EBU829
 11% 590
 13% 830
 12% 1,659
 12% 1,168
 14%
All Other11
 —% 18
 —% 13
 —% 24
 —% 48
 1%
 $7,351
   $4,648
   $6,803
 

 $14,154
 

 $8,618
 

Percentages of total net sales reflect rounding and may not total 100%.


Total net salesrevenue for the secondfirst quarter of 2018 increased 8%2020 decreased 35% as compared to the first quarter 2019 primarily due to price declines resulting from imbalances between supply and market demand over the last several quarters. Sales of DRAM products for the first quarter of 2020 decreased 41% as compared to the first quarter of 20182019 primarily due to strong execution and market conditions for DRAM across our primary markets, particularly for server, mobile, and client. The strong demand for our products enabled us to increase DRAMdeclines in average selling prices and sales volumes resulting in higher CNBU and MBU sales. Despite significant increases in SSD revenue in the secondlow-50-percent range, partially offset by growth in bit shipments in the mid-20-percent range. Sales of NAND products for the first quarter of 20182020 decreased 14% as compared to the first quarter of 2018, SBU revenue decreased2019 primarily due to declines in NAND component revenue.average selling prices in the mid-30-percent range, partially offset by increases in bit shipments in the mid-30-percent range.


Total net salesOverall Gross Margin: Our overall gross margin percentage decreased to 27% for the secondfirst quarter andof 2020 from 29% for the fourth quarter of 2019 primarily due to decreases in DRAM margins as a result of declines in selling prices, partially offset by higher NAND margins from increases in selling prices. Gross margin for the first six monthsquarter of 2018 increased 58% and 64%, respectively, as compared2020 included an impact of approximately $125 million due to the corresponding periods of 2017. Solid execution and strong demand for our products across our primary markets, particularly in client, enterprise, mobile, and cloud, droveunderutilization costs at MTU. MTU underutilization costs are expected to ramp higher sales in the second quarter of 20182020 as production volumes decline. We expect these charges to average $150 million per quarter in the first half of fiscal 2020.

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 equipment in our NAND wafer fabrication facilities from five years to seven years as of the beginning of the first quarter of 2020. This change reduced our NAND manufacturing non-cash depreciation expense for all operating segmentsthe first quarter of 2020 by approximately $150 million, which resulted in reductions of approximately $40 million in cost of goods sold and significant increasesapproximately $110 million in sales volumes for both DRAM and Trade NAND products as well as increases in average selling prices for DRAM products.the cost of our inventories at the end of the first quarter of 2020.




26 | 2020 Q1 10-Q
Gross Margin


Our overall gross margin percentage increaseddecreased to 58% for the second quarter of 2018 from 55%27% for the first quarter of 2018 primarily due to strong demand for our DRAM products that drove favorable pricing conditions, combined with overall reductions in manufacturing costs. The increase in our gross margin percentage for the second quarter of 2018 reflects margin expansion for DRAM products driven by the continued growth in product offerings and sales for server and mobile products featuring our 1X nm DRAM technology. Gross margin percentages increased for CNBU, MBU, and EBU operating segments in the second quarter of 2018 as compared to the first quarter of 2018.

Our overall gross margin percentage increased to2020 from 58% for the second quarter of 2018 from 37% for the second quarter of 2017 and increased to 57% for the first six months of 2018 from 32% for the first six months of 2017, reflecting increases in the gross margin percentages for all operating segments, primarily due to strong execution and market demand together with manufacturing cost reductions. From January 2016 through December 6, 2016, the date we acquired the remaining interest in Inotera, we purchased all of Inotera's DRAM output under supply agreements at prices based on a formula that equally shared margin between Inotera and us. For the first quarter of 2017, we purchased $504 million of DRAM products from Inotera under these agreements, representing 37% of our aggregate DRAM bit production.

Operating Results by Business Segments

CNBU
 Second Quarter First Quarter Six Months
 2018 2017 2018 2018 2017
Net sales$3,691
 $1,917
 $3,212
 $6,903
 $3,387
Operating income2,329
 736
 1,914
 4,243
 940

CNBU sales for the second quarter of 2018 increased 15% as compared to the first quarter of 2018 due to higher sales into cloud server and client markets and improved pricing for our DRAM products. As a result, CNBU operating income improved for the second quarter of 2018 compared to the first quarter of 2018. See "Operating Results by Product – DRAM" for further detail.

CNBU sales for the second quarter and first six months of 2018 increased 93% and 104%, respectively, as compared to the corresponding periods of 2017 due to increases in average selling prices for our products sold into the client market, growth in the cloud market driven by significant increases in DRAM content per server, and increases in sales into the enterprise market. Favorable conditions in key CNBU markets for the second quarter and first six months of 2018 drove increases in average selling prices and sales volumes as compared to the corresponding periods of 2017. CNBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to improved pricing, manufacturing cost reductions, and product mix.

MBU
 Second Quarter First Quarter Six Months
 2018 2017 2018 2018 2017
Net sales$1,566
 $1,082
 $1,365
 $2,931
 $2,114
Operating income689
 170
 505
 1,194
 259

MBU sales are comprised primarily of DRAM and NAND, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for the second quarter of 2018 increased 15% as compared to the first quarter of 2018 primarily due to strong acceptance of our low-power DRAM products and increases in sales of mobile DRAM products into smartphone markets. MBU operating income for the second quarter of 2018 improved from the first quarter of 2018 primarily due to manufacturing cost reductions and increases in sales volumes for both DRAM and NAND products as well as improved DRAM pricing resulting from strong demand for our products.

MBU sales for the second quarter and first six months of 2018 increased 45% and 39%, respectively, as compared to the corresponding periods of 2017 primarily due to improvements in DRAM pricing and increases in sales volumes, driven by customer qualifications for LPDRAM and managed NAND products, combined with higher memory content in smartphones.


MBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to increases in average selling prices for mobile DRAM products, manufacturing cost reductions, and higher sales volumes.

SBU
 Second Quarter First Quarter Six Months
 2018 2017 2018 2018 2017
Net sales$1,254
 $1,041
 $1,383
 $2,637
 $1,901
Operating income251
 71
 400
 651
 26

SBU sales of Trade NAND products for the second quarter of 2018 decreased 7% as compared to the first quarter of 2018 due to declines in NAND component sales from lower average selling prices, partially offset by increases in SSD sales. Sales of SSD storage products for the second quarter of 2018 increased 22% as compared to the first quarter of 2018, driven by strong demand in cloud and client markets for products incorporating our TLC 3D NAND technology. SBU Non-Trade sales were $136 million for the second quarter of 2018 as compared to $122 million for the first quarter of 2018 and $158 million for the second quarter of 2017. SBU operating income for the second quarter of 2018 was also adversely affected by costs associated with IMFT's production of 3D XPoint products at less than full capacity, partially offset by a mix shift to SSD products and NAND manufacturing cost reductions. See "Operating Results by Product – Trade NAND" for further details.

SBU sales of Trade NAND products for the second quarter and first six months of 2018 increased 23% and 40%, respectively, as compared to the corresponding periods of 20172019 primarily due to increases in sales volumes from strong demand, particularly for sales of SSD products into the cloud market. SBU sales of SSD storage products for the second quarter and first six months of 2018 increased by 81% and 103%, respectively, as compared to the corresponding periods of 2017 primarily as a result of the launch of new SSD products incorporating our TLC 3D NAND technology. SBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to manufacturing cost reductions and improvements in product mix.

EBU
 Second Quarter First Quarter Six Months
 2018 2017 2018 2018 2017
Net sales$829
 $590
 $830
 $1,659
 $1,168
Operating income363
 193
 342
 705
 371

EBU sales are comprised of DRAM, NAND, and NOR Flash in decreasing order of revenue. EBU sales for the second quarter of 2018 were relatively unchanged from the first quarter of 2018. EBU operating income for the second quarter of 2018 increased from the first quarter of 2018 primarily due to manufacturing cost reductions and improved pricing for DRAM products resulting from strong demand for our products.

EBU sales for the second quarter and first six months of 2018 increased 41% and 42%, respectively, as compared to the corresponding periods of 2017 primarily due to strong demand and higher sales volumes for DRAM, NAND, and eMCP in consumer markets. EBU operating income for the second quarter and first six months of 2018 increased as compared to the corresponding periods of 2017 as a result of increases in average selling prices, manufacturing cost reductions, and increases in sales volumes.



Operating Results by Product

Net Sales by Product
 Second Quarter First Quarter Six Months
 2018 % of Total 2017 % of Total 2018 % of Total 2018 % of Total 2017 % of Total
DRAM$5,213
 71% $2,960
 64% $4,562
 67% $9,775
 69% $5,381
 62%
Trade NAND1,805
 25% 1,412
 30% 1,866
 27% 3,671
 26% 2,684
 31%
Non-Trade136
 2% 158
 3% 122
 2% 258
 2% 281
 3%
Other197
 3% 118
 3% 253
 4% 450
 3% 272
 3%
 $7,351
   $4,648
   $6,803
   $14,154
   $8,618
  
Percentages of total net sales reflect rounding and may not total 100%.

Non-Trade consists of NAND and 3D XPoint products manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding products that combine both NAND and DRAM components is reported within Trade NAND. Other includes sales of NOR and trade 3D XPoint products.

DRAM
Second Quarter 2018 VersusFirst Six Months 2018 Versus
First Quarter 2018Second Quarter 2017First Six Months 2017
(percentage change)
Average selling prices per gigabitincreased low double digitincreased low 40% rangeincreased high 40% range
Gigabits soldincreased mid single digitincreased low 20% rangeincreased low 20% range

Increases in sales volumes and prices for the second quarter of 2018 as compared to the first quarter of 2018 and second quarter of 2017 resulted from strong conditions for server, mobile, and client markets. Our gross margin percentage on sales of DRAM products for the second quarter of 2018 improved from the first quarter of 2018 and second quarter of 2017 primarily due to increases in average selling prices due to favorable market conditions and manufacturing cost reductions.

Trade NAND
Second Quarter 2018 VersusFirst Six Months 2018 Versus
First Quarter 2018Second Quarter 2017First Six Months 2017
(percentage change)
Average selling prices per gigabytedecreased mid-teens rangedecreased high single digitdecreased mid single digit
Gigabytes soldincreased low double digitincreased low 40% rangeincreased low 40% range

Decreases in net sales for the second quarter of 2018 as compared to the first quarter of 2018 resulted from declines in average selling prices, partially offset by increasethe effect of a decrease in salesnon-cash depreciation expense from the revision in estimated useful lives of cloudequipment in our NAND wafer fabrication facilities, cost reductions resulting from strong execution in delivering products featuring advanced technologies, and client SSDs drivencontinuous improvement initiatives to reduce production costs.

Revenue by growth and gainsBusiness Unit
First Quarter  Fourth Quarter  First Quarter  
2020  2019  2019  
CNBU$1,979  38 %$1,903  39 %$3,604  46 %
MBU1,457  28 %1,406  29 %2,212  28 %
SBU968  19 %848  17 %1,143  14 %
EBU734  14 %705  14 %933  12 %
All Other6  — %8  — %21  — %
 $5,144  $4,870  $7,913  
Percentages of total revenue may not total 100% due to rounding.

Changes in market sharerevenue for SSD products. Increases in net saleseach business unit for the secondfirst quarter of 20182020 as compared to the secondfourth quarter of 2017 primarily resulted from increases in2019 were as follows:

•CNBU revenue increased 4% as bit demand growth drove higher sales of cloud and client SSDs. Our ability to meetvolumes offset by price declines.
•MBU revenue increased demand for SSDs and other NAND products in the second quarter of 2018 was4% primarily due to improvementsstrong bit sales growth driven by high-value managed NAND products, partially offset by price declines.
•SBU revenue increased 14% primarily due to significant growth in process technology, includingSSD shipment volumes, enabled by our continuing transition to 3D NANDNVMe SSD products, and improved pricing.
•EBU revenue increased 4% primarily due to strong execution. Our gross margin percentage on sales of Trade NANDshipment growth in automotive and consumer markets.

Changes in revenue for the second quarter of 2018 declined slightly fromeach business unit for the first quarter of 20182020 as declines in average selling prices outpaced manufacturing cost reductions. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 improved from the second quarter of 2017 as manufacturing cost reductions outpaced declines in average selling prices.



Operating Expenses and Other

Selling, General, and Administrative

SG&A expenses for the second quarter of 2018 were relatively unchanged compared to the first quarter of 2018. SG&A expenses2019 were as follows:

•CNBU revenue decreased 45% primarily due to price declines driven by imbalances in supply and demand, partially offset by bit sales growth.
•MBU revenue decreased 34% primarily due to price declines, partially offset by bit sales growth driven by execution in developing and qualifying mobile managed NAND products.
•SBU revenue decreased 15% primarily due to price declines, partially offset by bit sales growth.
•EBU revenue decreased 21% primarily due to lower sales to consumer and industrial multi-markets.

Operating Income (Loss) by Business Unit
First Quarter  Fourth Quarter  First Quarter  
2020  2019  2019  
CNBU$401  20 %$474  25 %$2,211  61 %
MBU295  20 %365  26 %1,203  54 %
SBU(217) (22)%(248) (29)%80  7 %
EBU113  15 %101  14 %387  41 %
All Other2  33 %2  25 %6  29 %
 $594  $694  $3,887  
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 the secondfirst quarter of 2018 were 5% higher than2020 as compared to the secondfourth quarter of 20172019 were as follows:

•CNBU operating income decreased primarily due to declines in DRAM pricing.
•MBU operating income decreased primarily due to declines in low-power DRAM pricing.
mu-20191128_g6.jpg27

•SBU operating margin improved primarily due to increases in payroll costs.NAND pricing and sales volumes. SBU operating results for the first quarter of 2020 were adversely impacted by an increase in underutilization costs at MTU.
•EBU operating income increased primarily as a result of a reduction in product write-downs and increases in sales volumes.

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

•CNBU operating income decreased primarily due to declines in DRAM pricing, partially offset by cost reductions.
•MBU operating income decreased primarily due to declines in low-power DRAM and NAND 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 NAND pricing, partially offset by manufacturing cost reductions and increases in sales volumes.
•EBU operating income decreased as a result of declines in pricing, partially offset by increases in sales volumes.

Operating Expenses and Other

Selling, General, and Administrative: SG&A expenses for the first six monthsquarter of 20182020 were 12%relatively unchanged as compared to the fourth quarter of 2019 and the first quarter of 2019.

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 the first quarter of 2020 were 3% higher than the first six monthsfourth quarter of 20172019 primarily due to increases in performance-based payvolumes of development and other payroll costs.pre-qualification wafers, partially offset by a $33 million reduction in non-cash depreciation expense from the revision of the estimated useful lives of equipment in our R&D facilities and our NAND wafer fabrication facilities from five years to seven years in the first quarter of 2020.

Research and Development


R&D expenses for the secondfirst quarter of 20182020 were 17%5% higher than the first quarter of 20182019 primarily due to higher volumesa reduction of product being processed that had not been qualifiedR&D reimbursements from our partners and increases in payroll costs. R&D expenses for the second quartervolumes of 2018 were 11% higher than the second quarter of 2017 primarily due to increases in payroll costs. R&D expenses for the first six months of 2018 were slightly higher as compared to the first six months of 2017 due to increases in payroll costs,development and pre-qualification wafers, partially offset by lower volumesdepreciation expense from the revision of product being processed that had not been qualified.

We share the costestimated useful lives of certain product and process development activities with development partners, including Intel. We expect to continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be delivered in 2019. In the second quarter of 2018, we and Intel mutually agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for each individual business' needs. Ourequipment. R&D expenses were reduced by reimbursements under our arrangements by $58$30 million for the second quarter of 2018, $56 million forin the first quarter of 2018,2019 due to reimbursements, primarily from our joint development activities with Intel for 3D NAND and $59 million for3D XPoint technologies, which were substantially completed in the secondthird quarter of 2017.2019 and first quarter of 2020, respectively.


Income Taxes

Income: Our income tax (provision) benefit consisted of the following:
First Quarter  Fourth Quarter  First Quarter  
2020  2019  2019  
Income tax (provision) benefit, excluding items below$(31) $(61) $(378) 
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW(24) (11) (52) 
Repatriation tax, net of adjustments related to uncertain tax positions—  1  (47) 
$(55) $(71) $(477) 
Effective tax rate9.8 %10.8 %12.6 %
 Second Quarter First Quarter Six Months
 2018 2017 2018 2018 2017
Provisional estimate for the Repatriation Tax, net of adjustments related to uncertain tax positions$(1,335) $—
 $—
 $(1,335) $—
Remeasurement of deferred tax assets and liabilities reflecting lower U.S. corporate tax rates(133) —
 —
 (133) —
Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations1,337
 —
 —
 1,337
 —
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW(17) (8) (26) (43) (21)
Other income tax (provision) benefit5
 (30) (88) (83) (48)
 $(143) $(38) $(114) $(257) $(69)
          
Effective tax rate4.1% 4.1% 4.1% 4.1% 6.1%


The decrease in our income tax provision in the first quarter of 2020 as compared to the fourth and first quarters of 2019 was due primarily to reductions in our profit before tax and the foreign minimum tax. Our income taxes reflect include
28 | 2020 Q1 10-Q

the following:

various provisional estimates for the impactseffect of the Tax Act, including the Repatriation Tax, remeasurement of deferred tax assets and liabilities at the lower U.S. corporate rate of 21%, and release of a substantial portion of the valuation allowance on the net deferred tax assets of our U.S. operations; and
operations outside the United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.

On December 22, 2017, the U.S. government enacted the Tax Act which lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxed in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a Repatriation


Tax in 2018; provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a Foreign Minimum Tax. The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period cost or in our measurement of deferred taxes.

SAB 118 allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.

In accordance with SAB 118, we recorded certain provisional estimates included in the table above. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatory and legislative guidance related to the Tax Act.

As noted above, provisional estimates were recorded for the Repatriation Tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.


We operate in a number of locationsjurisdictions outside the UnitesUnited States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2034, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effecteffects of tax incentive arrangements which expire in wholewere not significant to our tax provision for the first quarter of 2020 or in part at various dates through 2030,the fourth quarter of 2019. These arrangements reduced our tax provision for the first quarter of 2019 by $436$427 million (benefiting our diluted earnings per share by $0.35)$0.36).

Other:Interest expense for the secondfirst quarter of 2018, by $391 million ($0.32 per diluted share)2020 increased 21% as compared to the fourth quarter of 2019 primarily due to debt issuances in the first quarter of 2018,2020 and by $132 million ($0.11 per diluted share)fourth quarter of 2019. Interest income for the secondfirst quarter of 2017. The Tax Act establishes a new provision designed to impose the Foreign Minimum Tax beginning in 2019. Consequently, we may incur additional U.S. tax expense on income of our foreign subsidiaries that could offset a significant portion of the benefits realized from our tax incentive arrangements. Beginning in 2019, our tax rate may increase2020 decreased 23% as compared to the low teens percentage depending on profitability.fourth quarter of 2019 primarily due to decreases in interest rates and our cash and investment balances.


Other

Net interestInterest expense decreased 40% for the secondfirst quarter of 20182020 increased 42% as compared to the first quarter of 2018 primarily due to decreases in debt obligations in the first six months of 2018. Net interest expense decreased 60% for the second quarter of 2018 as compared to the second quarter of 2017 primarily due to decreases in debt obligations, including the redemption of $600 million in principal amount of notes in the fourth quarter of 2017 and the redemption and conversion of an aggregate of $2.42 billion in principal amount of notes in the first six months of 2018, as well as an increase in capitalized interest from higher levels of capital spending. Interest income also increased in the second quarter of 2018 as compared to the second quarter of 20172020 primarily due to increases in our aggregate cash and investments. Net interest expense decreased 43%debt obligations. Interest income for the first six monthsquarter of 20182020 increased 16% as compared to the first six monthsquarter of 2017 primarily due to decreases in debt obligations, increases in interest income2019 as a result of increases in our cash and investments, and increases in capitalized interest.investment balances.


Further discussion of other operating and non-operating income and expenses can be found in "Itemthe notes contained in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans, Other Operating Income (Expense), Net, and Other Non-Operating Income (Expense), Net"Net” notes.





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, in the future, to engage in a variety of financing transactions for such purposes, including the issuance of securities. We haveAs of November 28, 2019, we had an undrawn revolving credit facility that expires in February 2020 and provides for additional borrowings of up to $750 million based on eligible receivables.$2.50 billion and matures in July 2023. We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.


To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate that capital expenditures in 20182020 for property, plant, and equipment, net of partner contributions, to be in the range of $7.5$7 billion plus or minus 5 percent,to $8 billion, focused on technology transitions and product enablement. The actual amounts for 20182020 will vary depending on market conditions. As of March 1, 2018,November 28, 2019, we had commitments of approximately $1.6$3.1 billionfor the acquisition of property, plant, and equipment, substantially all of which approximately$2.5 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 Rule 10b5-1 trading plans. The repurchase authorization 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 November 28, 2019, we had repurchased an aggregate of $2.71 billion of the authorized amount. See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity.”

Cash and marketable investments totaled $8.56 billion and $6.05$8.19 billion as of March 1, 2018November 28, 2019 and $9.12 billion as of August 31, 2017, respectively.29, 2019. Our investments consist primarily of bank deposits, money market funds, and liquid investment-gradeinvestment grade, fixed-income securities, diversified among industries and individual issuers. As of March 1, 2018, $3.94 billion of our cash and marketable investments was held by our foreign subsidiaries. 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.

In October 2017, we issued 34 million shares As of November 28, 2019, $3.2 billion of our common stock for $41.00 per share in a public offering for proceeds of $1.36 billion, net of underwriting feescash and other offering costs. In the first six months of 2018, we paid $2.93 billion in cash for the repurchase or settlement upon conversion of notes with an aggregate principal amount of $2.42 billion. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt." We may redeem, repurchase, or otherwise retire additional debt in the future.marketable investments was held by our foreign subsidiaries.


mu-20191128_g6.jpg29

Limitations on the Use of Cash and Investments

MMJ Group:Cash and marketable investments as of November 28, 2019 included $495 $463million held by the MMJ Group as of March 1, 2018.MMJ. As a result of the corporate reorganization proceedings of MMJ initiated in March 2012, and for so long as such proceedings are continuing, the MMJ Group is prohibited from paying dividends to us. In addition, pursuant to an order of the JapanTokyo District Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the JapanTokyo District Court and may, under certain circumstances, be subject to the approval of the legal trustee. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ, Group, including investments in certain capital expenditures, and in MMT, may require consent of MMJ'sMMJ’s trustees and/or the JapanTokyo District Court.


MSTW and MTTW: Cash and marketable investments included $59 million held by MSTW and MTTW as of March 1, 2018. The 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and MTTW to pay dividends. As a result, the assets of MSTW and MTTW are not available for use by us in our other operations.

IMFT: Cash and marketable investments included $317 million held by IMFT as of March 1, 2018. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.

Indefinitely Reinvested: As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the amounts held by MMJ, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable for U.S. federal income taxes; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. As we evaluate the impact of the Tax Act and the future cash needs of our global operations, we may revise the amount of the foreign earnings considered to be indefinitely reinvested outside of the United States. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.



Cash Flows:

First Quarter
20202019
Net cash provided by operating activities$2,011  $4,810  
Net cash provided by (used for) investing activities(1,189) (4,427) 
Net cash provided by (used for) financing activities(992) (2,435) 
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash(14) (10) 
Net increase in cash, cash equivalents, and restricted cash$(184) $(2,062) 

 First Six Months
 2018 2017
Net cash provided by operating activities$7,984
 $2,543
Net cash provided by (used for) investing activities(3,843) (5,385)
Net cash provided by (used for) financing activities(1,420) 2,341
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash4
 (33)
Net increase (decrease) in cash, cash equivalents, and restricted cash$2,725
 $(534)

Operating Activities:For the first six monthsquarter of 2018,2020, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $630 millionthe effects of cash used for increases in receivables, partially offset by $93 million of cash provided by1) an increase in accounts payable and accrued expenses.expenses from timing of payments and 2) a decrease in inventories, partially offset by the effects of an increase in receivables due to a higher level of revenue. For the first six monthsquarter of 2017,2019, cash provided by operating activities was due primarily to cash generated by our operationsnet income and the effect of working capital adjustments, which included $773 millionthe effects of cash used for1) a decrease in net increasesdeferred tax assets and 2) a decrease in receivables $361 milliondue to a lower level of payments attributed to intercompany balances with Inotera, and $399 millionrevenue, partially offset by the effects of cash provided by net increasesan increase in accounts payable and accrued expenses.inventories.


Investing Activities: For the first six monthsquarter of 2018,2020, net cash used for investing activities consisted primarily of $4.22$1.93 billion of expenditures for property, plant, and equipment (which excludes offsets(net of amounts funded by our partners),partner contributions) partially offset by $198$744 million of net inflows from sales, maturities, and purchases of available-for-sale securities. For the first six monthsquarter of 2017,2019, net cash used for investing activities consisted primarily of $2.63 billion of net cash paid for the Inotera Acquisition (net of $361 million of payments attributed to intercompany balances with Inotera included in operating activities) and $2.43$2.46 billion of expenditures for property, plant, and equipment (which excludes offsets(net of amounts funded by our partners).partner contributions) and $1.91 billion of net outflows from sales, maturities, and purchases of available-for-sale securities.


Financing Activities: For the first six monthsquarter of 2018,2020, net cash used for financing activities consisted primarily of redemption of$1.42 billion cash payments to reduce our 2023 Secureddebt, including $621 million for IMFT Member Debt repayments, $534 million to prepay the 2025 Notes, for $1.37 billion in cash, redemption of our 2023 Notes for $1.05 billion in cash,$196 million to settle conversions of our convertible notes, for $511 million of cash, and $449$64 million for repaymentsscheduled repayment of other notes payablefinance leases, $744 million for the acquisition of noncontrolling interest in IMFT, and capital leases,$50 million for the acquisition of 1 million shares of treasury stock under our $10 billion share repurchase authorization. Cash used for financing activities was partially offset by net proceeds of $1.36$1.25 billion from borrowing the issuance of 34 million shares of our common stock for $41.00 per share in a public offering and $650 million of proceeds from IMFT Member Debt.2024 Term Loan A. For the first six monthsquarter of 2017,2019, net cash provided byused for financing activities consisted primarily of $2.48$1.80 billion for the acquisition of net proceeds from the 2021 MSTW Term Loan42 million shares of treasury stock and $445 million of net proceeds from the 2021 MSAC Term Loan, partially offset by $556cash payments to reduce our debt, including $413 million for repaymentsscheduled repayment of debt. See "Item 1. Financial Statements – Notesother notes and capital leases and $164 million to Consolidated Financial Statements – Debt."settle conversions of notes.




Potential Settlement Obligations of Convertible Notes

: Since the closing price of our common stock exceeded 130% of the conversion price per share of all our convertible notes for at least 20 trading days in the 30 trading day period ended on December 31, 2017,September 30, 2019, holders may convert theirthese notes through the calendar quarter ended December 31, 2019. Additionally, the closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2019; therefore, such notes are convertible by the holders at any time through March 31, 2018.2020. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending MarchDecember 31, 20182019 if all holders converted their notes. The amounts in the table below are based on our closing share price of $47.62$48.16 as of March 1, 2018.November 28, 2019.
30 | 2020 Q1 10-Q

 Settlement Option   If Settled With Minimum Cash Required If Settled Entirely With Cash
 Principal Amount Amount in Excess of Principal Underlying Shares Cash Remainder in Shares 
2032C NotesCash and/or shares Cash and/or shares 18
 $—
 18
 $849
2032D NotesCash and/or shares Cash and/or shares 18
 —
 18
 845
2033E Notes(1)
Cash Cash and/or shares 5
 197
 1
 261
2033F Notes(1)
Cash Cash and/or shares 27
 393
 18
 1,272
2043G NotesCash and/or shares Cash and/or shares 35
 —
 35
 1,674
   
 103
 $590
 90
 $4,901
(1)
Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. The settlement obligation of these notes will settle in cash in the third quarter of 2018.

Settlement OptionIf Settled With Minimum Cash RequiredIf Settled Entirely With Cash
Principal AmountAmount in Excess of PrincipalUnderlying SharesCashRemainder in Shares
2032D NotesCash and/or sharesCash and/or shares13  $—  13  $645  
2033F NotesCashCash and/or shares2  18  1  73  

15  $18  14  $718  

Contractual Obligations:


As of March 1, 2018, the contractual obligations of principalSee “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases" and interest of all our notes payable was $9.80 billion, of which $610 million is due in the remainder of 2018, $3.30 billion is due in 2019 and 2020, $2.77 billion is due in 2021 and 2022, and $3.12 billion is due in 2023 and thereafter. There have been no other material changes"– Debt."


Recently Adopted Accounting Standards

See “Item 1. Financial Statements – Notes to our contractual obligations as described in "Part IConsolidated Financial Statements – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended August 31, 2017, other than our purchase commitments for the acquisition of property, plant, and equipment as described above.Recently Adopted Accounting Standards.”




Critical Accounting Estimates

For a discussion of our critical accounting estimates, see "Part I - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended August 31, 2017. Except for the critical accounting estimates associated with our income taxes as discussed below, there have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended August 31, 2017.

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 any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. 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.

In connection with the Tax Act, we recognized a provision for income taxes of $131 million in the second quarter of 2018, of which $133 million was related to the impact of remeasuring our deferred tax assets and liabilities to reflect the lower tax rate and $2 million of income tax benefit was considered a provisional estimate. The provisional estimate included $1.34 billion associated with the Repatriation Tax, essentially offset by a benefit of $1.34 billion for the release of the valuation allowance on the net deferred tax assets of our U.S. operations. Based on the information available, we recorded a provisional amount;


however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release as a result of the Tax Act.


Recently Issued Accounting Standards


See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."”




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We are affected by changes in currency exchange and interest rates. See discussion regarding certain interest rate risks below. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see "Part“Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk" ofRisk” in our Annual Report on Form 10-K for the year ended August 31, 2017.29, 2019.


Interest Rate Risk

We are exposed to interest rate risk related to our indebtedness and our investment portfolio. As of March 1, 2018 and August 31, 2017, the carrying value of our debt with fixed interest rates was $4.0 billion and $5.7 billion, respectively, and as a result, the fair value of our debt fluctuates with changes in market interest rates. We estimate that, as of March 1, 2018 and August 31, 2017, a decrease in market interest rates of 1% would increase the fair value of our fixed-rate debt by approximately $130 million and $273 million, respectively.


ITEM 4. CONTROLS AND PROCEDURES


An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the Commission'sCommission’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.


During the secondfirst quarter of 2018,2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS


For a discussion of legal proceedings, see "Part“Part I – Item 3. Legal Proceedings"Proceedings” of our Annual Report on Form 10-K for the year ended August 31, 201729, 2019 and "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies"Contingencies” and "Item“Item 1A. Risk Factors"Factors” herein.




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ITEM 1A. RISK FACTORS


In addition to the factors discussed elsewhere in this Form 10-Q, the following are important factors, the order of which is not necessarily indicative of the level of risk that each poses to us, which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant. Any of the factors below could have a material adverse effect on our business, results of operations, financial condition, or stock price.




We have experienced volatilityVolatility in average selling prices for our semiconductor memory and storage products which may adversely affect our business.


We have experienced significant volatility in our average selling prices, including dramatic declines as noted in the table below, and may continue to experience such volatility in the future. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in the future. Decreases in averageAverage selling prices for our products that decline faster than our costs could have a material adverse effect on our business, results of operations, or financial condition.
 DRAMNAND
(percentage change in average selling prices) 
2019 from 2018(30)%(47)%
2018 from 201736 %(13)%
2017 from 201618 %(10)%
2016 from 2015(34)%(16)%
2015 from 2014(11)%(20)%
 DRAM Trade NAND
    
 (percentage change in average selling prices)
2017 from 201619 % (9)%
2016 from 2015(35)% (20)%
2015 from 2014(11)% (17)%
2014 from 20136 % (23)%
2013 from 2012(11)% (18)%
Revenue and units for MCPs and SSDs, which contain both DRAM and NAND, are disaggregated in the above table based on the relative values of each component. Prior periods have been conformed to current period presentation.


We may be unable to maintain or improve gross margins.


Our gross margins are dependent in part upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, but not limited to, process line-width, additional 3D memory layers, additional bits per cell (i.e., cell levels), architecture, number of mask layers, number of fabrication steps, and yield. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to maintain or improve gross margins. Factors that may limit our ability to maintain or reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulties in transitioning to smaller line-width process technologies, 3D memory layers, NAND cell levels, transitioning to replacement gate technology for NAND, process complexity including number of mask layers and fabrication steps, manufacturing yield, technological barriers, changes in process technologies, and new products that may require relatively larger die sizes. Per

Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, our ramp of emerging technologies in dedicated manufacturing capacity, declining selling prices, and changes in supply agreements. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization and increases in our per gigabit manufacturing costs may adversely affect our gross margins, business, results of operations, or financial condition.

In addition, per gigabit manufacturing costs may also be affected by a broader product portfolio, which may have smaller production quantities and shorter product lifecycles. Our business and the markets we serve are subject to rapid technological changes and material fluctuations in demand based on end-user preferences. As a result, we may have work in process or finished goods inventories that could become obsolete or in amounts that are in excess of our customers’ demand. As a result, we may incur charges in connection with obsolete or excess inventories, which could have a material adverse effect on our business, results of operations, or financial condition. In addition, due to the customized nature of certain of the products we manufacture, we may be unable to sell
32 | 2020 Q1 10-Q

certain finished goods inventory to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods. Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.


The semiconductor memory and storage markets are highly competitive.


We face intense competition in the semiconductor memory and storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SK Hynix Inc.; Kioxia Holdings Corporation (formerly Toshiba Corporation;Memory Corporation); and Western Digital Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments such as China, have provided, and may continue to provide, significant assistance, financial assistanceor otherwise, to some of our competitors or to new entrants. entrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China’s stated national policy objectives. In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies. Some of our competitors may use aggressive pricing to obtain market share or take business of our key customers.

Our competitors generally seek to increase siliconwafer capacity, improve yields, and reduce die size in their product designs which may result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. We and some of our competitors have plans to ramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, wouldcould lead to further declines in average selling prices for our products and wouldcould materially adversely affect our business, results of operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.

The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.

Debt obligations could adversely affect our financial condition.

As of March 1, 2018, we had debt with a carrying value of $9.32 billion. In addition, the conversion value in excess of principal of our convertible notes as of March 1, 2018 was $3.18 billion. In the first six months of 2018, and full years of 2017 and 2016, we paid $2.93 billion and 4 million shares of our treasury stock as non-cash settlement, $1.63 billion, and $94 million, respectively, to repurchase and settle notes with principal amounts of $2.42 billion, $1.55 billion, and $57 million,


respectively. As of March 1, 2018, we had an undrawn revolving credit facility that provided for additional borrowings of up to $750 million based on eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize this revolving credit facility. We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and restructuring of our capital structure.

Our debt obligations could adversely impact us. For example, these obligations could:

require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
result in all obligations owing under the 2021 MSTW Term Loan being accelerated to be immediately due and payable if MSTW fails to comply with certain covenants, including financial covenants;
increase the interest rate under the 2021 MSTW Term Loan if we or MSTW fails to maintain certain financial covenants;
adversely impact our credit rating, which could increase future borrowing costs;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
increase our exposure to interest rate risk from variable rate indebtedness;
continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.

Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.


We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments.


Our cash flows from operations depend primarily on the volume of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology.

We estimate that net cashcapital expenditures in 20182020 for property, plant, and equipment, net of partner contributions, will be approximately $7.5$7 billion plus or minus 5 percent, which reflects the offset of amounts we expect to be funded by our partners.$8 billion, focused on technology transitions and product enablement. Investments in capital expenditures offset by amounts funded bymay not generate expected returns or cash flows. Delays in completion and ramping of new production facilities could significantly impact our partners, were $2.11 billion in the second quarter of 2018. As of March 1, 2018, we had cash and marketable investments of $8.56 billion. As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the cash held by the MMJ Group, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. In addition, cash of $317 million held by IMFT was generally not available to finance our other operations.

The 2021 MSTW Term Loan contains covenants that limit or restrict MSTW's ability to create liens inrealize expected returns on our capital expenditures, which could have a material adverse effect on our business, results of operations, or dispose of collateral securing obligations under the 2021 MSTW Term Loan, mergers involving MSTW and/or MTTW, loans orfinancial condition.


guarantees to third parties by MTTW and/or MSTW, and MSTW's and/or MTTW's distribution of cash dividends. As a result, the assets of MSTW and/or MTTW are not available for use by us in our other operations.


As a result of the corporate reorganization proceedings of MMJ initiated in 2012, and for so long as such proceedings are continuing, MMJ is prohibited from paying dividends, including any cash dividends, to us and such proceedings require that excess earnings be used in MMJ'sMMJ’s business or to fund the MMJ creditor payments. In addition, pursuant to an order of the JapanTokyo District Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the JapanTokyo District Court and may, under certain circumstances, be subject to approval of the legal trustee. As a result, the assets of MMJ are not available for use by us in our other operations. Furthermore, certain uses of the assets of MMJ, including certain capital expenditures of MMJ, and MMT or further investments in MMT, may require consent of MMJ'sMMJ’s trustees and/or the JapanTokyo District Court.


mu-20191128_g6.jpg33

In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. We have experienced volatility in our cash flows and operating results and may continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by our liquidity, financial results, economic risk, or other factors, which may increase the cost of future borrowings and make it difficult for us to obtain financing on terms acceptable to us. In 2019, we suspended the security interest in the collateral under our credit facility upon achieving specified credit ratings and the prepayment of our 2022 Term Loan B; however, the security interest would be automatically reinstated upon a decline in our corporate credit rating below a certain level. There can be no assurance that we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.


Increases in tariffs or other trade restrictions or taxes on our or our customers’ products or equipment and supplies could have an adverse impact on our operations.

In 2019, 89% of our revenue was from products shipped to customer locations outside the United States. We also purchase a significant portion of equipment and supplies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including in Taiwan, Singapore, Japan, and China.

The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. Some of our products are included in these tariffs. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and Chinese leaders. Additionally, the U.S. has threatened to impose tariffs on goods imported from other countries, which could also impact certain of our customers’ or our operations. If the U.S. were to impose current or additional tariffs on components that we or our suppliers source, our cost for such components would increase. We may also incur increases in manufacturing costs and supply chain risks due to our efforts to mitigate the impact of tariffs on our customers and our operations. Additionally, tariffs on our customers’ products could impact their sales of such end products, resulting in lower demand for our products.

We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

U.S. trade regulations have restricted our ability to sell our products to a significant customer and could restrict our ability to sell our products to other customers.

On May 16, 2019, the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce added Huawei to the BIS’s Entity List, which imposes limitations on the supply of certain U.S. items and product support to Huawei. In 2019, our sales to Huawei accounted for 12% of our total revenue. To ensure compliance with the Entity List restrictions, we suspended shipments of all products to Huawei, effective May 16, 2019. We have determined that certain products Huawei purchases from us are not subject to the Export Administration Regulations and consequently can be lawfully sold and shipped to Huawei. Accordingly, we resumed shipping certain products to Huawei in the fourth quarter of 2019.

We applied for, and recently received, licenses that enable us to provide support for the products we sell that are not subject to the Export Administration Regulations, as well as qualify new products for Huawei’s mobile and server businesses. Additionally, these licenses allow us to ship previously restricted products that we manufacture in the United States, which represent a very small portion of our sales. However, there are still some products outside of the mobile and server markets that we are unable to sell to Huawei. While Huawei remains on the Entity List, and in
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the absence of additional licenses from the BIS, we may be unable to work with Huawei on product development for uses other than in mobile and server end-products, which may have a negative effect on our ability to sell products to Huawei in the future. Despite the receipt of licenses, Entity List restrictions may also encourage Huawei to seek to obtain a greater supply of similar or substitute products from our competitors that are not subject to these restrictions, thereby decreasing our long-term competitiveness as a supplier to Huawei. Moreover, although Huawei is not prohibited from paying (and we are not restricted from collecting) accounts receivable for products we sell to Huawei, the credit risks associated with these accounts may have increased as a result of the BIS’s actions.

We cannot predict what additional actions the U.S. government may take with respect to Huawei, including modifications to, or interpretations of, Entity List restrictions, export restrictions, tariffs, or other trade limitations or barriers. We may be unable to sell certain inventories to alternative customers, which may result in excess and obsolescence charges in future periods. The licenses we have received may not be effective against such additional or heightened restrictions.

The Entity List trade restrictions enacted during our third quarter of 2019 had an adverse effect on our business. Although we received licenses in the first quarter of fiscal 2020, we are unable to predict the impact these licenses will have on our sales to Huawei, nor the impact existing or future trade restrictions may have on our business with Huawei. Other companies may be added to the Entity List and/or subject to trade restrictions. For example, in October 2019, the U.S. government added several additional Chinese organizations to the Entity List, effective October 9, 2019. In addition, there may be indirect impacts to our business which we cannot reasonably quantify, including that some of our other customer’s products which incorporate our solutions may also be impacted by these and other trade restrictions that may be imposed by the U.S., China, or other countries. Restrictions on our ability to sell and ship our products to Huawei have had, and may continue to have, an adverse effect on our business, results of operations, or financial condition. In addition, if there are changes to Export Administration Regulations or Entity List restrictions, our revenue with Huawei or other Chinese customers could be negatively impacted, and the licenses we have received could be rendered ineffective. Any such changes may have a further adverse effect on our business, results of operations, or financial condition.

Our future success depends on our ability to develop and produce competitive new memory and storage technologies.


Our key semiconductor memory and storage products and technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, increasing bits per cell (i.e., cell levels), shrinking products in order to reduce costs, meeting higher density requirements, and improving power consumption and reliability. To meet these requirements, weWe may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per-unit cost. We have invested and expect thatto continue to invest in R&D for new memory technologies willand existing products, which involves significant risk and uncertainties. We may be developed byunable to recover our investment in R&D or otherwise realize the semiconductoreconomic benefits of reducing die size or increasing memory and storage industry.densities. Our competitors are working to develop new memory and storage technologies that may offer performance andand/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies. There can be no assurance of the following:


•that we will be successful in developing competitivenew semiconductor memory and storage technologies;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these technologies; and
•that margins generated from sales of these products will allow us to recover costs of development efforts.


We develop and produce advanced memory technologies, including 3D XPoint memory, a new class of non-volatile technology. There is no assurance that our efforts to develop and market new product technologies will be successful. Unsuccessful efforts to develop new semiconductor memory and storage technologies could have a material adverse effect on our business, results of operations, or financial condition.

New product development may be unsuccessful.

We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investments in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development over the next several years. The process to develop new products requires us to demonstrate advanced functionality and performance, often well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be no assurance of the following:

•that our product development efforts will be successful;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;
that we will be able to establish or maintain key relationships with customers with specific chip set or design requirements;
that we will be able to introduce new products into the market and qualify them with our customers on a timely basis; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.

Our unsuccessful efforts to develop new products and solutions could have a material adverse effect on our business, results of operations, or financial condition.



Our joint ventures and strategic relationships involve numerous risks.

We have entered into strategic relationships, including our IMFT joint venture with Intel, to manufacture products and develop new manufacturing process technologies and products. These joint ventures and strategic relationships are subject to various risks that could adversely affect the value of our investments and our results of operations. These risks include the following:

our interests could diverge from our partners' interests or we may not be able to agree with our partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint ventures;
our joint venture partners' products may compete with our products;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, we and our partners may not participate to the same extent on funding capital investments in our joint ventures;
cash flows may be inadequate to fund increased capital requirements of our joint ventures;
we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal, or regulatory requirements may necessitate changes in the agreements with our partners.

Our joint ventures and strategic relationships, if unsuccessful, could have a material adverse effect on our business, results of operations, or financial condition.


A significant concentrationportion of our net salesrevenue is toconcentrated with a select number of customers.


In each of the last three fiscal years, approximately one-half of our total net sales were torevenue was from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. In addition, any consolidation of our customers could reduce the number of customers to whom our products could be sold. Our
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inability to meet our customers'customers’ requirements or to qualify our products with them could adversely impact our sales.revenue. Meaningful change in the inventory strategy of our customers, particularly those in China, could impact our industry bit demand growth outlook. The loss of one or more of our major customers or any significant reduction in orders from, or a shift in product mix by, these customers could have a material adverse effect on our business, results of operations, or financial condition.


We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.

In 2019, 53% of our revenue was to customers who have headquarters located in the United States. We ship our products to the locations specified by our customers. Customers with global supply chains and operations may request we deliver products to countries where they own or operate production facilities or to countries where they utilize third-party subcontractors or warehouses. As a result, 89% of our revenue in 2019 was from products shipped to customer locations outside the United States. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, Japan, and China. Many of our customers, suppliers, and vendors operate internationally and are also subject to the risks described below. In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar bans or other restrictions on sales to one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even when such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose while complying with such restrictions. We have experienced restrictions on our ability to sell products to certain foreign customers where sales of products require export licenses or are prohibited by government action. Possible future U.S. government actions could lead to additional or enhanced controls on exports from the United States to China or other countries, bans on sales to other key customers, or other similar restrictions.

Trade-related government actions, by China or other countries, that impose barriers or restrictions that would impact our ability to sell or ship products to Huawei or other customers may have a negative impact on our financial condition and results of operations. We cannot predict the actions government entities may take in this context and may be unable to quickly offset or effectively react to government actions that restrict our ability to sell to certain customers or in certain jurisdictions. Government actions that affect our customers’ ability to sell products or access critical elements of their supply chains may result in a decreased demand for their products, which may consequently reduce their demand for our products.

Our international sales and operations are subject to a variety of risks, including:

•export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
•imposition of bans on sales of goods or services to one or more of our significant foreign customers;
•compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, export and import laws, and similar rules and regulations;
•theft of intellectual property;
•political and economic instability;
•government actions or civil unrest preventing the flow of products, including delays in shipping and obtaining products, cancellation of orders, or loss or damage of products;
•problems with the transportation or delivery of products;
•issues arising from cultural or language differences and labor unrest;
•longer payment cycles and greater difficulty in collecting accounts receivable;
•compliance with trade, technical standards, and other laws in a variety of jurisdictions;
•contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;
•disruptions to manufacturing operations as a result of actions imposed by foreign governments;
•changes in economic policies of foreign governments; and
•difficulties in staffing and managing international operations.

If we or our customers, suppliers, or vendors are impacted by these risks, it could have a material adverse effect on our business, results of operations, or financial condition.

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We have been served with complaints in Chinese courts alleging patent infringement.

We have been served with complaints in Chinese courts alleging that we infringe certain Chinese patents by manufacturing and selling certain products in China. The complaints seek orders requiring us 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 plus court fees.

We are unable to predict the outcome of these assertions of infringement made against us 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 operations in China, products, and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition. (See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”)

We are subject to allegations of anticompetitive conduct.

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 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 complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The complaints assert 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 seek 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.

We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition.

Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or the dependency on third-party service providers.

Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials and services that meet our standards and, in some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass
mu-20191128_g6.jpg37

blanks. Shortages or increases in lead times may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers.

Certain materials are primarily available in certain countries, including rare earth elements, minerals, and metals available primarily from China. Trade disputes or other political or economic conditions may limit our availability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China.

We and/or our suppliers and service providers could be affected by tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, and responsible sourcing practices, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Lead times for the supply of materials have been extended in the past. The disruption of our supply of materials, components, services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.

Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers’ limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.

New product and market development may be unsuccessful.

We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investments in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development over the next several years. Additionally, we are increasingly differentiating our products and solutions to meet the specific demands of our customers, which increases our reliance on our customer’s ability to accurately forecast the end-customer’s needs and preferences. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers. For certain of our markets, it is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may excluded us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality and performance, often well in advance of a planned ramp of production, in order to secure design wins with our customers. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand. There can be no assurance of the following:

•that our product development efforts will be successful;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;
•that we will be able to establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;
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•that we will be able to introduce new products into the market and qualify them with our customers on a timely basis; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.

Our unsuccessful efforts to develop new products and solutions could have a material adverse effect on our business, results of operations, or financial condition.

Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop and qualify our system solutions.


Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers'customers’ specifications offor those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products in sufficient volume, quantity, and in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers'customers’ specifications or achieve design wins with our customers, we may experience a significant adverse impact on our salesrevenues and margins. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors'competitors’ products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customer'scustomers’ ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected.


Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs exceed our per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discrete products, to design, test, and qualify, which may increase our costs. Additionally, some of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may need to update our firmware or develop new firmware as a result of new product introductions or changes


in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-level solutions and/or firmware in a timely manner may result in reduced demand for our system-level products and could have a material adverse effect on our business, results of operations, or financial condition.


Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.


Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time, we experience problems with nonconforming, defective, or incompatible products after we have shipped such products. In recent periods, we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. AsOur products and solutions may be deemed fully or partially responsible for functions in our customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result weof our customers’ products failing to perform as specified. We could be adversely affected in several ways, including the following:


•we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible products and to replace products;
•we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and
•we may encounter adverse publicity, which could cause a decrease in sales of our products or harm our relationships with existing or potential customers.


Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.


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We may be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.


We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secret laws,secrets, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology.technology or other proprietary information. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.


Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. Global competition for such skilled employees in our industry is intense. Due to the volatile nature of our industry and our operating results, a decline in our operating results and/or stock price may adversely affect our ability to retain key employees whose compensation is dependent, in part, upon the market price of our common stock, achieving certain performance metrics, levels of company profitability, or other financial or company-wide performance. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment.


Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.


Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.


As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management'smanagement’s time and attention. As a result of these claims, we may be required to:


•pay significant monetary damages, fines, royalties, or penalties;
•enter into license or settlement agreements covering such intellectual property rights;


•make material changes to or redesign our products and/or manufacturing processes; and/or
•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.


We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. (See also "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies."”)


We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.


Litigation could have a material adverse effect on our business, results of operations, or financial condition.

From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant
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attention from our management. We could be subject to litigation or arbitration disputes arising from our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners. We may also be associated with and subject to litigation arising from the actions of our subcontractors or business partners. We may also be subject to litigation as a result of indemnities we issue, primarily with our customers, the terms of our product warranties, and from product liability claims. As we continue to focus on developing system solutions with manufacturers of consumer products, including autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers’ use of those products. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we may elect to self-insure with respect to certain matters. Exposures to various litigation could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.

We are subject to allegations of securities violations and related wrongful acts.

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 purports 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 alleges that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and seek 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.

We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition.

If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.


We and our subcontractors manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We and our subcontractors maintain operations and continuously implement new product and process technology at our manufacturing operations,facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. Additionally, our control over operations at IMFT is limited by our agreements with Intel.

From time to time, wethere have experiencedbeen disruptions in ourthe manufacturing process as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures,failures. We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, including earthquakes or other environmental events. tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. The events noted above have occurred from time to time in the past and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.

If production at a fabrication facility is disrupted for any reason, manufacturing yields may be adversely affected, or we may be unable to meet our customers'customers’ requirements and they may purchase products from other suppliers. This could result in a
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significant increase in manufacturing costs, loss of revenues, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.


A downturn in the worldwide economy may harm our business.

Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, SSDs, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults. As a result, a downturn in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.

Breaches of our security systems, or those of our customers, suppliers, or business partners, could expose us to losses.

We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Breaches of our physical security and attacks on our network systems, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.

Our acquisition of Intel's noncontrolling interest in IMFT involves numerous risks.

On October 31, 2019, we purchased Intel’s noncontrolling interest in IMFT, now known as MTU. Our acquisition involves risks including, but not limited to, an inability to sell the product MTU produces, increases in underutilization charges, increase in R&D expenses, retention of key employees, and successful integration of MTU. We may also face risks from disputes in connection with joint venture activities, or difficulties or delays in collecting amounts due to us. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.

Debt obligations could adversely affect our financial condition.

We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and restructure of our capital structure. As of November 28, 2019, we had debt with a carrying value of $5.65 billion. As of November 28, 2019, we also had an undrawn revolving credit facility that matures in July 2023 and provides for borrowings of up to $2.50 billion. As of November 28, 2019, the conversion value in excess of principal of our convertible notes was $567 million, based on the trading price of our common stock of $48.16 per share on such date.

Our debt obligations could adversely impact us. For example, these obligations could:

•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
•require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
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•result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
•adversely impact our credit rating, which could increase future borrowing costs;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
•restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
•increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
•increase our exposure to interest rate risk from variable rate indebtedness;
•continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
•require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.

Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our revolving credit facility. In 2019, we suspended the security interest in the collateral under our credit facility upon achieving a specified credit rating and prepaying the 2022 Term Loan B; however, if our corporate credit rating were to decline below a certain level, the security interest would be automatically reinstated. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.

We must attract, retain, and motivate highly skilled employees.

To remain competitive, we must attract, retain, and motivate executives and other highly skilled employees. Competition for experienced employees in our industry can be intense and hiring and retaining qualified executives, engineers, technical staff, and sales representatives are critical to our business. Our inability to attract and retain key employees may inhibit our ability to maintain or expand our business operations. Additionally, changes to immigration policies in the numerous countries in which we operate, including the United States, may limit our ability to hire and/or retain talent in specific locations. If our total compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could have a material adverse effect on our business, results of operations, or financial condition.

The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.


On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda'sQimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary (" (“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'sQimonda’s shares of Inotera (the "Inotera Shares"“Inotera Shares”), representing approximately 18% of Inotera'sInotera’s outstanding shares as of March 1, 2018,at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among 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
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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'sQimonda’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 have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We haveOn 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 two independent experts to perform an evaluation of Dr. Jaffé’s claims that the parties have submitted briefsamount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed experts issued their 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 appeals court.experts for supplemental expert opinion.


We are unable to predict the outcome of the matter and, therefore, cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the


benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operations, or financial condition.


We may incur additional restructuring chargestax expense or become subject to additional tax exposure.

We operate in future periods.

In separate transactions in 2017, we sold our assembly and test facility located in Akita, Japan and our 40% ownership interest in Tera Probe; assets associated with our 200mm fabrication facility in Singapore; and assets related to our Lexar brand. In 2016, we initiated a restructure plan in response to business conditions and the need to accelerate focus on our key priorities. The plan included the elimination of certain projects and programs, the permanent closure of a number of open headcount requisitions, workforce reductionslocations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain areasbusiness operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our business,earnings among these jurisdictions. Our provision for income taxes and other non-headcount related spending reductions. As a result of thesecash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and other actions, we incurred charges of $18 million, $67 million, and $3 million for 2017, 2016, and 2015, respectively.

We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associatedintercompany transfer pricing arrangements, failure to meet performance obligations with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions inrespect to tax incentive agreements, expanding our operations in various countries, and difficultieschanges in tax laws and regulations. Additionally, we file income tax returns with the timely deliveryU.S. federal government, various U.S. states, and various other jurisdictions throughout the world and certain tax returns may remain open to examination for several years. The results of products, whichaudits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability. The foregoing items could have a material adverse effect on our business, results of operations, or financial condition.


Breaches ofA change in tax laws in key jurisdictions could materially increase our security systems could expose us to losses.tax expense.


We maintainare subject to income taxes in the U.S. and many foreign jurisdictions. Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws, could significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have a systemmaterial adverse effect on our financial condition. For example, our effective tax rate increased from 1.2% for 2018 to 9.8% for 2019 primarily as a result of controls over the physical securityTax Cuts and Jobs Act, enacted on December 22, 2017 by the United States and for which the U.S. Treasury Department continues to issue interpretive guidance. Additionally, various levels of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms,government are increasingly focused on tax reform and other malicious software programs that disrupt our operationslegislative actions to increase tax revenue. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and create security vulnerabilities. Breachesprofit shifting project undertaken by the Organization for Economic Co-operation and Development, which represents a coalition of our physical securitymember countries and attacks on our network systems could resultrecommended changes to numerous long-standing tax principles. If adopted by countries, such changes, as well as changes in significant lossesU.S. federal and damage our reputation with customersstate tax laws or in taxing jurisdictions’ administrative interpretations, decisions, policies, and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised, whichpositions, could have a material adverse effect on our business, results of operations, or financial condition.


Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.

Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. We recorded net losses from changes in currency exchange rates of $36 million for the first six months of 2018, $74 million for 2017, and $24 million for 2016. Based on our foreign currency balances of monetary assets and liabilities, as of March 1, 2018, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $414 million. Although we hedge our primary exposures to changes in currency exchange rates from our monetary assets and liabilities, the effectiveness of these hedges is dependent upon our ability to accurately forecast our monetary assets and liabilities. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition.

We may make future acquisitions and/or alliances, which involve numerous risks.

Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:

integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
diverting management's attention from daily operations;


managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor, and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.

In previous years, supply of memory and storage products has significantly exceeded customer demand resulting in significant declines in average selling prices for DRAM and NAND. The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, technology companies are inherently risky and may not be successful and could have a material adverse effect on our business, results of operations, or financial condition.

The limited availability of raw materials, supplies, or capital equipment could materially adversely affect our business, results of operations, or financial condition.

Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials and services. However, only a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards. In some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, sub-assemblies, targets, and reticle glass blanks. Shortages may occur, from time to time, in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. The disruption of our supply of raw materials or services or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.

Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers' limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.

Increases in tariffs or other taxes on our products or equipment and supplies could have an adverse impact on our operations.

We sell a significant majority of our products into countries outside the United States and we purchase a significant portion of equipment and supplies from suppliers outside the United States. The United States and other countries have levied tariffs and taxes on certain goods. Further tariffs, additional taxes or trade barriers may increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.

A downturn in the worldwide economy may harm our business.

Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, SSDs, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on


our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults. As a result, a downturn in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.

Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.

We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, such as earthquakes or tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, could have a material adverse effect on our business, results of operations, or financial condition.

Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations and are subject to reduction, termination, or clawback.


We have received, and may in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase
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investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to perform or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives. We cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our performance with the terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.


The operations of MMJ are subject to continued oversight byWe may make future acquisitions and/or alliances, which involve numerous risks.

Acquisitions and the Japan Court during the pendency of the corporate reorganization proceedings.

Because MMJ's plan of reorganization provides for ongoing payments to creditors following the closing of our acquisition of MMJ, the reorganization proceedings in Japan (the "Japan Proceedings") are continuing and MMJ remains subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee is responsible for overseeing theformation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:

•integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
•increasing capital expenditures to upgrade and maintain facilities;
•increased debt levels;
•the assumption of unknown or underestimated liabilities;
•the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business of MMJ, other than oversightactivities;
•diverting management’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in relation to acts that need to be carried outseparate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by governmental authorities in connection with the Japan Proceedings,regulatory review of a transaction, which are the responsibility of the legal trustee. MMJ's reorganization proceedings in Japan, and oversight of the Japan Court, will continue until the final creditor payment is made under MMJ's plan of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixedinclude, among other things, divestitures or restrictions on the final scheduled installment payment date. MMJ may petition the Japan Court for an early termination of the reorganization proceedings once two-thirds of all payments under the plan of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Japan Court will grant any such petition in this particular case.

During the pendency of the reorganization proceedings in Japan, MMJ is obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions relating to its businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of MMJ or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of MMJ's plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as partconduct of our global business or the acquired business;
•inability to cause MMJ to take certain actions that we deem advisable for its business could be adversely affected if the Japan Courtrealize synergies or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to MMJ.other expected benefits;

The operations of MMJ being subject to the continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings could have a material adverse effect on our business, results of operations, or financial condition.



We may incur additional tax expense or become subject to additional tax exposure.

We operate in a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our earnings among these jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and intercompany transfer pricing agreements, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, •failure to meet performance obligations with respect to tax incentive agreements,maintain customer, vendor, and changes in tax lawsother relationships;
•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and regulations. We file income tax returns with the U.S. federal government, various U.S. states,procedures, compliance programs, and/or environmental, health and varioussafety, anti-corruption, human resource, or other jurisdictions throughout the world. Our U.S. federalpolicies or practices; and state tax returns remain open to examination for 2013 through 2017. In addition, tax returns that remain open to examination in Japan and Taiwan range from the years 2012 to 2017, and in Singapore from 2013 to 2017. The results
•impairment of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability. The foregoing items could have a material adverse effect on our business, results of operations,acquired intangible assets, goodwill, or financial condition.

A change in tax laws in key jurisdictions could materially increase our tax expense.

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from our foreign operations are taxed in the United States. Asother assets as a result of our fiscal year-end,changing business conditions, technological advancements, or worse-than-expected performance of the lower corporate income tax rate will be phased in,acquired business.

In previous years, supply of memory and storage products has significantly exceeded customer demand resulting in a U.S. statutory federal rate of 25.7% for 2018,significant declines in average selling prices. The global memory and 21% for subsequent years. Based onstorage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the information available, we recorded provisional amounts under SAB 118; however,extent we are continuingsuccessful in completing any such transactions, we could be subject to gather additional information and analyze authoritative guidance to finalize the computationsome or all of the Repatriation Tax. The final tax impactsrisks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may differ from our provisional estimates due to, among other things, the issuanceaccompany such transactions. Acquisitions of, additional regulatoryor alliances with, technology companies are inherently risky and legislative guidance. As a result of the Tax Act, our tax rate may increase up to the low teens percentage depending on future profitability.

We may not utilize all of our net deferred tax assets.

We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of August 31, 2017, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.88 billion and $1.95 billion, respectively, which, if not utilized, will expire at various dates from 2028 through 2037 and 2018 through 2037, respectively. As of August 31, 2017, our foreign net operating loss carryforwards were $6.30 billion, which will, if not utilized, substantially all expire at various dates from 2019 through 2026. As of August 31, 2017, we had gross deferred tax assets of $3.78 billion and valuation allowances of $2.32 billion against our deferred tax assets. As of March 1, 2018, after recording the provisional estimated impact of the Tax Act, which includes the utilization of a substantial portion of our U.S. deferred tax assets, we had net deferred tax assets of $1.95 billion and valuation allowances of $943 million against our deferred tax assets. Utilization of all of our net operating loss and credit carryforwards would increase the amount of our annual cash taxes reducing the overall amount of cash available to be used in other areas of the businesssuccessful and could have a material adverse effect on our business, results of operations, or financial condition.


A changeChanges in ownership may limitforeign currency exchange rates could materially adversely affect our ability to utilizebusiness, results of operations, or financial condition.

Across our net operating loss carryforwards.

On January 18, 2017, our shareholders approvedglobal operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. In addition, a Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the close of business on August 1, 2016 received one right for each share of common stock outstanding, which entitles certain shareholders to purchase additional sharessignificant portion of our common stock atmanufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a significant discountmaterial adverse effect on our business, results of operations, or financial condition.

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We may incur additional restructuring charges in future periods.

From time to time, we have, and may in the eventfuture, enter into restructure initiatives in order to, among other items, streamline our operations, respond to changes in business conditions, our markets or product offerings, or to centralize certain key functions. We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of certain transactions that may resultproduction output, loss of key personnel, disruptions in an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Rights will attach to all shares of the Company’s common stock issued prior to the earlier of the rights' distribution date or expiration date as set forthoperations, and difficulties in the Rights Agreement. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownershiptimely delivery of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board or without meeting certain customary exceptions, the rights (other than rights held by the acquiring shareholder (or group) and certain related persons) would become exercisable. The Rights Agreement is intended to avoid an adverse ownership change, thereby preserving our current ability to utilize certain net operating loss and credit carryforwards; however, there is no assurance that the Rights Agreement will prevent all transfers that could result in such an ownership change.

If we experience a 50% or greater change in ownership involving shareholders owning 5% or more of our common stock, it could adversely impact our ability to utilize our existing net operating loss and credit carryforwards. The inability to utilize


existing net operating loss and credit carryforwards would significantly increase the amount of our annual cash taxes and reduce the overall amount of cash available to be used in other areas of the businessproducts, which could have a material adverse effect on our business, results of operations, or financial condition.


Compliance with customer and responsible sourcing requirements and related regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metalsmaterials, supplies, and services used in manufacturing our products.


IncreasedMany of our customers have adopted responsible sourcing programs that require us to periodically report on our supply chain and responsible sourcing efforts to ensure we source the materials, supplies, and services we use and incorporate into the products we sell in a manner that is consistent with their programs. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products meet the specifications of their responsible sourcing programs. Meeting customer requirements may limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such is concentrated to a limited number of suppliers. This in turn may affect our ability and/or the cost to obtain materials, supplies, and services necessary for the manufacture of our products in sufficient quantities.

This increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and its implementing SEC regulations. The Dodd-Frank Actact imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals"conflict minerals are commonly found in materials used in the manufacture of semiconductors. The implementation of these new regulations may limit the sourcing and availability of some of these materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient quantities and may affect related material pricing. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products are DRC conflict free.

Our inability to comply with thecustomers’ requirements for responsible sourcing or with regulations regarding the use of conflict minerals could have a material adverse effect on our business, results of operations, or financial condition.


We and others are subject to a variety of laws, and regulations, or industry standards that may result in additional costs and liabilities.


The manufacturing of our products requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any of thesechanges in laws, regulations, or regulationsindustry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with these laws, regulations, or regulationsindustry standards could adversely impact our reputation and our financial results. Additionally, we partner with other companies inengage various third parties to represent us or otherwise act on our joint ventures, whichbehalf who are also subject to a broad array of laws, regulations, and regulations.industry standards. Our ownership inengagement with these joint venturesthird parties may also expose us to risks associated with their respective compliance with these laws and regulations. As a result of these items, we could experience the following:


•suspension of production;
•remediation costs;
•alteration of our manufacturing processes;
•regulatory penalties, fines, and legal liabilities; and
•reputational challenges.


Our failure, or the failure of our joint ventures,third-party agents, to comply with these laws, and regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.


We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.

46 | 2020 Q1 10-Q
Sales to customers outside the United States approximated 86% of our consolidated net sales for 2017. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, Japan, and China. Our international sales and operations are subject to a variety of risks, including:


export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, export and import laws, and similar rules and regulations;
theft of intellectual property;
political and economic instability;
problems with the transportation or delivery of our products;
issues arising from cultural or language differences and labor unrest;
longer payment cycles and greater difficulty in collecting accounts receivable;
compliance with trade, technical standards, and other laws in a variety of jurisdictions;
contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels;


disruptions to our manufacturing operations as a result of actions imposed by foreign governments;
changes in economic policies of foreign governments; and
difficulties in staffing and managing international operations.

These factors could have a material adverse effect on our business, results of operations, or financial condition.

We are subject to counterparty default risks.


We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, capped call contracts on our common stock, and derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may not comply with their contractual commitments which could then lead to their defaulting on their obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty'scounterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.



The operations of MMJ are subject to continued oversight by the Tokyo District Court during the pendency of the corporate reorganization proceedings.

Because MMJ’s plan of reorganization provides for ongoing payments to creditors following the closing of the MMJ acquisition, the reorganization proceedings in Japan (the “Japan Proceedings”) are continuing and MMJ remains subject to the oversight of the Tokyo District Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Tokyo District Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee is responsible for overseeing the operation of the business of the MMJ, other than oversight in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. The final creditor payment under MMJ’s plan of reorganization is scheduled to occur in December 2019. Following distribution of the final payment and the Tokyo District Court’s approval and issuance of an order concluding the reorganization proceedings, MMJ’s reorganization proceedings in Japan and oversight by the Tokyo District Court will terminate.

During the pendency of the reorganization proceedings in Japan, MMJ is obligated to provide periodic financial reports to the Tokyo District Court and may be required to obtain the consent of the Tokyo District Court prior to taking a number of significant actions relating to its businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of MMJ or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of MMJ’s plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as part of our global business or to cause MMJ to take certain actions that we deem advisable for its business could be adversely affected if the Tokyo District Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to MMJ.

The operations of MMJ being subject to the continued oversight by the Tokyo District Court during the pendency of the corporate reorganization proceedings could have a material adverse effect on our business, results of operations, or financial condition.


mu-20191128_g6.jpg47

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


DuringOur Board of Directors has authorized the second quarterdiscretionary repurchase of 2018, we share-settled allup to $10 billion of our remaining 2032Coutstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization does not obligate us to acquire any common stock and 2033E Capped Callsis subject to market conditions and a portionour ongoing determination of our 2032D Capped Calls and received 7,022,506 sharesthe best use of our common stock.available cash.


PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares (or units) purchased as part of publicly announced plans or programsMaximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs
August 30, 2019–  October 3, 2019—  $—  —  
October 4, 2019–  October 31, 2019659,192  45.52  —  
November 1, 2019–  November 28, 2019417,688  47.89  —  
1,076,880  46.44  $7,287,838,276  
Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares (or units) purchased as part of publicly announced plans or programs (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs
December 1, 2017–January 4, 2018 4,710,314
 $45.68
    
January 5, 2018–February 1, 2018 —
 —
    
February 2, 2018–March 1, 2018 2,312,192
 42.47
    
    7,022,506
 44.62
 
  


Shares of common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan and accordingly are excluded from the amounts in the table above.





ITEM 6. ExhibitsEXHIBITS


Exhibit NumberDescription of ExhibitFiled HerewithFormPeriod EndingExhibit/ AppendixFiling Date
31.1 X
31.2 X
32.1 X
32.2 X
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentX
101.SCHInline XBRL Taxonomy Extension Schema DocumentX
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X

48 | 2020 Q1 10-Q

Exhibit NumberDescription of ExhibitFiled HerewithFormPeriod EndingExhibit/ AppendixFiling Date
3.1
Restated Certificate of Incorporation of the Registrant
 8-K 99.21/26/15
3.2
Bylaws of the Registrant, Amended and Restated
 8-K 99.14/15/14
10.1
Micron Technology, Inc. Executive Officer Performance Incentive Plan
 DEF 14A B12/7/2017
10.75
Micron Technology, Inc. Employee Stock Purchase Plan
 DEF 14A A12/7/2017
10.76
Severance Benefits for David A. Zinsner
ü    
31.1
Rule 13a-14(a) Certification of Chief Executive Officer
ü    
31.2
Rule 13a-14(a) Certification of Chief Financial Officer
ü    
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
ü    
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
ü    
101.INSXBRL Instance Documentü    
101.SCHXBRL Taxonomy Extension Schema Documentü    
101.CALXBRL Taxonomy Extension Calculation Linkbase Documentü    
101.DEFXBRL Taxonomy Extension Definition Linkbase Documentü    
101.LABXBRL Taxonomy Extension Label Linkbase Documentü    
101.PREXBRL Taxonomy Extension Presentation Linkbase Documentü    
SIGNATURES




SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Micron Technology, Inc.
(Registrant)
Date:March 23, 2018December 20, 2019By:/s/ David A. Zinsner
David A. Zinsner
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Paul Marosvari
Paul Marosvari
Vice President and Chief Accounting Officer
(Principal Accounting Officer)


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