Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

	Page
Consolidated Financial Statements as of August 30, 2018 and August 31, 2017 and for the fiscal years ended August 30, 2018, August 31, 2017, and September 1, 2016
Consolidated Statements of Operations	41
Consolidated Statements of Comprehensive Income (Loss)	42
Consolidated Balance Sheets	43
Consolidated Statements of Changes in Equity	44
Consolidated Statements of Cash Flows	45
Notes to Consolidated Financial Statements	46
Report of Independent Registered Public Accounting Firm	80

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions except per share amounts)

For the year ended		August 30, 2018				August 31, 2017				September 1, 2016
Net sales		$	30,391			$	20,322			$	12,399
Cost of goods sold		12,500				11,886				9,894
Gross margin		17,891				8,436				2,505
Selling, general, and administrative		813				743				659
Research and development		2,141				1,824				1,617
Other operating (income) expense, net		(57		)		1				61
Operating income		14,994				5,868				168
Interest income		120				41				42
Interest expense		(342		)		(601		)		(437		)
Other non-operating income (expense), net		(465		)		(112		)		(54		)
		14,307				5,196				(281		)
Income tax provision		(168		)		(114		)		(19		)
Equity in net income (loss) of equity method investees		(1		)		8				25
Net income (loss)		14,138				5,090				(275		)
Net income attributable to noncontrolling interests		(3		)		(1		)		(1		)
Net income (loss) attributable to Micron		$	14,135			$	5,089			$	(276	)
Earnings (loss) per share
Basic		$	12.27			$	4.67			$	(0.27	)
Diluted		11.51				4.41				(0.27		)
Number of shares used in per share calculations
Basic		1,152				1,089				1,036
Diluted		1,229				1,154				1,036

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

For the year ended		August 30, 2018				August 31, 2017				September 1, 2016
Net income (loss)		$	14,138			$	5,090			$	(275	)
Other comprehensive income (loss), net of tax
Gains (losses) on derivative instruments		(15		)		15				7
Pension liability adjustments		(3		)		1				(9		)
Unrealized gains (losses) on investments		(2		)		—				3
Foreign currency translation adjustments		1				48				(49		)
Other comprehensive income (loss)		(19		)		64				(48		)
Total comprehensive income (loss)		14,119				5,154				(323		)
Comprehensive (income) attributable to noncontrolling interests		(3		)		(1		)		(1		)
Comprehensive income (loss) attributable to Micron		$	14,116			$	5,153			$	(324	)

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)

As of		August 30, 2018				August 31, 2017
Assets
Cash and equivalents		$	6,506			$	5,109
Short-term investments		296				319
Receivables		5,478				3,759
Inventories		3,595				3,123
Other current assets		164				147
Total current assets		16,039				12,457
Long-term marketable investments		473				617
Property, plant, and equipment		23,672				19,431
Intangible assets		331				387
Deferred tax assets		1,022				766
Goodwill		1,228				1,228
Other noncurrent assets		611				450
Total assets		$	43,376			$	35,336
Liabilities and equity
Accounts payable and accrued expenses		$	4,611			$	3,664
Deferred income		284				408
Current debt		859				1,262
Total current liabilities		5,754				5,334
Long-term debt		3,777				9,872
Other noncurrent liabilities		581				639
Total liabilities		10,112				15,845
Commitments and contingencies
Redeemable convertible notes		3				21
Redeemable noncontrolling interest		97				—
Micron shareholders' equity
Common stock, $0.10 par value, 3,000 shares authorized, 1,170 shares issued and 1,161 outstanding (1,116 shares issued and 1,112 outstanding as of August 31, 2017)		117				112
Additional capital		8,201				8,287
Retained earnings		24,395				10,260
Treasury stock, 9 shares held (4 shares as of August 31, 2017)		(429		)		(67		)
Accumulated other comprehensive income		10				29
Total Micron shareholders' equity		32,294				18,621
Noncontrolling interests in subsidiaries		870				849
Total equity		33,164				19,470
Total liabilities and equity		$	43,376			$	35,336

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in millions)

		Micron Shareholders
		Common Stock							Additional Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Micron Shareholders' Equity				Noncontrolling Interests in Subsidiaries				Total Equity
		Number of Shares			Amount
Balance at September 3, 2015		1,084			$	108			$	7,474			$	5,588			$	(881	)		$	13			$	12,302			$	937			$	13,239
Net income (loss)													(276		)										(276		)		1				(275		)
Other comprehensive income (loss), net																					(48		)		(48		)		—				(48		)
Stock issued under stock plans		11			1				47																48								48
Stock-based compensation expense									191																191								191
Contributions from noncontrolling interests																									—				37				37
Distributions to noncontrolling interests																									—				(34		)		(34		)
Acquisitions of noncontrolling interests																									—				(93		)		(93		)
Repurchase and retirement of stock		(1	)		—				(10		)		(13		)										(23		)						(23		)
Repurchase of treasury stock																	(125		)						(125		)						(125		)
Settlement of capped calls									23								(23		)						—								—
Reclassification of redeemable convertible notes, net									49																49								49
Conversion and repurchase of convertible notes									(38		)														(38		)						(38		)
Balance at September 1, 2016		1,094			$	109			$	7,736			$	5,299			$	(1,029	)		$	(35	)		$	12,080			$	848			$	12,928
Net income													5,089												5,089				1				5,090
Other comprehensive income (loss), net																					64				64				—				64
Stock issued under stock plans		20			3				139																142								142
Stock-based compensation expense									217				(2		)										215								215
Repurchase and retirement of stock		(2	)		—				(13		)		(22		)										(35		)						(35		)
Stock issued to Nanya for Inotera Acquisition		4			—				70				(104		)		1,029								995								995
Settlement of capped calls									192								(67		)						125								125
Reclassification of redeemable convertible notes, net									(21		)														(21		)						(21		)
Conversion and repurchase of convertible notes									(33		)														(33		)						(33		)
Balance at August 31, 2017		1,116			$	112			$	8,287			$	10,260			$	(67	)		$	29			$	18,621			$	849			$	19,470
Net income													14,135												14,135				3				14,138
Other comprehensive income (loss), net																					(19		)		(19		)		—				(19		)
Stock issued in public offering		34			3				1,363																1,366								1,366
Stock issued under stock plans		22			2				287																289								289
Stock-based compensation expense									198																198								198
Contributions from noncontrolling interests																									—				18				18
Repurchase and retirement of stock		(2	)		—				(71		)														(71		)						(71		)
Settlement of capped calls									429								(429		)						—								—
Reclassification of redeemable convertible notes, net									18																18								18
Conversion and repurchase of convertible notes									(2,310		)						67								(2,243		)						(2,243		)
Balance at August 30, 2018		1,170			$	117			$	8,201			$	24,395			$	(429	)		$	10			$	32,294			$	870			$	33,164

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

For the year ended		August 30, 2018				August 31, 2017				September 1, 2016
Cash flows from operating activities
Net income (loss)		$	14,138			$	5,090			$	(275	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation expense and amortization of intangible assets		4,759				3,861				2,980
Amortization of debt discount and other costs		101				125				126
Loss on debt prepayments, repurchases, and conversions		385				99				4
Stock-based compensation		198				215				191
Gain on remeasurement of previously-held equity interest in Inotera		—				(71		)		—
Change in operating assets and liabilities
Receivables		(1,734		)		(1,651		)		465
Inventories		(472		)		50				(549		)
Accounts payable and accrued expenses		549				564				272
Payments attributed to intercompany balances with Inotera		—				(361		)		—
Deferred income taxes, net		(265		)		(22		)		(15		)
Other		(259		)		254				(31		)
Net cash provided by operating activities		17,400				8,153				3,168
Cash flows from investing activities
Expenditures for property, plant, and equipment		(8,879		)		(4,734		)		(5,817		)
Purchases of available-for-sale securities		(760		)		(1,239		)		(1,026		)
Payments to settle hedging activities		(185		)		(274		)		(152		)
Acquisition of Inotera		—				(2,634		)		—
Proceeds from sales of available-for-sale securities		604				776				2,314
Proceeds from government incentives		355				21				16
Proceeds from maturities of available-for-sale securities		320				194				1,376
Proceeds from settlement of hedging activities		163				184				335
Other		166				169				(90		)
Net cash provided by (used for) investing activities		(8,216		)		(7,537		)		(3,044		)
Cash flows from financing activities
Repayments of debt		(10,194		)		(2,558		)		(870		)
Payments on equipment purchase contracts		(206		)		(519		)		(46		)
Proceeds from issuance of stock		1,655				142				48
Proceeds from issuance of debt		1,009				3,311				2,199
Proceeds from equipment sale-leaseback transactions		—				—				765
Other		(40		)		(27		)		(351		)
Net cash provided by (used for) financing activities		(7,776		)		349				1,745
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash		(37		)		(12		)		19
Net increase in cash, cash equivalents, and restricted cash		1,371				953				1,888
Cash, cash equivalents, and restricted cash at beginning of period		5,216				4,263				2,375
Cash, cash equivalents, and restricted cash at end of period		$	6,587			$	5,216			$	4,263
Supplemental disclosures
Income taxes paid, net		$	(226	)		$	(99	)		$	(90	)
Interest paid, net of amounts capitalized		(312		)		(468		)		(267		)
Noncash investing and financing activity
Equipment acquisitions on contracts payable and capital leases		84				813				993

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All tabular amounts in millions except per share amounts)

Significant Accounting Policies

Basis of Presentation: Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands – Micron, Crucial, and Ballistix – our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash, and 3D XPoint memory, is transforming how the world uses information to enrich life. Backed by 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, machine learning, and autonomous vehicles, in key market segments like cloud, data center, networking, and mobile. 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. 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 2018, 2017, and 2016 each contained 52 weeks. All period references are to our fiscal periods unless otherwise indicated.

Derivative and Hedging Instruments: We use derivative instruments to manage our exposure to changes in currency exchange rates from (1) our monetary assets and liabilities denominated in currencies other than the U.S. dollar and (2) forecasted cash flows for certain capital expenditures. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the fair value of derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative instruments that are not designated for hedge accounting, gains or losses from changes in fair values are recognized in other non-operating income (expense).

For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gains or losses on 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 Accounting Standards Update ("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.

For derivative forward contracts designated as fair value hedges, hedge effectiveness is determined by the change in the fair value of the undiscounted spot rate of the forward contract. The changes in fair values of hedge instruments attributed to changes in undiscounted spot rates are recognized in other non-operating income (expense). The time value associated with hedge instruments is excluded from the assessment of the effectiveness of hedges and is recognized on a straight-line basis over the life of hedges to other non-operating income (expense).

We enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge transactions. These master netting arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled with each counterparty have been presented in our consolidated balance sheet on a net basis.

Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of three months or less that are readily convertible to known amounts of cash. Other investments with remaining maturities of less than one year are included in short-term investments. Investments with remaining maturities greater than one year are included in long-term marketable investments. The carrying value of investment securities sold is determined using the specific identification method.

Functional Currency: The U.S. dollar is the functional currency for us and all of our consolidated subsidiaries.

Goodwill and Non-Amortizing Intangible Assets: We perform an annual impairment assessment for goodwill and non-amortizing intangible assets in the fourth quarter of our fiscal year.

Government Incentives: We receive incentives from governmental entities related to expenses, assets, and other activities. Our government incentives may require that we meet or maintain specified spending levels and other operational metrics and may be subject to reimbursement if such conditions are not met or maintained. Government incentives are recorded in the financial statements in accordance with their purpose: as a reduction of expenses, a reduction of asset costs, or other income. Incentives related to specific operating activities are offset against the related expense in the period the expense is incurred. Incentives related to the acquisition or construction of fixed assets are recognized as a reduction in the carrying amounts of the related assets and reduce depreciation expense over the useful lives of the assets. Other incentives are recognized as other operating income. Government incentives received prior to being earned are recognized in current or noncurrent deferred income, whereas government incentives earned prior to being received are recognized in current or noncurrent receivables. Cash received from government incentives related to operating expenses are included as an operating activity in the statement of cash flows, whereas cash received from incentives related to the acquisition of property, plant, and equipment are included as an investing activity.

Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves numerous judgments, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories. When net realizable value is below cost, we record a charge to cost of goods sold to write down inventories to their estimated net realizable value in advance of when inventories are actually sold. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize inventories primarily as memory (including DRAM, NAND, and other memory). We remove amounts from inventory and charge such amounts to cost of goods sold on an average cost basis.

Product and Process Technology: Costs incurred to (1) acquire product and process technology, (2) patent technology, and (3) maintain patent technology, are capitalized and amortized on a straight-line basis over periods ranging up to 12.5 years. We capitalize a portion of the costs incurred to patent technology based on historical data of patents issued as a percent of patents we file. Capitalized product and process technology costs are amortized over the shorter of (1) the estimated useful life of the technology, (2) the patent term, or (3) the term of the technology agreement. Fully-amortized assets are removed from product and process technology and accumulated amortization.

Product Warranty: We generally provide a limited warranty that our products are in compliance with applicable specifications existing at the time of delivery. Under our standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that provided under our standard terms and conditions. Our warranty obligations are not material.

Property, Plant, and Equipment: Property, plant, and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally 10 to 30 years for buildings, 5 to 7 years for equipment, and 3 to 5 years for software. Assets held for sale are carried at the lower of cost or estimated fair value and are included in other noncurrent assets. When property, plant, or equipment is retired or otherwise disposed, the net book value is removed and we recognize any gain or loss in results of operations.

We capitalize interest on borrowings during the period of time we carry out the activities necessary to bring assets to the condition of their intended use and location. Capitalized interest becomes part of the cost of assets.

We periodically assess the estimated useful lives of our property, plant, and equipment. In the fourth quarter of 2016, we revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years as a result of the lengthening period of time between DRAM product technology node transitions, an increased re-use rate of equipment, and industry trends. The effect of the revision reduced depreciation expense at the time by approximately $100 million per quarter.

Research and Development: Costs related to the conceptual formulation and design of products and processes are charged to R&D expense as incurred. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. Subsequent to product qualification, product costs are included in cost of goods sold. Product design and other R&D costs for certain technologies may be shared with a development partner. Amounts receivable from cost-sharing arrangements are reflected as a reduction of R&D expense.

Revenue Recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured, which is generally at the time

of shipment to our customers. If we are unable to reasonably estimate returns or the price is not fixed or determinable, sales made under agreements allowing rights of return or price protection are deferred until customers have resold the product.

Stock-based Compensation: Stock-based compensation is measured at the grant date, based on the fair value of the award, and recognized as expense under the straight-line attribution method over the requisite service period. We account for forfeitures as they occur. We issue new shares upon the exercise of stock options or conversion of share units.

Treasury Stock: Treasury stock is carried at cost. When we retire our treasury stock, any excess of the repurchase price paid over par value is allocated between additional capital and retained earnings.

Use of Estimates: The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Actual results could differ from estimates.

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's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgments.

Unconsolidated VIEs

PTI Xi'an: Powertech Technology Inc. Xi'an ("PTI Xi'an") is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to provide assembly services to us at our manufacturing site in Xi'an, China. We do not have an equity interest in PTI Xi'an. PTI Xi'an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We have determined that we do not have the power to direct the activities of PTI Xi'an that most significantly impact its economic performance, primarily because we have no governance rights. Therefore, we do not consolidate PTI Xi'an. In connection with our assembly services with PTI, we had capital lease obligations and net property, plant, and equipment of $63 million and $63 million, respectively, as of August 30, 2018 and $80 million and $76 million, respectively, as of August 31, 2017.

Consolidated VIE

IMFT: IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase agreements and because IMFT is dependent upon us or Intel for additional cash requirements. The primary activities of IMFT are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct its key activities. We consolidate IMFT because we have the power to direct the activities of IMFT that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)

Recently Issued Accounting Standards

In October 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-16 – Intra-Entity Transfers Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU will be effective for us in the first quarter of 2019 and requires modified retrospective adoption. We do not anticipate the adoption of this ASU will have a material impact to 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 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 adoption permitted as early as the first quarter of 2020. 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, as amended, will be effective for us in the first quarter of 2020 with early adoption permitted and allows for either a modified retrospective adoption or a retrospective adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The adoption of this ASU will result in an increase to our consolidated balance sheets for these 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, with prospective adoption for amendments related to equity securities without readily determinable fair values. 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 is 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 will 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 19%, 20%, and 25% of our consolidated revenue for the 2018, 2017, and 2016, respectively. As of August 30, 2018, deferred income related to our distributor sales was $232 million. Upon adoption of this ASU, amounts deferred related to our sales to distributors, net of estimated price adjustments, will be recognized as an increase to retained earnings, net of taxes. We will also reclassify certain allowances from accounts receivable to accounts payable and accrued expenses in connection with new presentation requirements of this ASU. The tax effects of the adoption of this ASU will be recorded primarily as a reduction of net deferred tax assets.

Acquisition of Inotera

Through December 6, 2016, we held a 33% ownership interest in Inotera, now known as MTTW, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest was publicly held. On December 6, 2016, we acquired the 67% remaining interest in Inotera not owned by us (the "Inotera Acquisition") and began consolidating Inotera's operating results. The cash paid for the Inotera Acquisition was funded, in part, with proceeds from the 2021 MSTW Term Loan and the sale of the Micron Shares (as defined below) to Nanya. 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. SG&A expenses for 2017 and 2016 included transaction costs of $13 million and $3 million, respectively, incurred in connection with the Inotera Acquisition.

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 Inotera 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 2017.

In connection with the Inotera Acquisition, we sold 58 million shares of our common stock to Nanya (the "Micron Shares") and received cash proceeds of $986 million. Because the sale of the Micron Shares to Nanya was contemporaneous with, and contingent upon, the closing of the Inotera Acquisition, the issuance of the Micron Shares was treated in purchase accounting as a non-cash exchange for a portion of the shares of Inotera held by Nanya. The Micron Shares were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, and were subject to certain restrictions on transfers at the time of sale. To reflect the lack of transferability, the fair value of the Micron Shares (based on the trading price of our common stock on the acquisition date) was reduced by a discount of $81 million, based on the implied volatility derived from traded options on our stock and on the duration of the lack of transferability (Level 2).

The allocation of purchase price to assets acquired and liabilities assumed of Inotera was as follows:

Consideration
Cash paid for Inotera Acquisition		$	4,099
Less cash received from sale of Micron Shares		(986		)
Net cash paid for Inotera Acquisition		3,113
Fair value of our previously-held equity interest in Inotera		1,441
Fair value of Micron Shares exchanged for Inotera shares		995
Other		3
Payments attributed to intercompany balances with Inotera		(361		)
		$	5,191
Assets acquired and liabilities assumed
Cash and equivalents		$	118
Inventories		285
Other current assets		27
Property, plant, and equipment		3,722
Deferred tax assets		82
Goodwill		1,124
Other noncurrent assets		130
Accounts payable and accrued expenses		(232		)
Debt		(56		)
Other noncurrent liabilities		(9		)
		$	5,191

The Inotera Acquisition enhances our flexibility to drive new technology, optimize the deployment of capital, and adapt our product offerings to changes in market conditions. As a result of these synergies, we allocated goodwill of $829 million, $198 million, and $97 million to CNBU, MBU, and EBU, respectively. Goodwill resulting from the Inotera Acquisition is not deductible for Taiwan corporate income tax purposes; however, it is deductible for Taiwan surtax purposes.

Unaudited Pro Forma Financial Information

The following unaudited 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 unaudited 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.

		Year ended
		August 31, 2017				September 1, 2016
Net sales		$	20,317			$	12,341
Net income (loss)		5,172				(543		)
Net income (loss) attributable to Micron		5,171				(544		)
Earnings (loss) per share
Basic		4.68				(0.50		)
Diluted		4.42				(0.50		)

The unaudited pro forma financial information for 2017 includes our results for the year ended August 31, 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. The pro forma information for 2016 includes our results for the year ended September 1, 2016, the results of Inotera for the twelve months ended August 31, 2016, and the adjustments described above.

Technology Transfer and License Agreements with Nanya

Effective December 6, 2016, the terms of technology transfer and license agreements provided Nanya with options to require us to transfer to Nanya certain technology for Nanya's use and deliverables related to the next DRAM process node generation after our 20nm process node (the "1X Process Node") and the next DRAM process node generation after the 1X Process Node (the "1Y Process Node"). Nanya's option for the 1X Process Node expired unexercised. If Nanya exercises its right for the 1Y Process Node, Nanya would pay us royalties for a license to the transferred 1Y Process Node technology based on revenues from products utilizing the technology, subject to specified caps, and we would also receive an equity interest in Nanya upon the achievement of certain milestones.

Cash and Investments

Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:

As of		2018																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		$	3,223			$	—			$	—			$	3,223			$	2,237			$	—			$	—			$	2,237
Level 1(2)
Money market funds		2,443				—				—				2,443				2,332				—				—				2,332
Level 2(3)
Corporate bonds		3				172				272				447				—				193				315				508
Certificates of deposit		806				11				2				819				483				24				3				510
Government securities		5				63				103				171				1				90				126				217
Asset-backed securities		—				34				96				130				—				2				173				175
Commercial paper		26				16				—				42				56				10				—				66
		6,506				$	296			$	473			$	7,275			5,109				$	319			$	617			$	6,045
Restricted cash(4)		81																107
Cash, cash equivalents, and restricted cash		$	6,587															$	5,216

(1)	The maturities of long-term marketable securities range from one to four years.

(2)	The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.

(3)

The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of August 30, 2018 or August 31, 2017.

(4)

Restricted cash is included in other noncurrent assets and included balances related to the MMJ Creditor Payments. The restrictions on the MMJ Creditor Payments lapse upon approval by the trustees and/or Tokyo District Court. Restricted cash as of August 31, 2017 also included interest reserve balances related to our 2021 MSTW Term Loan, which were released in 2018 in connection with our prepayment of the 2021 MSTW Term Loan. (See "Debt" note.)

Gross realized gains and losses from sales of available-for-sale securities were not material for any period presented. As of August 30, 2018, there were no available-for-sale securities that had been in a loss position for longer than 12 months.

Receivables

As of		2018				2017
Trade receivables		$	5,056			$	3,490
Income and other taxes		161				100
Other		261				169
		$	5,478			$	3,759

Inventories

As of		2018				2017
Finished goods		$	815			$	856
Work in process		2,357				1,968
Raw materials and supplies		423				299
		$	3,595			$	3,123

Property, Plant, and Equipment

As of		2018				2017
Land		$	345			$	345
Buildings (includes $483 and $475, respectively, under capital leases)		8,680				7,958
Equipment(1) (includes $1,336 and $1,331, respectively, under capital leases)		38,249				32,187
Construction in progress(2)		1,162				499
Software		655				544
		49,091				41,533
Accumulated depreciation (includes $868 and $626, respectively, under capital leases)		(25,419		)		(22,102		)
		$	23,672			$	19,431

(1)	Included costs related to equipment not placed into service of $1.73 billion and $994 million, as of August 30, 2018 and August 31, 2017, respectively.

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

Depreciation expense was $4.66 billion, $3.76 billion, and $2.86 billion for 2018, 2017, and 2016, respectively. As of August 30, 2018, production equipment, buildings, and land with an aggregate carrying value of $2.33 billion were pledged as collateral under various notes payable. Interest capitalized as part of the cost of property, plant, and equipment was $44 million, $7 million, and $43 million for 2018, 2017, and 2016, respectively.

Equity Method Investments

Equity in net income (loss) of equity method investees, net of tax, included the following:

For the year ended		2018				2017				2016
Inotera		$	—			$	9			$	32
Tera Probe		—				(3		)		(11		)
Other		(1		)		2				4
		$	(1	)		$	8			$	25

Inotera

We held a 33% interest in Inotera, a Taiwan DRAM memory company, through December 6, 2016, at which time we acquired the remaining 67% interest in Inotera. From January 2013 through December 2015, we purchased all of Inotera's DRAM output under supply agreements at prices reflecting discounts from market prices for our comparable components. After December 2015 and until our acquisition of the remaining interest in Inotera, the price for DRAM products purchased by us was based on a formula that equally shared margin between Inotera and us. Under these agreements, we purchased $504 million and $1.43 billion of DRAM products in 2017 through the date of our acquisition and 2016, respectively. In 2016, we manufactured and sold specialized equipment to Inotera and recognized net sales of $55 million and margin of $16 million.

Tera Probe

In 2017, we sold our 40% interest in Tera Probe, which provided semiconductor wafer testing and probe services to us, in a transaction that included the sale of our assembly and test facility located in Akita, Japan. In 2017 and 2016, we recorded impairment charges of $16 million and $25 million, respectively, within equity in net income (loss) of equity method investees to write down the carrying value of our investment in Tera Probe to its fair value based on its trading price (Level 1). We incurred manufacturing costs for services performed by Tera Probe of $47 million and $70 million in 2017 through the date of sale and 2016, respectively.

Intangible Assets and Goodwill

As of		2018								2017
		Gross Amount				Accumulated Amortization				Gross Amount				Accumulated Amortization
Amortizing assets
Product and process technology		$	567			$	(344	)		$	756			$	(477	)
Non-amortizing assets
In-process R&D		108				—				108				—
Total intangible assets		$	675			$	(344	)		$	864			$	(477	)
Goodwill		$	1,228							$	1,228

In 2018, 2017, and 2016, we capitalized $48 million, $29 million, and $30 million, respectively, for product and process technology with weighted-average useful lives of 10 years, 11 years, and 10 years, respectively. Expected amortization expense is $55 million for 2019, $38 million for 2020, $33 million for 2021, $23 million for 2022, and $17 million for 2023.

In 2016, we acquired Tidal Systems, Ltd., a developer of PCIe NAND Flash storage controllers, to enhance our NAND Flash controller technology for $148 million. In connection therewith, we recognized $108 million of in-process R&D; $81 million of goodwill, which was derived from expected cost reductions and other synergies and was assigned to SBU; and $41 million of deferred tax liabilities; which, in aggregate, represented substantially all of the purchase price. The in-process R&D was valued using a replacement cost approach, which included inputs of reproduction cost, including developer's profit, and opportunity cost. We expect to begin amortizing the in-process R&D in 2019 and will amortize it over its estimated useful life. The goodwill is not deductible for tax purposes.

Accounts Payable and Accrued Expenses

As of		2018				2017
Accounts payable		$	1,692			$	1,333
Property, plant, and equipment payables		1,238				1,018
Salaries, wages, and benefits		841				603
Income and other taxes		402				163
Customer advances		207				197
Other		231				350
		$	4,611			$	3,664

Debt

As of		2018																						2017
												Net Carrying Amount																Net Carrying Amount
Instrument		Stated Rate			Effective Rate			Principal				Current				Long-Term				Total(1)				Principal				Current				Long-Term				Total(1)
IMFT Member Debt		N/A			N/A			$	1,009			$	—			$	1,009			$	1,009			$	—			$	—			$	—			$	—
Capital lease obligations		N/A			3.86	%		845				310				535				845				1,190				357				833				1,190
MMJ Creditor Payments		N/A			9.76	%		520				309				183				492				695				$	157			474				631
2022 Term Loan B		3.83	%		4.24	%		735				5				720				725				743				5				725				730
2025 Notes		5.50	%		5.56	%		519				—				515				515				519				—				515				515
2032D Notes(2)		3.13	%		6.33	%		143				—				132				132				177				—				159				159
2033F Notes(2)(3)		2.13	%		4.93	%		107				235				—				235				297				278				—				278
2043G Notes(2)(4)		3.00	%		6.76	%		1,019				—				682				682				1,025				—				671				671
2021 MSAC Term Loan		4.42	%		4.65	%		—				—				—				—				800				99				697				796
2021 MSTW Term Loan		2.85	%		3.01	%		—				—				—				—				2,652				—				2,640				2,640
2023 Notes		5.25	%		5.43	%		—				—				—				—				1,000				—				991				991
2023 Secured Notes		7.50	%		7.69	%		—				—				—				—				1,250				—				1,238				1,238
2024 Notes		5.25	%		5.38	%		—				—				—				—				550				—				546				546
2026 Notes		5.63	%		5.73	%		—				—				—				—				129				—				128				128
2032C Notes		2.38	%		5.95	%		—				—				—				—				223				—				211				211
2033E Notes		1.63	%		1.63	%		—				—				—				—				173				202				—				202
Other notes		2.50	%		2.50	%		1				—				1				1				216				164				44				208
								$	4,898			$	859			$	3,777			$	4,636			$	11,639			$	1,262			$	9,872			$	11,134

(1)

Net carrying amount is the principal amount less unamortized debt discount and issuance costs. In addition, the net carrying amount as of August 30, 2018 and August 31, 2017 included $132 million and $31 million, respectively, of derivative debt liabilities recognized as a result of our election to settle entirely in cash converted notes with an aggregate principal amount of $35 million and $16 million, respectively.

(2)

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 June 30, 2018, these notes are convertible by the holders through the calendar quarter ended September 30, 2018. Additionally, the closing price of our common stock also exceeded the thresholds for the calendar quarter ended September 30, 2018; therefore, these notes are convertible by the holders at any time through December 31, 2018.

(3)

Current debt as of August 30, 2018 included an aggregate of $165 million for the settlement obligation (including principal and amounts in excess of principal) for conversions of our 2033F Notes that will settle in cash in the first quarter of 2019. The remainder of the 2033F Notes were classified as current as of August 30, 2018 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 that date.

(4)	The 2043G Notes outstanding as of August 30, 2018 have an original principal amount of $815 million that accretes up to $911 million through the expected term in November 2028 and $1.02 billion at maturity in 2043.

Our convertible and other senior notes are unsecured obligations that rank equally in right of payment with all of our other existing and future unsecured indebtedness, and are effectively subordinated to all of our other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. As of August 30, 2018, Micron had $1.56 billion of unsecured debt (net of unamortized discount and debt issuance costs), including all of its convertible notes and the 2025 Notes, that was structurally subordinated to all liabilities of its subsidiaries, including trade payables. The terms of our indebtedness generally contain cross payment default and cross acceleration provisions. Micron guarantees certain debt obligations of its subsidiaries, but does not guarantee the MMJ Creditor Payments. Micron's guarantees of its subsidiary debt

obligations are unsecured obligations ranking equally in right of payment with all of Micron's other existing and future unsecured indebtedness.

IMFT Member Debt

In 2018, Intel provided debt financing ("IMFT Member Debt") of $1.01 billion to IMFT pursuant to the terms of the IMFT joint venture agreement. IMFT Member Debt is non-interest bearing, matures upon the completion of an auction and 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, any IMFT Member Debt outstanding at the time of the closing of the put or call transaction will transfer to Micron. (See "Equity – Noncontrolling Interest in Subsidiaries – IMFT" note.)

Capital Lease Obligations

In 2018, we recorded capital lease obligations aggregating $20 million at a weighted-average effective interest rate of 4.6%, with a weighted-average expected term of five years. In 2017, we recorded capital lease obligations aggregating $220 million.

MMJ Creditor Payments

Under the MMJ Companies' corporate reorganization proceedings, which set forth the treatment of the MMJ Companies' pre-petition creditors and their claims, the MMJ Companies were required to pay 200 billion yen, less certain expenses of the reorganization proceedings and other items, to their secured and unsecured creditors in seven annual installment payments (the "MMJ Creditor Payments"). The MMJ Creditor Payments do not provide for interest and, as a result of our acquisition of the MMJ Companies in 2013, we recorded the MMJ Creditor Payments at fair value. The fair-value discount is accreted to interest expense over the term of the installment payments.

Under the MMJ Companies' corporate reorganization proceedings, the secured creditors of MMJ will recover 100% of the amount of their fixed claims in six annual installment payments through October 2018 and the unsecured creditors will recover at least 17.4% of the amount of their fixed claims in seven annual installment payments through December 2019. The remaining portion of the unsecured claims of the creditors of MMJ not recovered pursuant to the corporate reorganization proceedings will be discharged, without payment, through December 2019. The following table presents the remaining amounts of MMJ Creditor Payments (stated in Japanese yen and U.S. dollars) and the amount of unamortized discount as of August 30, 2018:

2019		¥	36,392			$	326
2020		21,720				194
		58,112				520
Less unamortized discount		(3,186		)		(28		)
		¥	54,926			$	492

Pursuant to the terms of an Agreement on Support for Reorganization Companies that we executed in 2012 with the trustees of the MMJ Companies' pending corporate reorganization proceedings, we entered into a series of agreements with the MMJ Companies, including supply agreements, research and development services agreements, and general services agreements, which are intended to generate operating cash flows to meet the requirements of the MMJ Companies' businesses, including the funding of the MMJ Creditor Payments.

2022 Senior Secured Term Loan B

In April 2016, we issued $750 million in principal amount of 2022 Term Loan B notes due April 2022. The 2022 Term Loan B provides for periodic repricing of the interest rates and, as of August 30, 2018, the 2022 Term Loan B generally bears interest at LIBOR plus 1.75%. We may elect to convert outstanding term loan interest to other variable-rate indexes. Principal payments are due quarterly in an amount equal to 0.25% of the initial aggregate principal amount with the balance due at maturity and may be prepaid without penalty. Interest is payable at least quarterly.

The 2022 Term Loan B is collateralized by substantially all of the assets of Micron and MSP, a subsidiary of Micron, subject to certain permitted liens on such assets. Included in our consolidated balance sheet as of August 30, 2018 were $8.32 billion of assets which collateralize these notes. The 2022 Term Loan B is structurally subordinated to the indebtedness and other liabilities of all of Micron's subsidiaries that do not guarantee these debt obligations and is guaranteed by MSP.

The 2022 Term Loan B contains covenants that, among other things, limit, in certain circumstances, the ability of Micron and/or its domestic restricted subsidiaries to (1) create or incur certain liens and enter into sale-leaseback financing transactions; (2) in the case of domestic restricted subsidiaries, create, assume, incur, or guarantee additional indebtedness; and (3) in the case of Micron, consolidate or merge with or into, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of its assets to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

2025 Notes

The 2025 unsecured notes contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our domestic restricted subsidiaries (which are generally subsidiaries in the U.S. in which we own at least 80% of the voting stock) to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our domestic restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

Cash Redemption at Our Option: Prior to August 1, 2019, we may redeem the 2025 Notes, in whole or in part, at a price equal to the principal amount of the 2025 Notes to be redeemed plus a make-whole premium as described in the indenture governing the 2025 Notes, together with accrued and unpaid interest. On or after August 1, 2019, we may redeem the 2025 Notes, in whole or in part, at prices above the principal amount that decline over time, as specified in the indenture, together with accrued and unpaid interest.

Convertible Senior Notes

		Holder Put Date(1)		Maturity Date		Conversion Price Per Share				Conversion Price Per Share Threshold(2)				Underlying Shares of Common Stock			Conversion Value in Excess of Principal(3)				Principal Settlement Option(4)
2032D Notes		May 2021		May 2032		$	9.98			$	12.97			14			$	615			Cash and/or shares
2033F Notes(5)		Feb 2020		Feb 2033		10.93				14.21				10			408				Cash
2043G Notes		Nov 2028		Nov 2043		29.16				37.91				35			824				Cash and/or shares
														59			$	1,847

(1)	Debt discount and debt issuance costs are amortized through the earliest holder put date.

(2)	Represents 130% of the conversion price per share. If the trading price of our common stock exceeds such threshold for a specified period, holders may convert such notes during a specified period. See "Conversion Rights" below.

(3)	Based on the trading price of our common stock of $52.76 as of August 30, 2018.

(4)

It is our current intent to settle in cash the principal amount of our convertible notes upon conversion. As a result, only the amounts payable in excess of the principal amounts upon conversion of our convertible notes are considered in diluted earnings per share under the treasury stock method. For each of our convertible notes, we may elect to settle any amounts in excess of the principal in cash, shares of our common stock, or a combination thereof.

(5)	Holders may put their notes to us on February 15, 2023.

Conversion Rights: Holders of our convertible notes may convert their notes under the following circumstances: (1) if the notes are called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price (see "Conversion Price Per Share Threshold" in the table above); (3) if the trading price of the notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the notes during the periods specified in the indentures; (4) if specified distributions or corporate events occur, as set forth in the indenture for the notes; or (5) during the last three months prior to the maturity date of the notes. For the calendar quarter ended September 30, 2018, the closing price of our common stock exceeded 130% of the conversion price for each series of our convertible notes; therefore, those notes are convertible by the holders through December 31, 2018.

In August 2018, holders of our 2033F Notes with an aggregate principal amount of $35 million converted their notes, which were settled in cash the first quarter of 2019. As a result of our election to settle all amounts due upon conversion in cash for these notes, such settlement obligations became derivative debt liabilities in 2018 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 dates of our elections to settle the conversions in cash, we reclassified the fair values of the equity components of each of the converted notes from additional capital to derivative debt liabilities within current debt in our consolidated balance sheet. The net carrying amount for 2018 included $132 million for the fair values of the derivative debt liabilities as of August 30, 2018. The 20 consecutive trading day period ended in the first quarter of 2019, and we settled the conversion for $153 million in cash.

Cash Redemption at Our Option: We may redeem our convertible notes under the circumstances listed in the table below. The redemption price for the notes will equal the principal amount at maturity, or the accreted principal amount in the case of the 2043G Notes redeemed on or after November 20, 2018, plus accrued and unpaid interest.

		Conditional Redemption Period at Our Option(1)		Unconditional Redemption Period at Our Option		Redemption Period Requiring Make-Whole
2032D Notes		On or after May 1, 2017		On or after May 4, 2021		Prior to May 4, 2021(2)
2033F Notes		N/A		On or after Feb 20, 2020		N/A
2043G Notes		Prior to Nov 20, 2018		On or after Nov 20, 2018		Prior to Nov 20, 2018(3)

(1)	We may redeem for cash on or after the applicable dates if the volume weighted average price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period.

(2)	If we redeem prior to the applicable date, we will pay a make-whole premium in cash equal to the present value of the remaining scheduled interest payments from the redemption date to May 4, 2021.

(3)	If we redeem prior to the applicable date, we will be required to pay a make-whole premium only if, as a result of our redemption notice, holders convert their notes. The make-whole premium will be based on the price of our common stock and the conversion date, as set forth in the indenture, and is payable at our election in cash and/or shares.

Cash Repurchase at the Option of the Holders: We may be required by the holders of our convertible notes to repurchase for cash all or a portion of the notes on the "Holder Put Date" listed in the table above. The repurchase price would equal the principal amount, or the accreted principal amount in the case of the 2043G Notes, plus accrued and unpaid interest. Also, upon a change in control or a termination of trading, as defined in the respective indentures, holders of our convertible notes may require us to repurchase for cash all or a portion of their notes.

Other: Interest expense for our convertible notes consisted of contractual interest of $44 million, $51 million, and $51 million for 2018, 2017, and 2016, respectively, and amortization of discount and issuance costs of $32 million, $37 million, and $36 million for 2018, 2017, and 2016, respectively. As of August 30, 2018 and August 31, 2017, the carrying amounts of the equity components of our convertible notes, which are included in additional capital in the accompanying consolidated balance sheets, were $208 million and $287 million, respectively.

Available Revolving Credit Facility

On August 9, 2018, we terminated our undrawn revolving credit facility scheduled to expire in February 2020, under which we were able draw up to the lesser of $750 million or 80% of the net outstanding balance of certain trade receivables.

On July 3, 2018, we entered into a revolving credit facility that expires in July 2023, under which we can draw up to $2.00 billion. Borrowings under the facility will generally bear interest, at a rate equal to LIBOR plus 1.25% to 2.00%, depending on our corporate credit ratings or leverage ratio. Any amounts drawn are collateralized by substantially all of the assets of Micron and MSP, a subsidiary of Micron, subject to certain permitted liens. Additionally, any amounts drawn are pari passu with the 2022 Term Loan B and are structurally subordinated to the indebtedness and other liabilities of all of Micron's subsidiaries that do not guarantee these debt obligations, and is guaranteed by MSP. As of August 30, 2018, there were no outstanding amounts drawn under this facility. We may suspend the security interest in the collateral under the facility upon achieving specified credit ratings and repayment of the 2022 Term Loan B; however, the security interest will be automatically reinstated upon a decline in our corporate credit rating.

Under the terms of the revolving credit agreement, we must maintain a ratio calculated as of the last day of each fiscal quarter of total indebtedness to adjusted EBITDA not to exceed 2.75 to 1.00. We must also maintain a ratio of adjusted EBITDA to net interest expense of not less than 3.50 to 1.00. The facility contains other covenants that, among other things,

limit, in certain circumstances, our ability and/or the ability of our restricted subsidiaries to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer, lease, or otherwise dispose of all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

Debt Prepayments, Repurchases, and Conversions

During 2018, we prepaid, repurchased, and settled conversions of debt with an aggregate principal amount of $6.96 billion. 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 prepayments, repurchases, and conversions of debt in 2018:

		Decrease in Principal				Increase (Decrease) in Carrying Value				Decrease in Cash				Decrease in Equity				Gain (Loss)
Prepayments and repurchases
2021 MSAC Term Loan		$	(730	)		$	(727	)		$	(730	)		$	—			$	(3	)
2021 MSTW Term Loan		(2,625		)		(2,616		)		(2,625		)		—				(10		)
2023 Notes		(1,000		)		(991		)		(1,046		)		—				(55		)
2023 Secured Notes		(1,250		)		(1,238		)		(1,373		)		—				(135		)
2024 Notes		(550		)		(546		)		(572		)		—				(25		)
2026 Notes		(129		)		(129		)		(139		)		—				(11		)
2033F Notes		(66		)		(63		)		(316		)		(252		)		(1		)
Other Notes		(46		)		(44		)		(46		)		—				(2		)
Settled conversions
2032C Notes		(223		)		(216		)		(1,230		)		(965		)		(50		)
2032D Notes		(34		)		(31		)		(182		)		(145		)		(6		)
2033E Notes(1)		(173		)		(203		)		(552		)		(297		)		(52		)
2033F Notes		(124		)		(118		)		(596		)		(462		)		(16		)
2043G Notes		(6		)		(4		)		(13		)		(5		)		(4		)
Conversions not settled
2033F Notes(2)		—				132				—				(117		)		(15		)
		$	(6,956	)		$	(6,794	)		$	(9,420	)		$	(2,243	)		$	(385	)

(1)	Settlement included issuance of 4 million shares of our treasury stock in addition to payment of cash.

(2)	As of August 30, 2018, an aggregate of $35 million principal amount of our 2033F Notes (with a carrying value of $165 million) had converted but not settled. These notes settled in the first quarter of 2019 for $153 million in cash.

In 2017, we repurchased $631 million of principal amount of our 2025 Notes (carrying value of $625 million), repurchased $321 million of principal amount of our 2026 Notes (carrying value of $318 million), and redeemed $600 million principal amount of our 2022 Notes (carrying value of $592 million) for an aggregate of $1.63 billion in cash. In connection with the transactions, we recognized aggregate non-operating losses of $94 million in 2017.

In 2016, we repurchased $57 million of principal amount of our 2033E Notes (carrying value of $54 million) for $94 million in cash. The liability and equity components of the repurchased notes had previously been stated separately within debt and equity in our consolidated balance sheet. As a result, the repurchase decreased the carrying value of debt by $54 million and equity by $38 million.

Maturities of Notes Payable and Future Minimum Lease Payments

As of August 30, 2018, maturities of notes payable (including the MMJ Creditor Payments) and future minimum lease payments under capital lease obligations were as follows:

		Notes Payable				Capital Lease Obligations
2019		$	501			$	339
2020		274				231
2021		151				100
2022		713				66
2023		—				42
2024 and thereafter		2,439				187
Unamortized discounts and interest, respectively		(287		)		(120		)
		$	3,791			$	845

Commitments

As of August 30, 2018, we had commitments of approximately $1.8 billion for the acquisition of property, plant, and equipment. We lease certain facilities and equipment under operating leases, for which expense was $63 million, $52 million, and $46 million for 2018, 2017, and 2016, respectively. Minimum future operating lease commitments as of August 30, 2018 were as follows:

2019		$	37
2020		43
2021		50
2022		50
2023		45
2024 and thereafter		391
		$	616

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 is expected to have a material adverse effect on our business, results of operations, or financial condition.

Patent Matters

As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.

On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron, MSP, and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys' fees, and costs.

On December 15, 2014, Innovative Memory Solutions, Inc. ("IMS") filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs. On July 23, 2018, IMS served a patent infringement complaint on Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited alleging that products including our SSDs infringe a European patent. The complaint seeks 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 August 31, 2018,

Micron was served with a complaint filed by IMS in Shenzhen Intermediate People's Court in Guangdong Province, China. The complaint alleges that certain of our NAND flash products infringe a Chinese patent. The complaint seeks an order requiring Micron to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 1 million Chinese yuan plus expenses.

On June 24, 2016, the President and Fellows of Harvard University filed a patent infringement action against Micron in the U.S. District Court for the District of Massachusetts. The complaint alleged that a variety of our DRAM products infringed two U.S. patents and sought 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, results of operations, or financial condition.

On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. ("MXA") was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua") in the Fuzhou Intermediate People’s Court in Fujian Province, China (the "Fuzhou Court"). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. ("MSS") was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 98 million Chinese yuan plus court fees incurred.

On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation ("UMC") in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 90 million Chinese yuan plus court fees incurred.

On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.

On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and 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 substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for a significant portion of our net sales.

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'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's shares of Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of August 30, 2018, 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's claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments 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 have filed a notice of appeal, and the parties have submitted briefs to the appeals court.

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 operation, or financial condition.

Antitrust Matters

On April 27, 2018, a purported class-action lawsuit was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California asserting claims based on alleged price-fixing of DRAM products during the period from June 1, 2016 to February 1, 2018. Similar cases were subsequently filed in federal court in the United States, as well as in Canadian courts in Quebec, Montreal and Toronto, Ontario. The complaints seek treble monetary damages, costs, interest, attorneys' fees, and other injunctive and equitable relief. 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.

On May 15, 2018, the Chinese State Administration for Market Regulation ("SAMR") notified Micron that it was investigating potential collusion among 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.

Other

On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California's Uniform Trade Secrets Act by misappropriating Micron's trade secrets and other misconduct. Micron's complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.

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.

Redeemable Convertible Notes

Under the terms of the indentures governing our 2033 Notes, upon conversion, we would be required to pay cash equal to the lesser of (1) the aggregate principal amount or (2) the conversion value of the notes being converted. To the extent the conversion value exceeds the principal amount, we could pay cash, shares of common stock, or a combination thereof, at our option, for the amount of such excess. The closing price of our common stock met the threshold for conversion and our 2033 Notes were convertible by their holders as of August 30, 2018 and August 31, 2017. As a result, the balance of these notes was classified as current debt and the difference between the principal amount and the carrying value was classified as redeemable convertible notes in the accompanying consolidated balance sheet.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest reflects 100,000 preferred shares authorized and issued by Micron Semiconductor Asia Operations Pte. Ltd., a subsidiary of Micron, in August 2018 for proceeds, net of issuance related costs, of $97 million, which are redeemable by the holders after August 29, 2028. The preferred shareholders are entitled to a cumulative fixed dividend of 7.75% per annum, which is reflected in net income attributable to noncontrolling interests, and a liquidation preference senior to the entity's common shares. We have the right to reacquire the preferred shares during the period beginning August 31, 2020 through August 29, 2026.

Equity

Micron Shareholders' Equity

Common Stock Repurchase Authorization: In May 2018, we announced that our Board of Directors had authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in 2019. We may purchase shares on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to a Rule 10b5-1 trading plan, subject to market conditions and our ongoing determination of the best use of available cash. The repurchase authorization does not obligate us to acquire any common stock.

Accelerated Share Repurchase: On August 10, 2018, we entered into an accelerated share repurchase ("ASR") agreement with a financial institution to purchase $1.00 billion of our common stock under our common stock repurchase authorization. The number of shares purchased will be calculated by dividing $1.00 billion by a volume-weighted average price of our common stock from September 5, 2018 through as late as November 29, 2018 (the "Measurement Period"), subject to an agreed-upon discount. On September 5, 2018, we paid $1.00 billion to the financial institution and received an initial installment of 14 million shares, equal to $750 million divided by the closing price of our common stock on September 4, 2018. Based on the final number of shares purchased at the end of the Measurement Period, we will either receive an incremental number of shares, or settle any amount owed to the financial institution in either cash or shares, at our option. In the first quarter of 2019, we recorded the initial shares as treasury stock. The second installment is treated as an equity-linked contract indexed to our stock and therefore qualifies for equity accounting.

Other Repurchases: From August 31, 2018 through October 12, 2018, we repurchased an aggregate of 15 million shares of our common stock for an aggregate of $653 million under a Rule 10b5-1 plan and through open market repurchases.

Common Stock Issuance: In October 2017, we issued 34 million shares of our common stock for $41.00 per share in a public offering, for net proceeds of $1.36 billion, net of underwriting fees and other offering costs.

Treasury Stock: In connection with the Inotera Acquisition, we sold 58 million shares of our common stock to Nanya for $986 million in cash, of which 54 million shares were issued from treasury stock. As a result, in 2017, treasury stock decreased by $1.03 billion while retained earnings decreased by $104 million for the difference between the carrying value of the treasury stock and its $925 million fair value.

Outstanding Capped Calls: In connection with our 2033F Notes, we entered into the 2033F Capped Calls, which cover, subject to anti-dilution adjustments similar to those contained in the 2033F Notes, 27 million shares of common stock and are intended to reduce the effect of potential dilution. The 2033F Capped Calls have an initial strike price of $10.93, subject to certain adjustments, which equals the conversion price of the 2033 Notes, a cap price of $14.51, and 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. The 2033F Capped Calls expire on various dates between January 2020 and February 2020. As of August 30, 2018, the dollar value of cash or shares that we would receive from our 2033F Capped Calls upon their expiration dates range from $0, if the trading price of our stock is below the strike prices at expiration, to $98 million, if the trading price of our stock is at or above the cap prices. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration.

Expiration of Capped Calls: In 2018, we share-settled certain capped calls upon their expirations, and received 9 million shares, equal to a value of $429 million. In 2017, we cash-settled and share-settled certain capped calls upon their expirations, and received $125 million in cash and 4 million shares, equal to a value of $67 million and in 2016, we share-settled certain capped calls upon their expirations and received 2 million shares of our stock, equal to a value of $23 million. The amounts received upon settlement were based on volume-weighted-average trading prices of our stock at the expiration dates. The shares received in all periods were recorded as treasury stock.

Accumulated Other Comprehensive Income: Changes in accumulated other comprehensive by component for the year ended August 30, 2018 were as follows:

		Cumulative Foreign Currency Translation Adjustments				Gains (Losses) on Derivative Instruments				Pension Liability Adjustments				Unrealized Gains (Losses) on Investments				Total
As of August 31, 2017		$	(1	)		$	17			$	13			$	—			$	29
Other comprehensive income		1				(17		)		(3		)		(3		)		(22		)
Amount reclassified out of accumulated other comprehensive income		—				(1		)		(1		)		—				(2		)
Tax effects		—				3				1				1				5
Other comprehensive income		1				(15		)		(3		)		(2		)		(19		)
As of August 30, 2018		$	—			$	2			$	10			$	(2	)		$	10

Noncontrolling Interests in Subsidiaries

As of		2018							2017
		Balance				Percentage			Balance				Percentage
IMFT		$	853			49	%		$	832			49	%
Other		17				Various			17				Various
		$	870						$	849

IMFT: Since 2006, we have owned 51% of IMFT, a joint venture between us and Intel. 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-term supply agreement at prices approximating cost. In the first quarter of 2018, IMFT discontinued production of NAND and subsequent to that time has been entirely focused on 3D XPoint memory production. Through our IMFT joint venture, we continue to jointly develop 3D XPoint technologies with Intel through the second generation of 3D XPoint technology, which is expected to be completed in the second half of 2019. To better optimize the 3D XPoint technology for our product roadmap and maximize the benefits for our customers and shareholders, in the fourth quarter of 2018, we announced that we will no longer jointly develop with Intel subsequent generations of 3D XPoint technology. IMFT will continue to manufacture memory based on 3D XPoint technology at the fabrication facility in Lehi, Utah for its members. IMFT sales to Intel were $507 million, $438 million, and $457 million for 2018, 2017, and 2016, respectively.

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, Intel's interest in IMFT, in either case, for a price that approximates Intel's interest in the net book value 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 between 50% and 100%, at Intel's choice, of Intel's immediately preceding six-month period pre-closing volumes of IMFT products for the first six-month period following the closing and between 0% and 100%, at Intel's choice, 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.

IMFT's capital requirements are generally determined based on an annual plan approved by the members, and capital contributions to IMFT are requested as needed. Capital requests are made to the members in proportion to 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 capital request, either in the form of an equity contribution or member debt financing. Under the supply agreement, the members have rights and obligations 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.

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		2018				2017
Assets
Cash and equivalents		$	91			$	87
Receivables		126				81
Inventories		114				128
Other current assets		8				7
Total current assets		339				303
Property, plant, and equipment		2,641				1,852
Other noncurrent assets		45				49
Total assets		$	3,025			$	2,204
Liabilities
Accounts payable and accrued expenses		$	138			$	299
Deferred income		9				6
Current debt		20				19
Total current liabilities		167				324
Long-term debt		1,064				75
Other noncurrent liabilities		74				88
Total liabilities		$	1,305			$	487

Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

In 2016, IMFT distributed $36 million and $34 million to us and Intel, respectively, and we and Intel contributed $38 million and $37 million, respectively, to 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 value and carrying value of our outstanding debt instruments (excluding the carrying value of equity and mezzanine equity components of our convertible notes) were as follows:

As of		2018								2017
		Fair Value				Carrying Value				Fair Value				Carrying Value
Convertible notes		$	3,124			$	1,049			$	3,901			$	1,521
Notes and MMJ Creditor Payments		2,798				2,742				8,793				8,423

The fair values of our convertible notes were determined based on Level 2 inputs, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash flows, the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Derivative Instruments

		Gross Notional Amount(1)				Fair Value of
Current Assets(2)				Current Liabilities(3)				Noncurrent Assets(4)
As of August 30, 2018
Derivative instruments with hedge accounting designation
Cash flow currency hedges		$	538			$	—			$	(13	)		$	—
Derivative instruments without hedge accounting designation
Non-designated currency hedges		1,919				14				(10		)		—
Convertible notes settlement obligation(5)						—				(167		)		—
						14				(177		)		—
						$	14			$	(190	)		$	—
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(5)						—				(47		)		—
						34				(52		)		1
						$	51			$	(52	)		$	1

(1)	Notional amounts of currency hedge contracts in U.S. dollars.

(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.

(5)	Notional amounts of convertible notes settlement obligations as of August 30, 2018 and August 31, 2017 were 3 million and 2 million shares of our common stock, respectively.

Derivative Instruments with Hedge Accounting Designation

We utilize currency forward contracts that generally mature within 12 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 for our exposure from changes in currency exchange rates for certain capital expenditures. For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gains or losses on 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, the excluded portion of such amounts is included in the same line item in which the underlying transactions affect earnings and the ineffective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income.

We recognized losses of $17 million and gains of $15 million and $10 million for 2018, 2017, and 2016, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material in 2018,

2017, or 2016. 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.

Fair Value Hedges: We utilize fair value hedges for our exposure 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 in the fair value of the undiscounted spot rate of the forward contract. The changes in fair values of hedge instruments attributed to changes in undiscounted spot rates are recognized in other non-operating income (expense). The time value associated with hedge instruments is excluded from the assessment of the effectiveness of hedges and is recognized on a straight-line basis over the life of hedges to other non-operating income (expense). Amounts recorded to other comprehensive income (loss) for 2018 were not material. The effects of fair value hedges on our consolidated statements of operations were as follows:

		Other Non-Operating Income (Expense)
For the year ended		2018
Gain (loss) on remeasurement of hedged assets and liabilities		$	(25	)
Gain (loss) on derivatives designated as hedging instruments		25
Amortization of amounts excluded from hedge effectiveness		(32		)
		$	(32	)

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: Except for certain assets and liabilities hedged using fair value hedges, we generally utilize a rolling hedge strategy with currency forward contracts that mature within nine months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized losses of $38 million and $45 million, and gains of $185 million for 2018, 2017, and 2016, respectively.

Convertible Notes Settlement Obligations: For settlement obligations associated with our convertible notes subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts were based on the volume-weighted-average trading price of our common stock (Level 2). (See "Debt" note.) We recognized losses of $124 million for 2018 in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. Recognized gains and losses for 2017 and 2016 were not material.

Derivative Counterparty Credit Risk and Master Netting Arrangements

Our derivative instruments expose us to credit risk to the extent counterparties may be unable to meet the terms of the contracts. Our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts would generally equal the fair value of assets for these contracts as listed in the tables above. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple financial institutions. As of August 30, 2018 and August 31, 2017, amounts netted under our master netting arrangements were not material.

Equity Plans

As of August 30, 2018, 125 million shares of our common stock were available for future awards under our equity plans, including 33 million shares approved for issuance under our employee stock purchase plan ("ESPP").

Stock Options

Our stock options are generally exercisable in increments of either one-fourth or one-third per year beginning one year from the date of grant. Stock options issued after February 2014 expire eight years from the date of grant. Options issued prior to February 2014 expire six years from the date of grant. Option activity for 2018 is summarized as follows:

		Number of Shares			Weighted-Average Exercise Price Per Share				Weighted-Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
Outstanding as of August 31, 2017		33			$	19.32
Granted		2			43.30
Exercised		(16	)		17.82
Canceled or expired		(1	)		22.67
Outstanding as of August 30, 2018		18			23.38				4.8		$	527
Exercisable as of August 30, 2018		8			$	21.66			3.2		$	233
Unvested as of August 30, 2018		10			24.61				6.0		294

The total intrinsic value was $446 million, $198 million, and $52 million for options exercised in 2018, 2017, and 2016, respectively.

Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows:

For the year ended		2018				2017				2016
Stock options granted		2				8				8
Weighted-average grant-date fair value per share		$	18.65			$	8.68			$	6.94
Average expected life in years		5.5				5.5				5.5
Weighted-average expected volatility		44		%		46		%		47		%
Weighted-average risk-free interest rate		2.2		%		1.8		%		1.7		%
Expected dividend yield		0.0		%		0.0		%		0.0		%

Stock price volatility was based on an average of historical volatility and the implied volatility derived from traded options on our stock. The expected lives of options granted were based, in part, on historical experience and on the terms and conditions of the options. The risk-free interest rates utilized were based on the U.S. Treasury yield in effect at each grant date.

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

As of August 30, 2018, there were 15 million shares of Restricted Stock Awards outstanding, of which 13 million contained only service conditions. For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth or one-third increments during each year of employment after the grant date. Restrictions lapse on Restricted Stock granted in 2018 with performance or market conditions over a three year period if conditions are met. At the end of the performance period, the number of actual shares to be awarded will vary between 0% and 200% of target amounts, depending upon the achievement level. Restricted Stock Awards activity for 2018 is summarized as follows:

		Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Outstanding as of August 31, 2017		19			$	19.78
Granted		4			42.48
Restrictions lapsed		(6	)		21.70
Canceled		(2	)		21.93
Outstanding as of August 30, 2018		15			25.18

For the year ended		2018				2017				2016
Restricted stock award shares granted		4				8				10
Weighted-average grant-date fair value per share		$	42.48			$	18.77			$	15.40
Aggregate vesting-date fair value of shares vested		$	259			$	115			$	71

Employee Stock Purchase Plan

Our ESPP permits eligible employees to purchase shares of our common stock through payroll deductions of up to 10% of their eligible compensation, subject to certain limitations. The purchase price of the shares under the ESPP equals 85% of the lower of the fair market value of our common stock on either the first or last day of each six-month offering period. Our ESPP was offered to substantially all employees beginning in August 2018. Compensation expense is calculated as of the beginning of the offering period as the fair value of the employees' purchase rights utilizing the Black-Scholes option valuation model and is recognized over the offering period. Assumptions used in the Black-Scholes option valuation model for the offering period beginning August 1, 2018 were as follows:

Weighted-average grant-date fair value per share	$	14.55
Average expected life in years	0.5
Weighted-average expected volatility	43		%
Weighted-average risk-free interest rate	2.2		%
Expected dividend yield	0.0		%

Stock-based Compensation Expense

For the year ended		2018				2017				2016
Stock-based compensation expense by caption
Cost of goods sold		$	83			$	88			$	76
Selling, general, and administrative		61				75				66
Research and development		54				52				49
		$	198			$	215			$	191
Stock-based compensation expense by type of award
Stock options		$	55			$	71			$	79
Restricted stock awards		140				144				112
ESPP		3				—				—
		$	198			$	215			$	191

The income tax benefit related to share-based compensation was $158 million, $97 million and $41 million for 2018, 2017 and 2016, respectively. The income tax benefits related to share-based compensation for the periods presented prior to the second quarter of 2018 were offset by an increase in the U.S. valuation allowance. Stock-based compensation expense of $19 million and $20 million was capitalized and remained in inventory as of August 30, 2018 and August 31, 2017, respectively. As of August 30, 2018, $316 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the fourth quarter of 2022, resulting in a weighted-average period of 1.3 years.

Employee Benefit Plans

We have employee retirement plans at our U.S. and international sites. Details of the more significant plans are discussed as follows:

Employee Savings Plan for U.S. Employees

We have a 401(k) retirement plan under which U.S. employees may contribute up to 75% of their eligible pay (subject to Internal Revenue Service ("IRS") annual contribution limits) to various savings alternatives, none of which include direct investment in our stock. We match in cash eligible contributions from employees up to 5% of the employee's annual eligible earnings. Contribution expense for the 401(k) plan was $61 million, $52 million, and $54 million in 2018, 2017, and 2016, respectively.

Retirement Plans

We have pension plans in various countries available to local employees which are generally government mandated. As of August 30, 2018, the projected benefit obligations of our plans were $190 million and plan assets were $171 million. As of August 31, 2017, the projected benefit obligations of our plans were $175 million and plan assets were $150 million. Pension expense was not material for 2018, 2017, or 2016.

Research and Development

We share the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by reimbursements under these arrangements by $201 million, $213 million, and $205 million for 2018, 2017, and 2016, respectively.

We have agreements to jointly develop NAND and 3D XPoint technologies with Intel. We continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be completed in the second half of 2019. In the second quarter of 2018, we and Intel agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for our respective business needs. We continue to jointly develop 3D XPoint technologies with Intel through the second generation of 3D XPoint technology, which is expected to be completed in the second half of 2019. To better optimize 3D XPoint technology for our product roadmap and maximize the benefits for our customers and shareholders, in the fourth quarter of 2018, we announced that we will no longer jointly develop with Intel subsequent generations of 3D XPoint technology.

Other Operating (Income) Expense, Net

For the year ended		2018				2017				2016
(Gain) loss on disposition of property, plant, and equipment		$	(96	)		$	(22	)		$	(4	)
Restructure and asset impairments		28				18				67
Other		11				5				(2		)
		$	(57	)		$	1			$	61

Restructure and asset impairments in 2018 primarily consisted of costs incurred as a result of our continued emphasis to centralize certain key functions. In 2017, we recognized gains of $15 million related to our sale of 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 Lexar and also expect to recognize an additional gain of approximately $100 million in 2019 upon the completion of the sale of the Singapore facility. We also incurred charges of $33 million and $58 million in 2017 and 2016, respectively, related to the elimination of certain projects and programs, workforce reductions in certain areas of our business, and other non-headcount related spending reductions.

Other Non-Operating Income (Expense), Net

For the year ended		2018				2017				2016
Loss on debt prepayments, repurchases, and conversions		$	(385	)		$	(100	)		$	(4	)
Loss from changes in currency exchange rates		(75		)		(74		)		(24		)
Gain on remeasurement of previously-held equity interest in Inotera		—				71				—
Other		(5		)		(9		)		(26		)
		$	(465	)		$	(112	)		$	(54	)

In 2016, we recognized other non-operating expense of $30 million to write off indemnification receivables upon the resolution of uncertain tax positions.

Income Taxes

On December 22, 2017, the United States enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") which lowered 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. Our U.S. statutory federal rate was 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 will be 21% beginning in 2019. The Tax Act imposed a one-time transition tax in 2018 on accumulated foreign income (the "Repatriation Tax"); provided a U.S. federal tax exemption on foreign earnings distributed to the United States after January 1, 2018; and beginning in 2019, created 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 made an accounting policy election to treat the Foreign Minimum Tax provision as a period cost in the period the tax is incurred.

SEC Staff Accounting Bulletin No. 118 ("SAB 118") allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act have not been completed when our financial statements are issued. The provisional amounts below for 2018 represent reasonable estimates of the effects of the Tax Act for which our analysis is not yet complete. As we complete our analysis of the Tax Act, including collecting, preparing, and analyzing necessary information, performing and refining calculations, and obtaining additional guidance from the IRS, U.S. Treasury Department, FASB, or other standard setting and regulatory bodies on the Tax Act, we may record adjustments to the provisional amounts, which may be material. In accordance with SAB 118, our accounting for the tax effects of the Tax Act will be completed during the measurement period, which should not extend beyond one year from the enactment date. At August 30, 2018, there were no provisions for which we were unable to record a reasonable estimate of the impact.

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

For the year ended		2018				2017				2016
Income (loss) before income taxes, net income (loss) attributable to noncontrolling interests, and equity in net income (loss) of equity method investees
U.S.		$	141			$	(56	)		$	72
Foreign		14,166				5,252				(353		)
		$	14,307			$	5,196			$	(281	)
Income tax (provision) benefit
Current
U.S. federal		$	(54	)		$	—			$	—
State		1				(1		)		(1		)
Foreign		(374		)		(152		)		(27		)
		(427		)		(153		)		(28		)
Deferred
U.S. federal		232				—				39
State		101				—				2
Foreign		(74		)		39				(32		)
		259				$	39			9
Income tax (provision) benefit		$	(168	)		$	(114	)		$	(19	)

The table below reconciles our tax (provision) benefit based on the U.S. federal statutory rate to our effective rate:

For the year ended		2018							2017							2016
U.S. federal income tax (provision) benefit at statutory rate		$	(3,677	)		25.7	%		$	(1,819	)		35.0	%		$	98			35.0	%
Foreign tax rate differential		2,572				(18.0	)%		1,571				(30.2	)%		(300		)		(106.8	)%
Repatriation Tax related to the Tax Act		(1,049		)		7.3	%		—				—	%		—				—	%
Remeasurement of deferred tax assets and liabilities related to the Tax Act		(179		)		1.3	%		—				—	%		—				—	%
Change in valuation allowance		2,079				(14.5	)%		64				(1.2	)%		63				22.4	%
Change in unrecognized tax benefits		60				(0.4	)%		12				(0.2	)%		52				18.5	%
Tax credits		90				(0.6	)%		66				(1.3	)%		48				17.1	%
Other		(64		)		0.4	%		(8		)		0.1	%		20				7.0	%
Income tax (provision) benefit		$	(168	)		1.2	%		$	(114	)		2.2	%		$	(19	)		(6.8	)%

Provisional estimates for 2018 in the table above included $1.34 billion of benefit for the release of the valuation allowance on the net deferred tax assets of our U.S. operations and $1.03 billion of provision for the Repatriation Tax, net of adjustments related to uncertain tax positions.

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 2031, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements reduced our tax provision by $1.96 billion (benefiting our diluted earnings per share by $1.59) for 2018, by $742 million ($0.64 per diluted share) for 2017, and were not material in 2016.

Provision has been recognized for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from such companies are expected to result in additional tax liabilities. As a result of the Repatriation Tax, substantially all of our accumulated foreign earnings prior to December 31, 2017 were subject to U.S. federal taxation. Although these earnings have been subject to U.S. federal income tax under the Repatriation Tax, the repatriation to the United States of all or a portion of these earnings would potentially be subject to foreign withholding and state income tax. As of August 30, 2018, we had a deferred tax liability of $82 million associated with our undistributed earnings. As of August 30,

2018, certain non-U.S. subsidiaries had cumulative undistributed earnings of $2.35 billion that were deemed to be indefinitely reinvested. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards. Deferred tax assets and liabilities consist of the following:

As of		2018				2017
Deferred tax assets
Net operating loss and tax credit carryforwards		$	1,417			$	3,426
Accrued salaries, wages, and benefits		163				211
Other accrued liabilities		35				59
Other		80				86
Gross deferred tax assets		1,695				3,782
Less valuation allowance		(228		)		(2,321		)
Deferred tax assets, net of valuation allowance		1,467				1,461
Deferred tax liabilities
Debt discount		(77		)		(145		)
Property, plant, and equipment		(173		)		(300		)
Unremitted earnings on certain subsidiaries		(82		)		(123		)
Product and process technology		(62		)		(85		)
Other		(54		)		(59		)
Deferred tax liabilities		(448		)		(712		)
Net deferred tax assets		$	1,019			$	749
Reported as
Deferred tax assets		$	1,022			$	766
Deferred tax liabilities (included in other noncurrent liabilities)		(3		)		(17		)
Net deferred tax assets		$	1,019			$	749

We assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not that existing deferred tax assets will be realized. As of August 30, 2018 and August 31, 2017, we had a valuation allowance of $28 million and $1.52 billion, respectively, against U.S. net deferred tax assets, primarily related to net operating loss and tax credit carryforwards. Income taxes on U.S. operations for 2017 and 2016 were substantially offset by changes in the valuation allowance. We had valuation allowances against net deferred tax assets, primarily related to net operating loss carryforwards, for our subsidiaries in Japan and for our other foreign subsidiaries, of $192 million and $8 million, respectively, as of August 30, 2018, and $627 million and $172 million, respectively, as of August 31, 2017. Changes in 2018 in the valuation allowance were due to the provisional estimate for the release of the valuation allowance in the U.S. as a result of the Tax Act, adjustments based on management's assessment of foreign net operating losses that are more likely than not to be realized, and changes in foreign currency. As a result of internal restructuring during the year, we have concluded that the possibility of utilizing certain of our net operating loss carryovers are now remote. As such, we have removed $119 million of deferred tax assets that were previously fully reserved with a valuation allowance.

As of August 30, 2018, our federal, state, and foreign net operating loss carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of Expiration		U.S. Federal				State				Japan				Taiwan				Other Foreign				Total
2019 - 2023		$	—			$	28			$	1,782			$	711			$	2			$	2,523
2024 - 2028		—				136				536				3				—				675
2029 - 2033		—				407				—				—				—				407
2034 - 2038		10				84				—				—				—				94
Indefinite		—				1				—				622				38				661
		$	10			$	656			$	2,318			$	1,336			$	40			$	4,360

As of August 30, 2018, our federal and state tax credit carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of Tax Credit Expiration		U.S. Federal				State				Total
2019 - 2023		$	122			$	63			$	185
2024 - 2028		44				46				90
2029 - 2033		69				90				159
2034 - 2038		275				3				278
Indefinite		—				62				62
		$	510			$	264			$	774

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

For the year ended		2018				2017				2016
Beginning unrecognized tax benefits		$	327			$	304			$	351
Increases due to the Inotera Acquisition		—				54				—
Increases related to tax positions taken in current year		68				15				5
Foreign currency translation increases (decreases) to tax positions		—				2				—
Settlements with tax authorities		(8		)		(47		)		(47		)
Expiration of statute of limitations		—				(1		)		(5		)
Decreases related to tax positions from prior years		(126		)		—				—
Ending unrecognized tax benefits		$	261			$	327			$	304

The changes in uncertain tax positions in 2018 are primarily related to the Tax Act and transfer pricing. In connection with the Inotera Acquisition in 2017, we assumed $54 million of uncertain tax positions. The decreases to unrecognized tax benefits in 2017 and 2016 from settlements with tax authorities were primarily related to the favorable resolution of certain tax matters.

As of August 30, 2018, we had $256 million of unrecognized tax benefits that would, if recognized, affect our effective tax rate. The amount accrued for interest and penalties related to uncertain tax positions was not material for any period presented. The resolution of tax audits or expiration of statute of limitations could also reduce our unrecognized tax benefits. Although the timing of final resolution is uncertain, the estimated potential reduction in our unrecognized tax benefits in the next 12 months would not be material.

We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states, and various foreign jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 2014 through 2018. In addition, tax returns that remain open to examination in Japan range from the years 2012 to 2018 and in Singapore and Taiwan from 2013 to 2018. We believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations, or financial condition.

Earnings Per Share

For the year ended		2018				2017				2016
Net income (loss) attributable to Micron – Basic and Diluted		$	14,135			$	5,089			$	(276	)
Weighted-average common shares outstanding – Basic		1,152				1,089				1,036
Dilutive effect of equity plans and convertible notes		77				65				—
Weighted-average common shares outstanding – Diluted		1,229				1,154				1,036
Earnings (loss) per share
Basic		$	12.27			$	4.67			$	(0.27	)
Diluted		11.51				4.41				(0.27		)

Listed below are the potential common shares, as of the end of the periods shown, that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

For the year ended		2018			2017			2016
Equity plans		3			21			60
Convertible notes		—			26			119

Segment Information

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

Compute and Networking Business Unit ("CNBU"): Includes memory products sold into cloud server, enterprise, client, graphics, and networking markets.

Mobile Business Unit ("MBU"): Includes memory products sold into smartphone and other mobile-device markets.

Storage Business Unit ("SBU"): Includes SSDs and component-level solutions sold into enterprise and cloud, client, and consumer SSD markets, other discrete storage products sold in component and wafer forms to the removable storage markets, and sales of 3D XPoint memory.

Embedded Business Unit ("EBU"): Includes memory and storage products sold into automotive, industrial, and consumer markets.

Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments. As of August 30, 2018 and August 31, 2017, CNBU, MBU, SBU, and EBU had goodwill of $832 million, $198 million, $101 million, and $97 million, respectively.

For the year ended		2018				2017				2016
Net sales
CNBU		$	15,252			$	8,624			$	4,529
MBU		6,579				4,424				2,569
SBU		5,022				4,514				3,262
EBU		3,479				2,695				1,939
All Other		59				65				100
		$	30,391			$	20,322			$	12,399
Operating income (loss)
CNBU		$	9,773			$	3,755			$	(25	)
MBU		3,033				927				97
SBU		964				552				(123		)
EBU		1,473				975				473
All Other		—				23				28
		$	15,243			$	6,232			$	450
Unallocated
Stock-based compensation		$	(198	)		$	(215	)		$	(191	)
Restructure and asset impairments		(28		)		(18		)		(67		)
Flow-through of Inotera inventory step up		—				(107		)		—
Other		(23		)		(24		)		(24		)
		$	(249	)		$	(364	)		$	(282	)
Operating income		$	14,994			$	5,868			$	168

Depreciation and amortization expense included in operating income was as follows:

For the year ended		2018				2017				2016
CNBU		$	1,755			$	1,344			$	1,141
MBU		1,077				926				580
SBU		1,295				1,083				844
EBU		603				484				379
All Other		18				13				20
Unallocated		11				11				16
		$	4,759			$	3,861			$	2,980

Product Sales

For the year ended		2018				2017				2016
DRAM		$	21,232			$	12,963			$	7,207
Trade NAND		7,843				6,228				4,138
Non-Trade		554				553				501
Other		762				578				553
		$	30,391			$	20,322			$	12,399

Non-Trade consists primarily of NAND and 3D XPoint memory 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 memory products.

Certain Concentrations

Markets with concentrations of net sales were approximately as follows:

For the year ended		2018			2017			2016
Compute and graphics		25	%		20	%		20	%
Server		25	%		15	%		10	%
Mobile		20	%		20	%		20	%
SSDs and other storage		15	%		20	%		20	%
Automotive, industrial, medical, and other embedded		10	%		15	%		15	%

Sales to Kingston Technology Company, Inc. ("Kingston"), as a percentage of total net sales, were 10% for 2018 and 2017. Sales to Intel, including Non-Trade sales through IMFT, as a percentage of total net sales, were 14% for 2016 and no other customer exceeded 10% of our total net sales. Our sales to Kingston were included in our CNBU, SBU, and MBU segments and substantially all of our sales to Intel were included in our SBU and CNBU segments.

We generally have multiple sources of supply for our raw materials and production equipment; however, only a limited number of suppliers are capable of delivering certain raw materials and production equipment that meet our standards and, in some cases, materials or production equipment are provided by a single supplier.

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, money market accounts, certificates of deposit, fixed-rate debt securities, trade receivables, share repurchase, capped call, and derivative contracts. We invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting investments with any single obligor and monitoring credit risk of bank counterparties on an ongoing basis. A concentration of credit risk may exist with respect to receivables of certain customers. We perform ongoing credit evaluations of customers worldwide and generally do not require collateral from our customers. Historically, we have not experienced material losses on receivables. A concentration of risk may also exist with respect to our foreign currency hedges as the number of counterparties to our hedges is limited and the notional amounts are relatively large. We seek to mitigate such risk by limiting our counterparties to major financial institutions and through entering into master netting arrangements. Share repurchase and capped call agreements expose us to credit risk to the extent the counterparties may be unable to meet the terms of the agreements. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

Geographic Information

Geographic net sales based on customer ship-to location were as follows:

For the year ended		2018				2017				2016
China		$	17,357			$	10,388			$	5,301
United States		3,624				2,763				1,925
Taiwan		2,798				2,544				1,521
Other Asia Pacific		2,559				1,808				1,610
Europe		2,128				1,360				937
Japan		1,254				1,025				831
Other		671				434				274
		$	30,391			$	20,322			$	12,399

Net property, plant, and equipment by geographic area was as follows:

As of		2018				2017
Taiwan		$	7,640			$	6,519
Singapore		6,933				5,261
United States		5,113				4,253
Japan		3,451				2,827
China		398				453
Other		137				118
		$	23,672			$	19,431

Quarterly Financial Information (Unaudited)

(in millions except per share amounts)

2018		Fourth Quarter				Third Quarter				Second Quarter				First Quarter
Net sales		$	8,440			$	7,797			$	7,351			$	6,803
Gross margin		5,151				4,723				4,270				3,747
Operating income		4,377				3,953				3,567				3,097
Net income		4,326				3,823				3,311				2,678
Net income attributable to Micron		4,325				3,823				3,309				2,678
Earnings per share
Basic		$	3.73			$	3.30			$	2.86			$	2.36
Diluted		3.56				3.10				2.67				2.19

2017		Fourth Quarter				Third Quarter				Second Quarter				First Quarter
Net sales		$	6,138			$	5,566			$	4,648			$	3,970
Gross margin		3,112				2,609				1,704				1,011
Operating income		2,502				1,963				1,044				359
Net income		2,369				1,647				894				180
Net income attributable to Micron		2,368				1,647				894				180
Earnings per share
Basic		$	2.13			$	1.49			$	0.81			$	0.17
Diluted		1.99				1.40				0.77				0.16

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Micron Technology, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Micron Technology, Inc. and its subsidiaries as of August 30, 2018 and August 31, 2017, and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended August 30, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended August 30, 2018 appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of August 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 30, 2018 and August 31, 2017, and the results of their operations and their cash flows for each of the three years in the period ended August 30, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California

October 15, 2018

We have served as the Company's auditor since 1984.