Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page
Consolidated Financial Statements as of August 29, 2019 and August 30, 2018 and for the fiscal years ended August 29, 2019, August 30, 2018, and August 31, 2017
Consolidated Statements of Operations44
Consolidated Statements of Comprehensive Income45
Consolidated Balance Sheets46
Consolidated Statements of Changes in Equity47
Consolidated Statements of Cash Flows48
Notes to Consolidated Financial Statements49
Report of Independent Registered Public Accounting Firm83

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

For the year endedAugust 29, 2019August 30, 2018August 31, 2017
Revenue$23,406$30,391$20,322
Cost of goods sold12,70412,50011,886
Gross margin10,70217,8918,436
Selling, general, and administrative836813743
Research and development2,4412,1411,824
Other operating (income) expense, net49(57)1
Operating income7,37614,9945,868
Interest income20512041
Interest expense(128)(342)(601)
Other non-operating income (expense), net(405)(465)(112)
7,04814,3075,196
Income tax (provision) benefit(693)(168)(114)
Equity in net income (loss) of equity method investees3(1)8
Net income6,35814,1385,090
Net income attributable to noncontrolling interests(45)(3)(1)
Net income attributable to Micron$6,313$14,135$5,089
Earnings per share
Basic$5.67$12.27$4.67
Diluted5.5111.514.41
Number of shares used in per share calculations
Basic1,1141,1521,089
Diluted1,1431,2291,154

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

For the year endedAugust 29, 2019August 30, 2018August 31, 2017
Net income$6,358$14,138$5,090
Other comprehensive income (loss), net of tax
Pension liability adjustments(6)(3)1
Gains (losses) on derivative instruments(3)(15)15
Foreign currency translation adjustments(1)148
Gains (losses) on investments9(2)—
Other comprehensive income (loss)(1)(19)64
Total comprehensive income6,35714,1195,154
Comprehensive income attributable to noncontrolling interests(45)(3)(1)
Comprehensive income attributable to Micron$6,312$14,116$5,153

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value amounts)

As ofAugust 29, 2019August 30, 2018
Assets
Cash and equivalents$7,152$6,506
Short-term investments803296
Receivables3,1955,478
Inventories5,1183,595
Other current assets235164
Total current assets16,50316,039
Long-term marketable investments1,164473
Property, plant, and equipment28,24023,672
Intangible assets340331
Deferred tax assets8371,022
Goodwill1,2281,228
Other noncurrent assets575611
Total assets$48,887$43,376
Liabilities and equity
Accounts payable and accrued expenses$4,626$4,374
Current debt1,310859
Other current liabilities454521
Total current liabilities6,3905,754
Long-term debt4,5413,777
Noncurrent unearned government incentives636227
Other noncurrent liabilities452354
Total liabilities12,01910,112
Commitments and contingencies
Redeemable convertible notes—3
Redeemable noncontrolling interest9897
Micron shareholders' equity
Common stock, $0.10 par value, 3,000 shares authorized, 1,182 shares issued and 1,106 outstanding (1,170 shares issued and 1,161 outstanding as of August 30, 2018)118117
Additional capital8,2148,201
Retained earnings30,76124,395
Treasury stock, 76 shares held (9 shares as of August 30, 2018)(3,221)(429)
Accumulated other comprehensive income910
Total Micron shareholders' equity35,88132,294
Noncontrolling interests in subsidiaries889870
Total equity36,77033,164
Total liabilities and equity$48,887$43,376

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in millions)

Micron Shareholders
Common StockAdditional CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Micron Shareholders' EquityNoncontrolling Interests in SubsidiariesTotal Equity
Number of SharesAmount
Balance at September 1, 20161,094$109$7,736$5,299$(1,029)$(35)$12,080$848$12,928
Net income5,0895,08915,090
Other comprehensive income (loss), net646464
Stock issued under stock plans203139142142
Stock-based compensation expense217(2)215215
Repurchase and retirement of stock(2)—(13)(22)(35)(35)
Stock issued to Nanya for Inotera Acquisition4—70(104)1,029995995
Settlement of capped calls192(67)125125
Reclassification of redeemable convertible notes, net(21)(21)(21)
Conversion of convertible notes(33)(33)(33)
Balance at August 31, 20171,116$112$8,287$10,260$(67)$29$18,621$849$19,470
Net income14,13514,135314,138
Other comprehensive income (loss), net(19)(19)(19)
Stock issued in public offering3431,3631,3661,366
Stock issued under stock plans222287289289
Stock-based compensation expense198198198
Contributions from noncontrolling interest—1818
Repurchase and retirement of stock(2)—(71)(71)(71)
Settlement of capped calls429(429)——
Reclassification of redeemable convertible notes, net181818
Conversion and repurchase of convertible notes(2,310)67(2,243)(2,243)
Balance at August 30, 20181,170$117$8,201$24,395$(429)$10$32,294$870$33,164
Cumulative effect of adopting new accounting standards929292
Net income6,3136,313366,349
Other comprehensive income (loss), net(1)(1)(1)
Stock issued under stock plans141178179179
Stock-based compensation expense243243243
Repurchase of stock(2)—103(39)(2,792)(2,728)(2,728)
Acquisitions of noncontrolling interests11(17)(16)
Reclassification of redeemable convertible notes, net333
Conversion of convertible notes(515)(515)(515)
Balance at August 29, 20191,182$118$8,214$30,761$(3,221)$9$35,881$889$36,770

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

For the year endedAugust 29, 2019August 30, 2018August 31, 2017
Cash flows from operating activities
Net income$6,358$14,138$5,090
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense and amortization of intangible assets5,4244,7593,861
Amortization of debt discount and other costs49101125
Loss on debt prepayments, repurchases, and conversions39638599
Stock-based compensation243198215
Gain on remeasurement of previously-held equity interest in Inotera——(71)
Change in operating assets and liabilities
Receivables2,431(1,734)(1,651)
Inventories(1,528)(472)50
Accounts payable and accrued expenses(174)668456
Payments attributed to intercompany balances with Inotera——(361)
Deferred income taxes, net150(265)(22)
Other(160)(378)362
Net cash provided by operating activities13,18917,4008,153
Cash flows from investing activities
Expenditures for property, plant, and equipment(9,780)(8,879)(4,734)
Purchases of available-for-sale securities(4,218)(760)(1,239)
Acquisition of Inotera——(2,634)
Proceeds from maturities of available-for-sale securities1,541320194
Proceeds from sales of available-for-sale securities1,504604776
Proceeds from government incentives74835521
Other12014479
Net cash provided by (used for) investing activities(10,085)(8,216)(7,537)
Cash flows from financing activities
Repayments of debt(3,340)(10,194)(2,558)
Payments to acquire treasury stock(2,729)(71)(36)
Payments on equipment purchase contracts(75)(206)(519)
Proceeds from issuance of debt3,5501,0093,311
Proceeds from issuance of stock1791,655142
Other(23)319
Net cash provided by (used for) financing activities(2,438)(7,776)349
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash26(37)(12)
Net increase in cash, cash equivalents, and restricted cash6921,371953
Cash, cash equivalents, and restricted cash at beginning of period6,5875,2164,263
Cash, cash equivalents, and restricted cash at end of period$7,279$6,587$5,216
Supplemental disclosures
Income taxes paid, net$(524)$(226)$(99)
Interest paid, net of amounts capitalized(53)(312)(468)
Noncash investing and financing activity
Equipment acquisitions on contracts payable and capital leases11984813

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, 3D XPoint memory, and NOR, 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, 5G, machine learning, and autonomous vehicles, in key market segments like mobile, data center, client, consumer, industrial, graphics, automotive, and networking. The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to current period presentation. Information prior to 2019 is presented in accordance with the accounting guidance in effect during that period and has not been recast for recently adopted accounting standards. See "Recently Adopted Accounting Standards" note.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 2019, 2018, and 2017 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 is included as an operating activity in the statement of cash flows, whereas cash received from incentives related to the acquisition of property, plant, and equipment is included as an investing activity.

Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. When net realizable value (which requires projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories) is below cost, we record a charge to cost of goods sold to write down inventories to their estimated net realizable value in advance of when inventories are actually sold. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize 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.

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 from cost-sharing arrangements are reflected as a reduction of R&D expense.

Revenue Recognition: Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical rates of return. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction

price. We use the expected value method, based on historical price adjustments and current pricing trends, to estimate the amount of revenue recognized from sales to distributors. Differences between the estimated and actual amounts are recognized as adjustments to revenue.

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

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

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

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 VIE

PTI Xi'an: Powertech Technology Inc. Xi'an ("PTI Xi'an") is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to provide assembly services to us at our manufacturing site in Xi'an, China. We do not have an equity interest in PTI Xi'an. PTI Xi'an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We do not have the power to direct the activities of PTI Xi'an that most significantly impact its economic performance, primarily because we do not have governance rights. Therefore, we do not consolidate PTI Xi'an. In connection with our assembly services with PTI, as of August 29, 2019 and August 30, 2018, we had net property, plant, and equipment of $50 million and $63 million, respectively, and capital lease obligations of $47 million and $63 million, respectively.

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. In January 2019, we exercised our option to acquire Intel's interest in IMFT. Subsequently, Intel set the closing date to occur on October 31, 2019, at which time IMFT will become a wholly-owned subsidiary. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)

Recently Adopted Accounting Standards

In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16 – Intra-Entity Transfers Other Than Inventory ("ASU 2016-16"), 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. We adopted this ASU in the first quarter of 2019 under the modified retrospective method and, in connection therewith, made certain adjustments as noted in the table below.

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. We adopted this ASU in the first quarter of 2019 under the modified retrospective method, with prospective adoption for amendments related to equity securities without readily determinable fair values. The adoption of this ASU did not have a material impact on our financial statements.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (as amended, "ASC 606"), which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of ASC 606 is that an entity should recognize revenue when it transfers control of 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. ASC 606 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. We adopted ASC 606 in the first quarter of 2019 under the modified retrospective method and, in connection therewith, made certain adjustments as noted in the table below. We applied ASC 606 to contracts with customers that had not yet been completed as of the adoption date.

The following table summarizes the effects of adopting ASU 2016-16 and ASC 606:

Ending Balance as of August 30, 2018ASU 2016-16ASC 606Opening Balance as of August 31, 2018
Receivables$5,478$—$114$5,592
Inventories3,595—(5)3,590
Other current assets164(14)30180
Deferred tax assets1,02256(92)986
Other current liabilities521—(4)517
Other noncurrent liabilities354—1355
Retained earnings24,395425024,487

As a result of the adoption of ASC 606, the opening balances as of August 31, 2018 for receivables, other current assets, and other current liabilities increased due to the reclassification of allowances for rebates, pricing adjustments, and returns to conform to the new presentation requirements. In addition, the margin from previously deferred sales to distributors was reclassified from other current liabilities to retained earnings. The tax effects of the adoption of ASC 606 were recorded primarily as a reduction of net deferred tax assets, substantially as a result of recognizing income for accounting purposes earlier under ASC 606 than for tax purposes in various jurisdictions.

The effects of ASC 606 to our consolidated statement of operations and balance sheet were as follows:

Year ended August 29, 2019
As ReportedAdjustmentsAmounts Without the Effects of Adoption of ASC 606
Revenue$23,406$(40)$23,366
Cost of goods sold12,704(70)12,634
Interest expense(128)5(123)
Income tax (provision) benefit(693)(19)(712)
Net income attributable to Micron6,313166,329
As of August 29, 2019As ReportedAdjustmentsAmounts Without the Effects of Adoption of ASC 606
Receivables$3,195$(94)$3,101
Other current assets235(44)191
Deferred tax assets83779916
Accounts payable and accrued expenses4,62664,632
Other current liabilities454(30)424
Other noncurrent liabilities452(1)451
Retained earnings30,761(34)30,727

Recently Issued Accounting Standards Not Yet Adopted

In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU will be effective for us in the first quarter of 2021 with early adoption permitted. This ASU requires retrospective adoption to the date we adopted ASC 606, which was August 31, 2018, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. We do not anticipate the adoption of this ASU to 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 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 lease payments. We will adopt the provisions of this ASU under a modified retrospective method at the beginning of 2020 and not recast prior periods. The adoption of this ASU will result in an increase to our consolidated balance sheet of approximately $550 million for operating lease liabilities and right-of-use 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. From December 2015 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 of DRAM products in 2017 through the date of our acquisition. 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 Acquisition3,113
Fair value of our previously-held equity interest in Inotera1,441
Fair value of Micron Shares exchanged for Inotera shares995
Other3
Payments attributed to intercompany balances with Inotera(361)
$5,191
Assets acquired and liabilities assumed
Cash and equivalents$118
Inventories285
Other current assets27
Property, plant, and equipment3,722
Deferred tax assets82
Goodwill1,124
Other noncurrent assets130
Accounts payable and accrued expenses(232)
Debt(56)
Other noncurrent liabilities(9)
$5,191

The Inotera Acquisition enhanced our flexibility to drive new technology, optimized the deployment of capital, and enabled us to 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 endedAugust 31, 2017
Net sales$20,317
Net income5,172
Net income attributable to Micron5,171
Earnings per share
Basic4.68
Diluted4.42

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.

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

Substantially all of our marketable debt and equity investments were classified as available-for-sale as of the dates noted below. Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:

As of20192018
Cash and EquivalentsShort-term InvestmentsLong-term Marketable Investments(1)Total Fair ValueCash and EquivalentsShort-term InvestmentsLong-term Marketable Investments(1)Total Fair Value
Cash$2,388$—$—$2,388$3,223$—$—$3,223
Level 1(2)
Money market funds3,418——3,4182,443——2,443
Level 2(3)
Certificates of deposits1,2921311,306806112819
Corporate bonds—5506891,2393172272447
Government securities36149232417563103171
Asset-backed securities—67242309—3496130
Commercial paper1824—422616—42
7,152$803$1,164$9,1196,506$296$473$7,275
Restricted cash(4)12781
Cash, cash equivalents, and restricted cash$7,279$6,587
(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 29, 2019 or August 30, 2018.
(4)Restricted cash is included in other noncurrent assets and primarily relates to the MMJ Creditor Payments and government incentives received prior to being earned. The restrictions lapse on the MMJ Creditor Payments upon approval by the trustees and/or Tokyo District Court and for the government incentives upon achieving certain performance conditions.

Gross realized gains and losses from sales of available-for-sale securities were not material for any period presented. As of August 29, 2019, there were no available-for-sale securities that had been in a loss position for longer than 12 months.

Receivables

As of20192018
Trade receivables$2,778$5,056
Income and other taxes242161
Other175261
$3,195$5,478

Inventories

As of20192018
Finished goods$757$815
Work in process3,8252,357
Raw materials and supplies536423
$5,118$3,595

Property, Plant, and Equipment

As of20192018
Land$352$345
Buildings (includes $528 and $483, respectively, under capital leases)10,9318,680
Equipment(1) (includes $905 and $1,336, respectively, under capital leases)44,05138,249
Construction in progress(2)1,7001,162
Software790655
57,82449,091
Accumulated depreciation (includes $733 and $868, respectively, under capital leases)(29,584)(25,419)
$28,240$23,672
(1)Included costs related to equipment not placed into service of $2.33 billion as of August 29, 2019 and $1.73 billion as of August 30, 2018.
(2)Included building-related construction, tool installation, and software costs for assets not placed into service.

Depreciation expense was $5.34 billion, $4.66 billion, and $3.76 billion for 2019, 2018, and 2017, respectively. Interest capitalized as part of the cost of property, plant, and equipment was $103 million, $44 million, and $7 million for 2019, 2018, and 2017, respectively.

Intangible Assets and Goodwill

As of20192018
Gross AmountAccumulated AmortizationGross AmountAccumulated Amortization
Amortizing assets
Product and process technology$583$(243)$567$(344)
Non-amortizing assets
In-process R&D——108—
Total intangible assets$583$(243)$675$(344)
Goodwill$1,228$1,228

In 2019, 2018, and 2017, we capitalized $91 million, $48 million, and $29 million, respectively, for product and process technology with weighted-average useful lives of 8 years, 10 years, and 11 years, respectively. In 2019, we placed $108 million of in-process R&D in service, which is being amortized on a straight-line basis over six years. Expected amortization expense for our intangible assets is $72 million for 2020, $62 million for 2021, $50 million for 2022, $44 million for 2023, and $40 million for 2024.

Accounts Payable and Accrued Expenses

As of20192018
Accounts payable$1,677$1,692
Property, plant, and equipment1,7821,238
Salaries, wages, and benefits695841
Income and other taxes309402
Other163201
$4,626$4,374

Debt

As of20192018
Net Carrying AmountNet Carrying Amount
InstrumentStated RateEffective RatePrincipalCurrentLong-TermTotal(1)PrincipalCurrentLong-TermTotal(1)
IMFT Member DebtN/AN/A$693$693$—$693$1,009$—$1,009$1,009
Capital lease obligationsN/A4.30%591223368591846310536846
MMJ Creditor PaymentsN/A9.76%206198—198520$309183492
2024 Notes4.64%4.76%600—597597————
2025 Notes5.50%5.56%519—516516519—515515
2026 Notes4.98%5.07%500—497497————
2027 Notes4.19%4.27%900—895895————
2029 Notes5.33%5.40%700—696696————
2030 Notes4.66%4.73%850—845845————
2032D Notes(2)3.13%6.33%134—127127143—132132
2033F Notes(2)(3)2.13%4.93%62196—196107235—235
2043G Notes3.00%6.76%————1,019—682682
2022 Term Loan B4.24%4.65%————7355720725
$5,755$1,310$4,541$5,851$4,898$859$3,777$4,636
(1)Net carrying amount is the principal amount less unamortized debt discount and issuance costs. In addition, the net carrying amount as of August 29, 2019 and August 30, 2018 included $135 million and $132 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 $44 million and $35 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, 2019, these notes are convertible by the holders through the calendar quarter ended September 30, 2019. Additionally, the closing price of our common stock also exceeded the thresholds for the calendar quarter ended September 30, 2019; therefore, these notes are convertible by the holders at any time through December 31, 2019.
(3)Current debt as of August 29, 2019 included an aggregate of $179 million for the settlement obligation (including principal and amounts in excess of principal) for conversions of our 2033F Notes that settled in cash in the first quarter of 2020. The remainder of the 2033F Notes were classified as current as of August 29, 2019 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.

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 29, 2019, Micron had $4.37

billion of unsecured debt (net of unamortized discount and debt issuance costs), including the 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, 2029 Notes, 2030 Notes, 2032D Notes, and 2033F Notes that were 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

Pursuant to the terms of the IMFT joint venture agreement, Intel provided debt financing ("IMFT Member Debt") of $1.01 billion to IMFT in 2018. IMFT Member Debt is non-interest bearing 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 IMFT Member Debt. The remaining balance of IMFT Member Debt on October 31, 2019 will be paid by Micron upon the closing of the IMFT transaction as a component of the consideration paid to Intel for their interest in IMFT. As a result, it was classified as current as of August 29, 2019. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)

Capital Lease Obligations

In 2019, we recorded capital lease obligations aggregating $53 million at a weighted-average effective interest rate of 5.4%, with a weighted-average expected term of ten years. In 2018, we recorded capital lease obligations aggregating $20 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 recovered 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 MMJ Creditor Payment (stated in Japanese yen and U.S. dollars) as of August 29, 2019:

2020¥21,757$206
Less unamortized discount(709)(8)
¥21,048$198

In 2012, we entered into a series of agreements with the corporate reorganization trustees of the MMJ Companies and 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.

Senior Unsecured Notes

Our 2024 Notes, 2025 Notes, 2026 Notes, 2027 Notes, 2029 Notes, and 2030 Notes (the "Senior Unsecured Notes") each contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our restricted subsidiaries (which are generally domestic subsidiaries in which we own at least 80% of the voting stock) to (1) create or incur certain liens, (2) enter into certain sale and lease-back transactions, (3) consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity, and (4) for our 2025 Notes, create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our domestic restricted subsidiaries. These covenants are subject to a number of limitations and exceptions. If a change in control triggering event occurs, as defined in

the indenture governing our Senior Unsecured Notes, we will be required to offer to purchase such notes at 101% of the outstanding aggregate principal amount plus accrued interest up to the purchase date.

Redemption at Our Option: 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. We may redeem all other Senior Unsecured Notes, in whole or in part, at our option prior to their maturity at a price equal to accrued interest plus the present value of the remaining scheduled payments and we may redeem, in whole or in part, at a price equal to par between one and three months prior to maturity.

Convertible Senior Notes

Holder Put Date(1)Maturity DateConversion Price Per ShareConversion Price Per Share Threshold(2)Underlying Shares of Common StockConversion Value in Excess of Principal(3)Principal Settlement Option(4)
2032D NotesMay 2021May 2032$9.98$12.9713$464Cash and/or shares
2033F Notes(5)Feb. 2020Feb. 203310.9314.216190Cash
19$654
(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 $44.67 as of August 29, 2019.
(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, 2020 and 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, 2019, 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, 2019.

In August 2019, holders of our 2033F Notes with an aggregate principal amount of $44 million converted their notes, which were settled in cash the first quarter of 2020. 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 2019 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 2019 included $179 million for the fair values of the derivative debt liabilities as of August 29, 2019. The 20 consecutive trading day period ended in the first quarter of 2020, and we settled the conversion for $192 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 plus accrued and unpaid interest.

Conditional Redemption Period at Our Option(1)Unconditional Redemption Period at Our OptionRedemption Period Requiring Make-Whole
2032D NotesOn or after May 1, 2017On or after May 4, 2021Prior to May 4, 2021(2)
2033F NotesN/AOn or after Feb. 20, 2020N/A
(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.

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 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 $21 million, $44 million, and $51 million for 2019, 2018, and 2017, respectively, and amortization of discount and issuance costs of $14 million, $32 million, and $37 million for 2019, 2018, and 2017, respectively. As of August 29, 2019 and August 30, 2018, the carrying amounts of the equity components of our convertible notes, which are included in additional capital, were $29 million and $208 million, respectively.

Credit Facility

In July 2018, we entered into a credit agreement providing a committed revolving credit facility that matures in July 2023. On November 27, 2018, we amended the credit agreement to increase the amount available to draw under the revolving credit facility from $2.0 billion to $2.5 billion. On July 9, 2019, we entered into an incremental amendment to the credit agreement to obtain a term loan facility for up to $1.25 billion of financing. We suspended the security interest in the collateral under the credit agreement in 2019 upon satisfying the requirements under the credit agreement, including achieving specified credit ratings and prepayment of the 2022 Term Loan B; however, the security interest would be automatically reinstated upon a decline below a certain level in our corporate credit rating. If the security interest is reinstated, any amounts drawn under the credit agreement would be collateralized by substantially all of the assets of Micron and MSP, subject to certain permitted liens.

Borrowings under either the revolving credit facility or the term loan 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. We may elect to convert outstanding revolving or term loan interest to other variable-rate indexes. The term loan facility may be drawn in a single advance prior to November 9, 2019. If drawn, the term loan matures on the fifth anniversary of the funding date of the term loan. Principal payments are due annually in an amount equal to 5.0% of the initial aggregate principal amount with the balance due at maturity. As of August 29, 2019, there were no outstanding amounts drawn under either the revolving credit facility or the term loan facility.

Under the terms of the credit agreement, we must maintain ratios, calculated as of the last day of each fiscal quarter, of total indebtedness to adjusted EBITDA not to exceed 2.75 to 1.00 and adjusted EBITDA to net interest expense of not less than 3.50 to 1.00. The credit agreement contains other covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our restricted subsidiaries to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer, lease, or otherwise dispose of all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

Debt Activity

The table below presents the effects of issuances, prepayments, and conversions of debt in 2019. When we receive a notice of conversion for any of our convertible notes and elect to settle in cash any amount of the conversion obligation in excess of the principal amount, the cash settlement obligations become derivative debt liabilities subject to mark-to-market accounting treatment based on the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Accordingly, at the date of our election to settle a conversion in cash, we reclassify the fair value of the equity component of the converted notes from additional capital to derivative debt liability within current debt in our consolidated balance sheet.

Increase (Decrease) in PrincipalIncrease (Decrease) in Carrying ValueIncrease (Decrease) in CashDecrease in EquityGain (Loss)
Issuances
2024 Notes(1)$600$597$597$—$—
2026 Notes(1)500497497——
2027 Notes(2)900895895——
2029 Notes(1)700695695——
2030 Notes(2)850845845——
Prepayments
2022 Term Loan B(728)(721)(728)—(7)
Settled conversions
2032D Notes(10)(9)(35)(28)2
2033F Notes(45)(175)(192)(28)11
2043G Notes(1,019)(691)(1,426)(326)(400)
Conversions not settled
2033F Notes(3)—135—(133)(2)
$1,748$2,068$1,148$(515)$(396)
(1)Issued February 6, 2019.
(2)Issued July 12, 2019.
(3)As of August 29, 2019, an aggregate of $44 million principal amount of our 2033F Notes (with a carrying value of $179 million) had converted but not settled. These notes settled in the first quarter of 2020 for $192 million in cash.

In 2018, we repurchased or redeemed $6.96 billion of principal amount of notes (carrying value of $6.93 billion) for an aggregate of $9.42 billion in cash and 4 million shares of our treasury stock. As of August 30, 2018, an aggregate of $35 million principal amount of our 2033F Notes (with a carrying value of $165 million) had converted but not settled. These notes settled in 2019 for $153 million in cash and the effect of the settlement is included in the table above. In connection with these transactions, we recognized aggregate non-operating losses of $385 million in 2018.

In 2017, we repurchased or redeemed $1.55 billion of principal amount of notes (carrying value of $1.54 billion) for an aggregate of $1.63 billion in cash. In connection with these transactions, we recognized aggregate non-operating losses of $94 million in 2017.

Maturities of Notes Payable and Future Minimum Lease Payments

As of August 29, 2019, maturities of notes payable (including the MMJ Creditor Payments) and future minimum lease payments under capital lease obligations were as follows:

Notes PayableCapital Lease Obligations
2020$1,095$248
2021134107
2022—73
2023—48
202460037
2025 and thereafter3,469189
Unamortized discounts and interest, respectively(38)(111)
$5,260$591

Commitments

As of August 29, 2019, we had commitments of approximately $7.6 billion of purchase obligations, a substantial majority of which will be due within five years. Purchase obligations include payments for the acquisition of property, plant, and equipment, and other goods or services of either a fixed or minimum quantity.

We lease certain facilities and equipment under operating leases, for which expense was $93 million, $63 million, and $52 million for 2019, 2018, and 2017, respectively. Minimum future operating lease commitments as of August 29, 2019 were as follows:

2020$54
202164
202263
202359
202453
2025 and thereafter459
$752

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 August 12, 2014, MLC Intellectual Property, LLC filed a patent infringement action against Micron in the United States District Court for the Northern District of California. The complaint alleges that Micron infringes a single U.S. patent and seeks damages, attorneys' fees, and costs.

On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron; Micron Semiconductor Products, Inc.; and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that

unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys' fees, and costs.

On December 15, 2014, Innovative Memory Solutions, Inc. ("IMS") filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs. On July 23, 2018, IMS served a patent infringement complaint on Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited in the Regional Court, Mannheim, Germany 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 June 7, 2019, the Regional Court found no infringement and dismissed the case. On August 31, 2018, Micron was served with a complaint filed by IMS in Shenzhen Intermediate People's Court in Guangdong Province, China. 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 March 19, 2018, Micron Semiconductor (Xi'an) Co., Ltd. ("MXA") was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua") in the Fuzhou Intermediate People's Court in Fujian Province, China (the "Fuzhou Court"). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. ("MSS") was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 98 million Chinese yuan plus court fees incurred.

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

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

On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and 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 revenue.

Qimonda

On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda's insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of August 29, 2019, 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. On April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court's decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed two independent experts to perform an evaluation of Dr. Jaffé's claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed experts issued their report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the experts for supplemental expert opinion.

Antitrust Matters

On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purport to be on behalf of a nationwide class of indirect purchasers of DRAM products. The complaints assert claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to February 1, 2018, and seek treble monetary damages, costs, interest, attorneys' fees, and other injunctive and equitable relief. On September 3, 2019, the District Court granted Micron's motion to dismiss and allowed plaintiffs the opportunity to file an amended complaint.

On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. The lawsuits purport to be on behalf of a nationwide class of direct purchasers of DRAM products. The complaints assert claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to February 1, 2018, and seek treble monetary damages, costs, interest, attorneys' fees, and other injunctive and equitable relief.

Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.

On May 15, 2018, the Chinese State Administration for Market Regulation ("SAMR") notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.

Securities Matters

On January 23, 2019, a complaint was filed against Micron and two of our officers, Sanjay Mehrotra and David Zinsner, in the U.S. District Court for the Southern District of New York. The lawsuit purports to be brought on behalf of a class of purchasers of our stock during the period from June 22, 2018 through November 19, 2018. Subsequently two substantially similar cases were filed in the same court adding one of our former officers, Ernie Maddock, as a defendant and alleging a class action period from September 26, 2017 through November 19, 2018. The separate cases were joined, and a consolidated amended complaint was filed on June 15, 2019. The consolidated amended complaint alleges that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and seek compensatory and punitive damages, fees, interest, costs, and other appropriate relief. On October 2, 2019, the parties submitted a joint stipulation to dismiss the complaint. The Court approved the stipulation and dismissed the complaint on October 3, 2019.

On March 5, 2019, a shareholder derivative complaint was filed in the U.S. District Court for the District of Delaware, allegedly on behalf of and for the benefit of Micron, against certain current and former officers and directors of Micron for alleged breaches of their fiduciary duties and other violations of law. The allegations are based on, among other things, purported false and misleading statements regarding anticompetitive behavior in the DRAM industry. The complaint seeks damages, fees, interest, costs, and other appropriate relief. Similar shareholder derivative complaints have subsequently been filed in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of Idaho.

Other

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

On June 13, 2019, current Micron employee Chris Manning filed a putative class action lawsuit on behalf of Micron employees subject to the Idaho Claim Act who earned a performance-based bonus after the conclusion of fiscal year 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On behalf of himself and the putative class, Manning asserts claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud.

In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.

We are unable to predict the outcome of the patent matters, the Qimonda matter, antitrust matters, securities matters, and other matters noted above and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing, as well as the resolution of any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition.

Redeemable Convertible Notes

Under the terms of the indentures governing our 2033F 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 2033F Notes were convertible by their holders as of August 29, 2019 and August 30, 2018. 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.

Redeemable Noncontrolling Interest

Redeemable noncontrolling interest reflects 100,000 preferred shares authorized and issued by Micron Semiconductor Asia Operations Pte. Ltd. ("MSAO") in 2018 for proceeds, net of issuance related costs, of $97 million. Holders of the preferred shares are entitled to receive a cumulative dividend of 7.75% per annum, to be paid from the profits of MSAO on the last day of each quarter and a liquidation preference senior to MSAO's common shares. We recognize the accrued dividend in net income attributable to noncontrolling interests. Holders may require us to purchase their shares after August 29, 2028, and we have the right to reacquire the shares during the period beginning August 31, 2020 through August 29, 2026, each for par value per share plus accrued dividends.

Equity

Micron Shareholders' Equity

Common Stock Repurchases: Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in fiscal 2019. We may purchase shares on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions and our ongoing determination of the best use of available cash. The repurchase authorization does not obligate us to acquire any common stock. In 2019, we repurchased 67 million shares of our common stock for $2.66 billion under an accelerated share repurchase agreement, Rule 10b5-1 plans, and through open market repurchases. The shares were recorded as treasury stock.

Common Stock Issuance: In 2018, we issued 34 million shares of our common stock for $41.00 per share in a public offering, for net proceeds of $1.36 billion, net of underwriting fees and other offering costs.

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 2033F 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 29, 2019, 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. 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 29, 2019 were as follows:

Pension Liability AdjustmentsGains (Losses) on Derivative InstrumentsCumulative Foreign Currency Translation AdjustmentUnrealized Gains (Losses) on InvestmentsTotal
As of August 30, 2018$10$2$—$(2)$10
Other comprehensive income(13)(3)(1)14(3)
Amount reclassified out of accumulated other comprehensive income4——(3)1
Tax effects3——(2)1
Other comprehensive income(6)(3)(1)9(1)
As of August 29, 2019$4$(1)$(1)$7$9

Noncontrolling Interests in Subsidiaries

As of20192018
BalancePercentageBalancePercentage
IMFT$88949%$85349%
Other——17Various
$889$870

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 2018, IMFT discontinued production of NAND and subsequent to that time manufactured 3D XPoint memory. In 2018, we announced that we and Intel will no longer jointly develop 3D XPoint technology beyond the second generation and we substantially completed this cost-sharing arrangement in the first quarter of 2020. IMFT sales to Intel were $731 million, $507 million, and $493 million for 2019, 2018, and 2017, respectively.

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. Pursuant to the terms of the IMFT joint venture agreement, Intel provided debt financing of $1.01 billion to IMFT in 2018 and IMFT repaid $316 million to Intel in 2019. As of August 29, 2019, current debt included $693 million of IMFT Member Debt. Members pay their proportionate share of fixed costs associated with IMFT's capacity.

In January 2019, we exercised our option to acquire Intel's interest in IMFT. Subsequently, Intel set the closing date to occur on October 31, 2019, at which time IMFT will become a wholly-owned subsidiary. In the first quarter of 2020, we expect to pay Intel approximately $1.4 billion in cash for Intel's noncontrolling interest in IMFT and IMFT member debt. Pursuant to the terms of the IMFT wafer supply agreement, Intel notified us of its election to receive supply from IMFT from the closing date through April 2020 at a volume equal to approximately 50% of their volume from IMFT in the six-month period prior to closing.

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 of20192018
Assets
Cash and equivalents$130$91
Receivables128126
Inventories124114
Other current assets98
Total current assets391339
Property, plant, and equipment2,2352,641
Other noncurrent assets3845
Total assets$2,664$3,025
Liabilities
Accounts payable and accrued expenses$118$138
Current debt69620
Other current liabilities379
Total current liabilities851167
Long-term debt531,064
Other noncurrent liabilities574
Total liabilities$909$1,305

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

Fair Value Measurements

Substantially 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 of20192018
Fair ValueCarrying ValueFair ValueCarrying Value
Notes and MMJ Creditor Payments$5,194$4,937$2,798$2,741
Convertible notes8523233,1241,049

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

Other operating (income) expense, net included unrealized losses primarily from semiconductor equipment held for sale of $82 million in 2019. The fair values were based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment (Level 3). As of August 29, 2019, assets held for sale were not material.

Derivative Instruments

Gross Notional AmountFair Value of
Current Assets(1)Current Liabilities(2)
As of August 29, 2019
Derivative instruments with hedge accounting designation
Cash flow currency hedges$146$1$—
Derivative instruments without hedge accounting designation
Non-designated currency hedges1,8711(9)
Convertible notes settlement obligation(3)—(179)
1(188)
$2$(188)
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 hedges1,91914(10)
Convertible notes settlement obligation(3)—(167)
14(177)
$14$(190)
(1)Included in receivables – other.
(2)Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.
(3)Notional amounts of convertible notes settlement obligations as of August 29, 2019 and August 30, 2018 were 4 million and 3 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. We recognized losses of $3 million and $17 million and gains of $15 million for 2019, 2018, and 2017, 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 2019, 2018, or 2017. 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: In 2018, we utilized fair value hedges for our exposure from changes in currency exchange rates for certain monetary assets and liabilities. The effects of fair value hedges on our consolidated statements of operations were as follows:

Other Non-Operating Income (Expense)
For the year ended2018
Loss on remeasurement of hedged assets and liabilities$(25)
Gain on derivatives designated as hedged instruments25
Amortization of amounts excluded from hedge effectiveness(32)
$(32)

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized losses of $32 million, $38 million, and $45 million for 2019, 2018, and 2017, 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 $58 million and $124 million for 2019 and 2018, respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations. Recognized gains and losses for 2017 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 29, 2019 and August 30, 2018, amounts netted under our master netting arrangements were not material.

Equity Plans

As of August 29, 2019, 108 million shares of our common stock were available for future awards under our equity plans, including 29 million shares approved for issuance under our employee stock purchase plan ("ESPP").

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

As of August 29, 2019, there were 16 million shares of Restricted Stock Awards outstanding, 14 million of which contained only service conditions. For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth or one-third increments during each year of employment after the grant date. Restrictions lapse on Restricted Stock granted in 2019 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 2019 is summarized as follows:

Number of SharesWeighted-Average Grant Date Fair Value Per Share
Outstanding as of August 30, 201815$25.18
Granted941.11
Restrictions lapsed(6)24.22
Canceled(2)24.79
Outstanding as of August 29, 20191634.72
For the year ended201920182017
Restricted stock award shares granted948
Weighted-average grant-date fair value per share$41.11$42.48$18.77
Aggregate vesting-date fair value of shares vested$248$259$115

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 2019 is summarized as follows:

Number of SharesWeighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Life (In Years)Aggregate Intrinsic Value
Outstanding as of August 30, 201818$23.38
Granted—44.30
Exercised(5)17.50
Canceled or expired(1)22.60
Outstanding as of August 29, 20191225.944.3$220
Exercisable as of August 29, 20197$25.373.7$143
Unvested as of August 29, 2019526.945.577

The total intrinsic value was $108 million, $446 million, and $198 million for options exercised in 2019, 2018, and 2017, respectively.

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

For the year ended201920182017
Stock options granted—28
Weighted-average grant-date fair value per share$19.50$18.65$8.68
Average expected life in years5.45.55.5
Weighted-average expected volatility44.0%44.0%46.0%
Weighted-average risk-free interest rate2.9%2.2%1.8%
Expected dividend yield0.0%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.

Employee Stock Purchase Plan

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

For the year ended20192018
Weighted-average grant-date fair value per share$11.60$14.55
Average expected life in years0.50.5
Weighted-average expected volatility45.0%43.0%
Weighted-average risk-free interest rate2.2%2.2%
Expected dividend yield0.0%0.0%

Employees purchased 3 million shares of common stock for $95 million in 2019 under the ESPP.

Stock-based Compensation Expense

For the year ended201920182017
Stock-based compensation expense by caption
Cost of goods sold$102$83$88
Selling, general, and administrative736175
Research and development685452
$243$198$215
Stock-based compensation expense by type of award
Restricted stock awards$178$140$144
Stock options335571
ESPP323—
$243$198$215

The income tax benefit related to share-based compensation was $66 million, $158 million and $97 million for 2019, 2018 and 2017, 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 $30 million and $19 million was capitalized and remained in inventory as of August 29, 2019 and August 30, 2018, respectively. As of August 29, 2019, $439 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 2023, 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 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 $67 million, $61 million, and $52 million in 2019, 2018, and 2017, respectively.

Retirement Plans

We have pension plans in various countries available to local employees which are generally government mandated. As of August 29, 2019, the projected benefit obligations of our plans were $206 million and plan assets were $195 million. As of August 30, 2018, the projected benefit obligations of our plans were $190 million and plan assets were $171 million. Pension expense was not material for 2019, 2018, or 2017.

Revenue and Contract Liabilities

Revenue by product type was as follows:

For the year ended201920182017
DRAM$15,247$21,232$12,963
NAND(1)6,9467,8976,585
Other (primarily 3D XPoint memory and NOR)1,2131,262774
$23,406$30,391$20,322
(1)MCP revenue is reported within NAND.

Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods. Other contract liabilities consist of amounts received in advance of satisfying performance obligations. These balances are reported within other current liabilities and other noncurrent liabilities. Revenue and interest expense associated with contract liabilities for the time value of advance payments was not material in any period presented. As of August 29, 2019, our future performance obligations beyond one year were not material. Contract liabilities were as follows:

As ofAugust 29, 2019Opening Balance as of August 31, 2018
Contract liabilities from customer advances$61$235
Other contract liabilities69113
$130$348

Revenue recognized during 2019 from the opening balance was $273 million, primarily from shipments against customer advances, which was partially offset by new customer advances.

As of August 29, 2019, other current liabilities included $326 million for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

Research and Development

We share the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by $60 million, $201 million, and $213 million for 2019, 2018, and 2017, respectively, pursuant to reimbursements under these arrangements.

We have had agreements to jointly develop NAND and 3D XPoint technologies with Intel. In 2018, we and Intel agreed to independently develop subsequent generations of 3D NAND and we substantially completed this cost-sharing arrangement in the third quarter of 2019. In 2018, we announced that we and Intel will no longer jointly develop 3D XPoint technology beyond the second generation and we substantially completed this cost-sharing arrangement in the first quarter of 2020.

Other Operating (Income) Expense, Net

For the year ended201920182017
(Gain) loss on disposition of property, plant, and equipment$43$(96)$(22)
Restructure and asset impairments(29)2818
Other35115
$49$(57)$1

Restructure and asset impairments primarily relate to our continued emphasis to centralize certain key functions. In addition, in 2019, we finalized the sale of our 200mm fabrication facility in Singapore and recognized restructure gains of $128 million. In 2017, we recognized net restructure gains of $15 million related to the sale of our Lexar assets; our assets associated with our 200mm fabrication facility in Singapore; and our 40% ownership interest in Tera Probe, Inc and assembly and test facility located in Akita, Japan.

Other Non-Operating Income (Expense), Net

For the year ended201920182017
Loss on debt prepayments, repurchases, and conversions$(396)$(385)$(100)
Loss from changes in currency exchange rates(9)(75)(74)
Gain on remeasurement of previously-held equity interest in Inotera——71
Other—(5)(9)
$(405)$(465)$(112)

Income Taxes

On December 22, 2017, the United States enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which imposed a one-time transition tax in 2018 (the "Repatriation Tax") and, beginning in 2019, created a new minimum tax on certain foreign earnings (the "Foreign Minimum Tax"). In connection with the provisions of the Tax Act, we made an accounting policy election to treat the Foreign Minimum Tax provision as a period cost in the period the tax is incurred. SEC Staff Accounting Bulletin No. 118 ("SAB 118") allowed the use of provisional amounts (reasonable estimates) if the analyses of the impacts of the Tax Act had not been completed when financial statements were issued. During 2019, we finalized the computations of the income tax effects of the Tax Act. As such, in accordance with SAB 118, our accounting for the effects of the Tax Act is complete.

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

For the year ended201920182017
Income (loss) before income taxes, net income (loss) attributable to noncontrolling interests, and equity in net income (loss) of equity method investees
U.S.$(67)$141$(56)
Foreign7,11514,1665,252
$7,048$14,307$5,196
Income tax (provision) benefit
Current
U.S. federal$(36)$(54)$—
State(2)1(1)
Foreign(319)(374)(152)
(357)(427)(153)
Deferred
U.S. federal(146)232—
State91101—
Foreign(281)(74)39
(336)$25939
Income tax (provision) benefit$(693)$(168)$(114)

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

For the year ended201920182017
U.S. federal income tax (provision) benefit at statutory rate$(1,480)21.0%$(3,677)25.7%$(1,819)35.0%
Foreign tax rate differential993(14.1)%2,606(18.2)%1,600(30.8)%
U.S. tax on foreign operations(327)4.6%(20)0.1%(37)0.7%
Repatriation Tax related to the Tax Act(10)0.1%(1,049)7.3%——%
Remeasurement of deferred tax assets and liabilities related to the Tax Act——%(179)1.3%——%
Change in valuation allowance(40)0.6%2,079(14.5)%64(1.2)%
State taxes, net of federal benefit102(1.4)%(84)0.6%——%
Research and development tax credits118(1.7)%90(0.6)%66(1.3)%
Other(49)0.7%66(0.5)%12(0.2)%
Income tax (provision) benefit$(693)9.8%$(168)1.2%$(114)2.2%

Measurement period adjustments in 2019 included $47 million of benefit for the Repatriation Tax, net of adjustments related to uncertain tax positions. 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 jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2034, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements reduced our tax provision by $756 million (benefiting our diluted earnings per share by $0.66) for 2019, by $1.96 billion ($1.59 per diluted share) for 2018, and by $742 million ($0.64 per diluted share) for 2017.

A 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 be subject to additional foreign withholding or state income tax. As of August 29, 2019, we had a deferred tax liability of $10 million associated with our undistributed earnings. Certain non-U.S. subsidiaries had cumulative undistributed earnings of $2.84 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 of20192018
Deferred tax assets
Net operating loss and tax credit carryforwards$1,045$1,417
Accrued salaries, wages, and benefits122163
Property, plant, and equipment80—
Other110115
Gross deferred tax assets1,3571,695
Less valuation allowance(277)(228)
Deferred tax assets, net of valuation allowance1,0801,467
Deferred tax liabilities
Product and process technology(138)(62)
Property, plant, and equipment—(173)
Other(109)(213)
Deferred tax liabilities(247)(448)
Net deferred tax assets$833$1,019
Reported as
Deferred tax assets$837$1,022
Deferred tax liabilities (included in other noncurrent liabilities)(4)(3)
Net deferred tax assets$833$1,019

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 29, 2019, and August 30, 2018, we had a valuation allowance of $277 million and $228 million, respectively, against our net deferred tax assets, primarily related to net operating loss carryforwards in Japan. Changes in 2019 in the valuation allowance were due to adjustments based on management's assessment of tax credits and net operating losses that are more likely than not to be realized.

As of August 29, 2019, our federal, state, and foreign net operating loss carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of ExpirationU.S. FederalStateJapanTaiwanOther ForeignTotal
2020 - 2024$—$48$969$309$4$1,330
2025 - 2029—404524412944
2030 - 2034—296———296
2035 - 2039572———77
Indefinite—1—2418250
$5$821$1,493$554$24$2,897

As of August 29, 2019, our federal and state tax credit carryforward amounts and expiration periods, as reported to tax authorities, were as follows:

Year of Tax Credit ExpirationU.S. FederalStateTotal
2020 - 2024$—$55$55
2025 - 2029—5858
2030 - 20343113116
2035 - 20393504354
Indefinite—7575
$353$305$658

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

For the year ended201920182017
Beginning unrecognized tax benefits$261$327$304
Increases related to tax positions from prior years124——
Increases related to tax positions taken in current year446815
Decreases related to tax positions from prior years(46)(126)—
Settlements with tax authorities—(8)(47)
Increases due to the Inotera Acquisition——54
Other——1
Ending unrecognized tax benefits$383$261$327

As of August 29, 2019, gross unrecognized tax benefits were $383 million, substantially all of which would affect our effective tax rate in the future, if recognized. 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 2015 through 2019. In addition, tax returns that remain open to examination in Japan range from the years 2013 to 2019 and in Singapore and Taiwan from 2014 to 2019. 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 ended201920182017
Net income attributable to Micron – Basic$6,313$14,135$5,089
Assumed conversion of debt(12)——
Net income attributable to Micron – Diluted$6,301$14,135$5,089
Weighted-average common shares outstanding – Basic1,1141,1521,089
Dilutive effect of equity plans and convertible notes297765
Weighted-average common shares outstanding – Diluted1,1431,2291,154
Earnings per share
Basic$5.67$12.27$4.67
Diluted5.5111.514.41

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 ended201920182017
Equity plans8321
Convertible notes——26

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 client, cloud server, enterprise, 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 storage markets as well as 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 29, 2019 and August 30, 2018, CNBU, MBU, SBU, and EBU had goodwill of $832 million, $198 million, $101 million, and $97 million, respectively.

For the year ended201920182017
Revenue
CNBU$9,968$15,252$8,624
MBU6,4036,5794,424
SBU3,8265,0224,514
EBU3,1373,4792,695
All Other725965
$23,406$30,391$20,322
Operating income (loss)
CNBU$4,645$9,773$3,755
MBU2,6063,033927
SBU(386)964552
EBU9231,473975
All Other13—23
7,80115,2436,232
Unallocated
Stock-based compensation(243)(198)(215)
Employee severance(116)——
Start-up and preproduction costs(58)——
Restructure and asset impairments32(28)(18)
Flow-through of Inotera inventory step up——(107)
Other(40)(23)(24)
(425)(249)(364)
Operating income$7,376$14,994$5,868

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

For the year ended201920182017
CNBU$1,833$1,755$1,344
MBU1,2351,077926
SBU1,5551,2951,083
EBU748603484
All Other271813
Unallocated261111
$5,424$4,759$3,861

Certain Concentrations

Markets with concentrations of revenue were approximately as follows:

For the year ended201920182017
Mobile25%20%20%
Client and graphics20%25%20%
Enterprise and cloud server20%25%15%
SSDs and other storage15%15%20%
Automotive, industrial, and consumer15%10%15%

Revenue from Huawei Technologies Co. Ltd. was 12% of total revenue for 2019. Revenue from Kingston Technology Company, Inc. was 11% of total revenue for 2019 and 10% of total revenue for 2018 and 2017. No other customer exceeded 10% of our total revenue. Our sales to Huawei were included in our MBU, CNBU, SBU, and EBU segments and our sales to Kingston were included in our CNBU, MBU, and SBU 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. 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

Revenue based on the geographic location of our customer's headquarters was as follows:

For the year ended201920182017
United States$12,451$17,116$11,359
Mainland China (excluding Hong Kong)3,5953,6071,539
Taiwan2,7033,9182,892
Hong Kong1,6141,7611,429
Other Asia Pacific1,0321,4581,078
Japan9581,2651,042
Other1,0531,266983
$23,406$30,391$20,322

We ship our products to locations specified by our customers and, as a result, customers may have headquarters in one location with global supply chain and operations in other locations. Our customers may request we deliver products to countries where they own or operate production facilities or to countries where they utilize third-party subcontractors or warehouses. Based on the ship-to locations specified by our customers, revenue from sales into China (including Hong Kong) accounted for 53%, 57%, and 51% of total revenue in 2019, 2018, and 2017, respectively; revenue from sales into Taiwan accounted for 13%, 9%, and 13% of total revenue in 2019, 2018, and 2017, respectively; and revenue from sales into the United States accounted for 11%, 12%, and 14% of total revenue in 2019, 2018, and 2017, respectively.

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

As of20192018
Taiwan$9,397$7,640
Singapore7,9866,933
Japan5,2023,451
United States5,0485,113
China370398
Other237137
$28,240$23,672

Quarterly Financial Information (Unaudited)

(in millions, except per share amounts)

2019Fourth QuarterThird QuarterSecond QuarterFirst Quarter
Revenue$4,870$4,788$5,835$7,913
Gross margin1,3951,8282,8644,615
Operating income6501,0101,9573,759
Net income5868511,6253,296
Net income attributable to Micron5618401,6193,293
Earnings per share
Basic$0.51$0.76$1.45$2.91
Diluted0.490.741.422.81
2018Fourth QuarterThird QuarterSecond QuarterFirst Quarter
Revenue$8,440$7,797$7,351$6,803
Gross margin5,1514,7234,2703,747
Operating income4,3773,9533,5673,097
Net income4,3263,8233,3112,678
Net income attributable to Micron4,3253,8233,3092,678
Earnings per share
Basic$3.73$3.30$2.86$2.36
Diluted3.563.102.672.19

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 (the "Company") as of August 29, 2019 and August 30, 2018, and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended August 29, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended August 29, 2019 as listed in the index 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 29, 2019, 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 29, 2019 and August 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended August 29, 2019 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 29, 2019, 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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Inventories (Finished goods and Work in process)

As described in the Significant Accounting Policies and Inventories notes to the consolidated financial statements, determining the net realizable value of the Company's net inventories involves significant judgments, including projecting future average selling prices and future sales volumes. As of August 29, 2019, the Company had a net inventory balance for finished goods and work in process inventory totaling approximately $4.6 billion.

The principal considerations for our determination that performing procedures relating to the valuation of finished goods and work in process inventories is a critical audit matter are the valuation involved the application of significant judgment on the part of management, which in turn led to significant judgment, subjectivity and effort in performing our audit procedures over the reasonableness of the significant assumptions used to estimate net realizable value of its finished goods and work in process inventories, including future average selling prices and future sales volumes.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company's estimate of net realizable value of its finished goods and work in process inventories, significant assumptions, and data used to value its inventories. These procedures also included, among others, testing management's process for developing the net realizable value estimate of its finished goods and work in process inventories; evaluating the appropriateness of the Company's estimated net realizable value methodology; testing the completeness, accuracy, and relevance of underlying data used in the estimate of net realizable value of its finished goods and work in process inventories; and evaluating the reasonableness of management's assumptions, including future average selling prices and future sales volumes. Evaluating management's assumptions related to future average selling prices and future sales volumes involved evaluating whether the assumptions used by management were reasonable considering (i) current and past results, including recent sales, (ii) the consistency with external market, industry data and current contract prices, (iii) a comparison of the prior year estimates to actual results in the current year, and (iv) and whether these assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

San Jose, California

October 17, 2019

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

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