UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One) 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 2,December 1, 2016

OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to

Commission file number 1-10658

Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware75-1618004
(State or other jurisdiction of(IRS Employer Identification No.)
incorporation or organization) 
  
8000 S. Federal Way, Boise, Idaho83716-9632
(Address of principal executive offices)(Zip Code)
  
Registrant's telephone number, including area code(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company o

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

The number of outstanding shares of the registrant's common stock as of June 30, 2016,January 3, 2017, was 1,038,390,543.1,102,751,846.

     


Definitions of Commonly Used Terms

As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and itsour consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:

Term Definition Term Definition
2021 Notes2.00% Convertible Senior Notes due 2021MCPMulti-Chip Package
2022 Term Loan B Senior Secured Term Loan B due 2022 Micron Micron Technology, Inc. (Parent Company)
2023 Secured Notes7.500% Senior Secured Notes due 2023MLCMulti-Level Cell
2031B Notes1.875% Convertible Senior Notes due 2031MMJMicron Memory Japan, Inc.
2032 Notes 2032C and 2032D Notes MMJ CompaniesMSTW MAI and MMJMicron Semiconductor Taiwan Co., Ltd.
2032C Notes 2.375% Convertible Senior Notes due 2032 MMJ Group MMJ and its subsidiariesMicron Memory Japan, Inc.
2032D Notes 3.125% Convertible Senior Notes due 2032 MMTMMJ Companies Micron Memory Taiwan Co., Ltd.MAI and MMJ
2033 Notes 2033E and 2033F Notes MP MaskMMJ Group MP Mask Technology Center, LLCMMJ and its subsidiaries
2033E Notes 1.625% Convertible Senior Notes due 2033 NanyaMMT Nanya Technology CorporationMicron Memory Taiwan Co., Ltd.
2033F Notes 2.125% Convertible Senior Notes due 2033 PhotronicsNanya Photronics, Inc.Nanya Technology Corporation
2043G Notes 3.00% Convertible Senior Notes due 2043 Qimonda Qimonda AG
Elpida Elpida Memory, Inc. R&D Research and Development
IMFT IM Flash Technologies, LLC SG&A Selling, General, and Administration
Inotera Inotera Memories, Inc. SSD Solid-State Drive
Intel Intel Corporation Tera ProbeTAIBOR Tera Probe, Inc.Taipei Interbank Offered Rate
Japan Court Tokyo District Court TLCTera Probe Triple-Level CellTera Probe, Inc.
MAI Micron Akita, Inc. VIE Variable Interest Entity
MCPMulti-Chip Package


Additional Information

Micron, Lexar, Crucial, SpecTek, Elpida, JumpDrive, any associated logos, and all other of ourMicron trademarks are the property of Micron. 3D XPoint is a trademark of Intel in the U.S. and/or other countries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarks of their respective owners.



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)

 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Quarter ended December 1,
2016		 December 3,
2015
Net sales $2,898
 $3,853
 $9,182
 $12,592
 $3,970
 $3,350
Cost of goods sold 2,400
 2,651
 7,256
 8,347
 2,959
 2,501
Gross margin 498
 1,202
 1,926
 4,245
 1,011
 849
            
Selling, general, and administrative 148
 169
 502
 549
 159
 179
Research and development 382
 406
 1,206
 1,161
 470
 421
Restructure and asset impairments 29
 15
Other operating (income) expense, net (5) (4) 18
 (36) (6) 2
Operating income (loss) (27) 631
 200
 2,571
Operating income 359
 232
            
Interest income 10
 9
 33
 24
 7
 11
Interest expense (109) (97) (302) (270) (139) (96)
Other non-operating income (expense), net (34) (16) (44) (71) (14) (4)
 (160) 527
 (113) 2,254
 213
 143
            
Income tax (provision) benefit (15) (104) (16) (226) (31) 4
Equity in net income (loss) of equity method investees (40) 68
 24
 400
 (2) 59
Net income (loss) (215) 491
 (105) 2,428
Net income 180
 206
Net income attributable to noncontrolling interests —
 —
Net income attributable to Micron $180
 $206
            
Net (income) loss attributable to noncontrolling interests —
 —
 (1) —
Net income (loss) attributable to Micron $(215) $491
 $(106) $2,428
        
Earnings (loss) per share:  
  
    
Earnings per share  
  
Basic $(0.21) $0.46
 $(0.10) $2.26
 $0.17
 $0.20
Diluted (0.21) 0.42
 (0.10) 2.05
 0.16
 0.19
            
Number of shares used in per share calculations:        
Number of shares used in per share calculations    
Basic 1,036
 1,073
 1,035
 1,072
 1,040
 1,035
Diluted 1,036
 1,170
 1,035
 1,185
 1,091
 1,085











See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)

 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Net income (loss) $(215) $491
 $(105) $2,428
Quarter ended December 1,
2016		 December 3,
2015
Net income $180
 $206
            
Other comprehensive income (loss), net of tax            
Foreign currency translation adjustments 39
 17
 (50) (57) 37
 (90)
Gain (loss) on investments, net 4
 (2) 2
 (3)
Gain (loss) on derivatives, net 3
 (1) 2
 (19) (7) (4)
Pension liability adjustments —
 1
 (5) 19
 (1) (6)
Gain (loss) on investments, net (1) (3)
Other comprehensive income (loss) 46
 15
 (51) (60) 28
 (103)
Total comprehensive income (loss) (169) 506
 (156) 2,368
Comprehensive (income) loss attributable to noncontrolling interests —
 —
 (1) 1
Comprehensive income (loss) attributable to Micron $(169) $506
 $(157) $2,369
    
Total comprehensive income 208
 103
Comprehensive (income) attributable to noncontrolling interests —
 —
Comprehensive income attributable to Micron $208
 $103



































See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
(Unaudited)

As of June 2,
2016		 September 3,
2015		 December 1,
2016		 September 1,
2016
Assets        
Cash and equivalents $4,627
 $2,287
 $4,139
 $4,140
Short-term investments 354
 1,234
 30
 258
Receivables 2,073
 2,507
 2,453
 2,068
Inventories 2,920
 2,340
 2,750
 2,889
Other current assets 136
 228
 132
 140
Total current assets 10,110
 8,596
 9,504
 9,495
Long-term marketable investments 671
 2,113
 155
 414
Property, plant, and equipment, net 13,209
 10,554
 15,321
 14,686
Equity method investments 1,361
 1,379
 1,401
 1,364
Intangible assets, net 491
 449
 445
 464
Deferred tax assets 631
 597
 599
 657
Other noncurrent assets 528
 455
 411
 460
Total assets $27,001
 $24,143
 $27,836
 $27,540
        
Liabilities and equity        
Accounts payable and accrued expenses $3,599
 $2,611
 $4,155
 $3,879
Deferred income 189
 205
 236
 200
Current debt 712
 1,089
 1,155
 756
Total current liabilities 4,500
 3,905
 5,546
 4,835
Long-term debt 8,919
 6,252
 8,490
 9,154
Other noncurrent liabilities 548
 698
 601
 623
Total liabilities 13,967
 10,855
 14,637
 14,612
        
Commitments and contingencies 

 

 

 

        
Redeemable convertible notes —
 49
 31
 —
        
Micron shareholders' equity        
Common stock, $0.10 par value, 3,000 shares authorized; 1,091 shares issued and outstanding (1,084 as of September 3, 2015) 109
 108
Common stock, $0.10 par value, 3,000 shares authorized, 1,098 shares issued and outstanding (1,094 as of September 1, 2016) 110
 109
Additional capital 7,675
 7,474
 7,777
 7,736
Retained earnings 5,470
 5,588
 5,469
 5,299
Treasury stock, 54 shares held (45 as of September 3, 2015) (1,029) (881)
Accumulated other comprehensive income (loss) (38) 13
Treasury stock, 54 shares held (54 as of September 1, 2016) (1,029) (1,029)
Accumulated other comprehensive (loss) (7) (35)
Total Micron shareholders' equity 12,187
 12,302
 12,320
 12,080
Noncontrolling interests in subsidiaries 847
 937
 848
 848
Total equity 13,034
 13,239
 13,168
 12,928
Total liabilities and equity $27,001
 $24,143
 $27,836
 $27,540




See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)

Nine months ended June 2,
2016		 June 4,
2015
Quarter ended December 1,
2016		 December 3,
2015
Cash flows from operating activities        
Net income (loss) $(105) $2,428
Adjustments to reconcile net income (loss) to net cash provided by operating activities  
  
Net income $180
 $206
Adjustments to reconcile net income to net cash provided by operating activities  
  
Depreciation expense and amortization of intangible assets 2,266
 1,957
 771
 737
Amortization of debt discount and other costs 94
 105
 32
 33
Stock-based compensation 148
 127
 46
 46
Loss on restructure of debt 4
 48
Equity in net income of equity method investees (24) (400)
Equity in net (income) loss of equity method investees 2
 (59)
Change in operating assets and liabilities  
  
  
  
Receivables 468
 337
 (401) 297
Inventories (580) 75
 139
 (95)
Accounts payable and accrued expenses 3
 (533) 299
 2
Deferred income taxes, net 11
 248
 64
 (1)
Other (13) (214) 6
 (46)
Net cash provided by operating activities 2,272
 4,178
 1,138
 1,120
        
Cash flows from investing activities  
  
  
  
Expenditures for property, plant, and equipment (3,894) (2,256) (1,264) (990)
Payments to settle hedging activities (173) (46)
Purchases of available-for-sale securities (879) (3,809) (84) (510)
Payments to settle hedging activities (107) (94)
Proceeds from sales and maturities of available-for-sale securities 3,189
 1,386
 567
 1,044
Proceeds from settlement of hedging activities 190
 10
Other (141) 41
 64
 (158)
Net cash provided by (used for) investing activities (1,642) (4,722) (890) (660)
        
Cash flows from financing activities  
  
  
  
Repayments of debt (188) (197)
Payments on equipment purchase contracts (24) —
Cash paid to acquire treasury stock (13) (135)
Proceeds from issuance of stock under equity plans 29
 15
Proceeds from issuance of debt 2,166
 2,172
 16
 174
Proceeds from equipment sale-leaseback transactions 538
 291
Contributions from noncontrolling interests 37
 102
 —
 37
Proceeds from issuance of stock under equity plans 30
 64
Repayments of debt (689) (2,051)
Cash paid to acquire treasury stock (147) (245)
Acquisition of noncontrolling interests (93) —
Other (139) (118) (32) (34)
Net cash provided by (used for) financing activities 1,703
 215
 (212) (140)
        
Effect of changes in currency exchange rates on cash and equivalents 7
 (127) (37) (2)
        
Net increase (decrease) in cash and equivalents 2,340
 (456) (1) 318
Cash and equivalents at beginning of period 2,287
 4,150
 4,140
 2,287
Cash and equivalents at end of period $4,627
 $3,694
 $4,139
 $2,605









See accompanying notes to consolidated financial statements.


MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
(Unaudited)

Business and Basis of Presentation

We are a global leader in advanced semiconductor systems. Our broad portfolio of high-performance memory technologies, including DRAM, NAND Flash, and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded, and automotive applications. The accompanying consolidated financial statements include the accounts of Micron and itsour consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended September 3, 2015.1, 2016. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal yearyears 2017 and 2016 containseach contain 52 weeks and fiscal year 2015 contained 53 weeks. The first quarter of 53-week years contains 14 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended September 3, 2015.1, 2016.


Variable Interest Entities

We have interests in entities that are VIEs. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgments.

Unconsolidated VIEs

Inotera:Prior to our acquisition of the remaining interest in Inotera ison December 6, 2016, Inotera was a VIE because of the terms of its supply agreement with us. We havehad determined that we dodid not have the power to direct the activities of Inotera that most significantly impactimpacted its economic performance, primarily due to limitations on our governance rights that requirerequired the consent of other parties for key operating decisions and due to Inotera's dependence on Nanya for financing and the ability of Inotera to operate in Taiwan. Therefore, we dodid not consolidate Inotera and we accountaccounted for our interest under the equity method. (See "Equity Method Investments – Inotera" note.)

EQUVO: EQUVO HK Limited ("EQUVO") is a special purpose entity created to facilitate an equipment sale-leaseback financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities have an equity interest in EQUVO. EQUVO is a VIE because its equity is not sufficient to permit it to finance its activities without additional support from the financing entities and because the third-party equity holder lacks characteristics of a controlling financial interest. By design, the arrangement with EQUVO is merely a financing vehicle and we do not bear any significant risks from variable interests with EQUVO. Therefore, we have determined that we do not have the power to direct the activities of EQUVO that most significantly impact its economic performance and we do not consolidate EQUVO.

SC Hiroshima Energy Corporation:SC Hiroshima Energy Corporation ("SCHE") is an entity created to construct and operate a cogeneration, electrical power plant to support our wafer manufacturing facility in Hiroshima, Japan. We do not have an equity interest in SCHE. SCHE is a VIE due to the nature of its tolling agreements with us and our option to purchase SCHE's assets. We do not control the operation and maintenance of the plant, which we have determined are the activities of SCHE that most significantly impact its economic performance. Therefore, we do not consolidate SCHE.



PTI Xi'an:Powertech Technology Inc. Xi'an ("PTI Xi'an") is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to provide assembly services to us at our manufacturing site in Xi'an, China. We do not have an equity interest in PTI Xi'an. PTI Xi'an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We have determined that we do not have the power to direct the activities of PTI Xi'an that most significantly impact its economic performance, primarily because we have no governance rights. Therefore, we do not consolidate PTI Xi'an.

Consolidated VIEsVIE

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. In addition, IMFT manufactures certain products exclusively for us using our technology. 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.

MP Mask: On May 5, 2016, we acquired all of the remaining interest of MP Mask from its other member, Photronics. Prior to May 5, 2016, we consolidated MP Mask because we had the power to direct the activities of MP Mask that most significantly impacted its economic performance and because we had the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially have been significant to it.

(See (See "Equity – Noncontrolling Interests in Subsidiaries"Subsidiaries – IMFT" note.)


Recently Adopted Accounting Standards

In November 2015,March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-172016-09 – – Balance Sheet ClassificationImprovements to Employee Share-Based Payment Accounting, which simplified several aspects of Deferred Taxes, which eliminated the requirement to present deferredaccounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, forfeitures, and assets as current and noncurrent in a classified balance sheet.classification within the statement of cash flows. We adopted this ASU as of the beginning of our secondfirst quarter of 20162017 and elected to account for forfeitures when they occur, on a prospective basis and did not retrospectively adjust prior periods.modified retrospective basis. As a result of adoptingthe adoption of this standard,ASU, we presented ourrecognized deferred tax assets of $325 million for the excess tax benefits that arose directly from tax deductions related to equity compensation greater than amounts recognized for financial reporting and liabilitiesalso recognized an increase of an equal amount in the valuation allowance against those deferred tax assets. The adoption did not have any other material impacts on our financial statements.

In April 2015, the FASB issued ASU 2015-05 – Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provided additional guidance to customers about whether a cloud computing arrangement included a software license. Under ASU 2015-05, cloud computing arrangements that contain a software license should be accounted for in a manner consistent with the acquisition of other software licenses, otherwise customers should account for the arrangement as noncurrent.a service contract. ASU 2015-05 also removed the requirement to analogize to ASC 840-10 – Leases, to determine the asset acquired in a software licensing arrangement. We adopted this ASU as of the beginning of our first quarter of 2017 on a prospective basis. The adoption of this standardASU did not have a material impact on our financial statements.

In SeptemberFebruary 2015, the FASB issued ASU 2015-162015-02 – Amendments to the Consolidation Analysis, which amended the consolidation requirements in Accounting Standards Codification 810 – SimplifyingConsolidation. ASU 2015-02 made targeted amendments to the Accountingconsolidation guidance for Measurement-Period Adjustments, which eliminated the requirement to restate prior period financial statements for measurement period adjustments following a business combination. Instead, the cumulative impact of measurement period adjustments, including the impact on prior periods, is required to be recognized in the reporting period in which the adjustment is identified.VIEs. We adopted this ASU inas of the beginning of our secondfirst quarter of 2016 on2017 under a prospective basis.modified-retrospective approach. The adoption of this standardASU did not have a materialan impact on our financial statements.


Recently Issued Accounting Standards

In November 2016, the FASB issued ASU 2016-18 – Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This ASU will be effective for us beginning in our first quarter of 2019 with early adoption permitted and requires retrospective adoption. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.

In October 2016, the FASB issued ASU 2016-16 – Intra-Entity Transfers Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU will be effective for us beginning in our first quarter of 2019 with early adoption permitted and requires modified retrospective adoption. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.



In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as 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. We are required to adopt this ASU beginning in our first quarter of 2021; however, we are permitted to adopt this ASU as early as our first quarter of 2020. This ASU is required to be adopted using a modified retrospective approach, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
In February 2016, the FASB issued ASU 2016-02 – –Leases, which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. This ASU will be effective for us beginning in our first quarter of 2020 andwith early adoption is permitted.  This ASUpermitted and is required to be adopted using a modified retrospective approach. We are evaluating the timing of our adoption and the effects of theour adoption of this ASU on our financial statements.

In January 2016, the FASB issued ASU 2016-01 – –Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for us beginning in our first quarter of 2019 and requires modified-retrospectivemodified retrospective adoption. We are evaluating the effects of the adoption of this ASU on our financial statements.



In April 2015, the FASB issued ASU 2015-05 – Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under ASU 2015-05, if a cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. ASU 2015-05 also removes the requirement to analogize to ASC 840-10 –Leases, to determine the asset acquired in a software licensing arrangement. This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted.  This ASU allows for either prospective or retrospective adoption. We are evaluating the timing and method of our adoption and the effects of the adoption of this ASU on our financial statements.

In February 2015, the FASB issued ASU 2015-02 – Amendments to the Consolidation Analysis, which amends the consolidation requirements in Accounting Standards Codification 810 –Consolidation.  ASU 2015-02 makes targeted amendments to the consolidation guidance for VIEs, which could change consolidation conclusions.  This ASU will be effective for us beginning in our first quarter of 2017 and early adoption is permitted.  This ASU allows for either retrospective or modified-retrospective adoption. We are evaluating the timing and method of our adoption and the effects of the adoption of this ASU on our financial statements.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the U.S. The core principal of this ASU, as amended, is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We are required to adopt this ASU beginning in our first quarter of 2019; however, we are permitted to adopt this ASU as early as our first quarter of 2018. This ASU allows for either full-retrospectivefull retrospective or modified-retrospectivemodified retrospective adoption. We expect that, as a result of the adoption of this ASU, the timing of recognizing revenue from sales of products to our distributors will be generally earlier than under the existing revenue recognition guidance. We are evaluating the timing, method, and methodeffects of our adoption and the effects of the adoption of this ASU on our financial statements.


Proposed Acquisition of Inotera

InOn December 6, 2016, subsequent to the secondend of our first quarter of 2016,2017, we entered into agreements to acquireacquired the remaining67% interest in Inotera not owned by us for 30 New Taiwan dollars per sharean aggregate of $4.1 billion in cash (equivalent(the "Inotera Acquisition"), funded with proceeds from the 2021 Term Loan (defined below), the sale of shares of our common stock to approximately $0.92 per share, assuming 32.6 New Taiwan dollars per U.S. dollar, the exchange rate as of June 2, 2016). As of June 2,Nanya, and cash on hand. Prior to December 6, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. Based on

Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and sold such products exclusively to us through supply agreements. As a result of the exchange rate asInotera Acquisition, we expect to experience greater operational flexibility to drive new technology in products manufactured by Inotera, optimize the deployment of June 2, 2016, we estimate the aggregatecash flows of Inotera across our operations, and enhance our ability to adapt our product offerings to changes in market conditions.

We are evaluating the fair values of the accounting consideration payabletransferred, assets acquired, and liabilities assumed. Our accounting for the 67%Inotera Acquisition will include the fair value of our previously-held noncontrolling equity interest in Inotera shares not owned by us would be approximately $4.1 billion. We anticipate financing the acquisition with a combination of proceeds from the 80 billion New Taiwan dollar debt financing described below, a combination of issuance of Micron Shares and convertible notes to Nanya described below, additional borrowings under our existing credit agreement, and cash on hand.

On March 29, 2016, the transaction was approved by the shareholders of Inotera, including Nanya and certain of Nanya's affiliates (which approval was provided pursuant to voting and support agreements). Under the voting and support agreements, the parties have further agreed not to transfer any of their Inotera shares so long as the voting and support agreements are in effect. These agreements will terminate automatically upon the termination of the agreement to purchase the Inotera shares.

Consummation of the acquisition date as consideration, which differs from the per share amount paid to acquire the controlling interest in Inotera. We will recognize a gain or loss to the extent of the difference between the fair value and the carrying value as of the acquisition date. We expect to complete the provisional purchase price allocation for the Inotera is subject to various conditions, including but not limited to:Acquisition in our second quarter of 2017.

the receipt of necessary regulatory approvals from authorities in Taiwan, which have been received;
the consummation and funding of debt financing of at least


Acquisition Financing

2021 Term Loan: On December 6, 2016, we drew 80 billion New Taiwan dollars (equivalent to $2.5 billion) under a collateralized, five-year term loan that bears interest at a variable rate equal to the three-month or six-month TAIBOR, at our option, plus a margin of 2.05% per annum (the "2021 Term Loan"). Principal under the 2021 Term Loan is payable in six equal semi-annual installments, commencing in June 2019, through December 2021. The 2021 Term Loan is collateralized by certain assets including a real estate mortgage on Inotera's main production facility and site, a chattel mortgage over certain equipment of Inotera, all of the stock of our MSTW subsidiary, and the 82% of stock of Inotera owned by MSTW.

The 2021 Term Loan contains affirmative and negative covenants, including covenants that limit or restrict our ability to create liens in or dispose of collateral securing obligations under the 2021 Term Loan, mergers involving MSTW and/or Inotera, loans or guarantees to third parties by Inotera and/or MSTW, and MSTW's distribution of cash dividends (subject to satisfaction of certain financial conditions). The 2021 Term Loan also contains financial covenants as follows, which are tested semi-annually:

MSTW must maintain a consolidated ratio of total debt to adjusted EBITDA not higher than 5.5x in 2017 and 2018, and not higher than 4.5x in 2019 through 2021;
MSTW must maintain adjusted consolidated tangible net worth of not less than 4.0 billion assuming 32.6 New Taiwan dollars per U.S. dollar), (equivalent to $125 million) in 2017 and 2018, not less than 6.5 billion New Taiwan dollars (equivalent to $203 million) in 2019 and 2020, and not less than 12.0 billion New Taiwan dollars (equivalent to $374 million) in 2021;
on terms that are satisfactorya consolidated basis, we must maintain a ratio of total debt to us;adjusted EBITDA not higher than 3.5x in 2017, not higher than 3.0x in 2018 and 2019, and not higher than 2.5x in 2020 and 2021; and
unlesson a consolidated basis, we determine otherwise, the consummationmust maintain adjusted tangible net worth not less than $9.0 billion in 2017, not less than $12.5 billion in 2018 and funding of the Private Placement (described below).2019, and not less than $16.5 billion in 2020 and 2021.

If one or more of the required financial ratios is not maintained at the time the ratios are tested, the interest rate will be increased by 0.25% until such time as the required financial ratios are maintained. In addition, the agreementif MSTW fails to acquire the Inotera shares contains certain termination rights, including but not limited to termination by either us or Inotera if we have not completed the purchasemaintain a required financial ratio for two consecutive semi-annual periods, such failure will constitute an event of the remaining shares of Inotera by November 30, 2016.



The date for the closing of the Inotera transaction is not determinable at this time. Consummation of the Inotera transaction is subject to significant uncertainties and there can be no assurancedefault that the Inotera transaction will be consummated.

Issuance of Micron Shares and Convertible Notes to Nanya

In the second and third quarters of 2016, we entered into agreements with Nanya pursuant to which we have the option to issue a combination of shares of our common stock (the "Micron Shares") and 2.00% convertible senior notes due 2021 (the "2021 Convertible Notes") to Nanya, which is subject to regulatory approvals and various other conditions. The issuance of the Micron Shares orcould result in all obligations owed under the 2021 Convertible Notes is subjectTerm Loan being accelerated to be immediately due and payable. Our failure to maintain a required consolidated financial ratio will only result in an increase to the consummationinterest rate and will not constitute an event of the Inotera acquisitiondefault. The 2021 Term Loan also contains customary events of default and the proceeds would be used to fund a portion of the consideration payable in the Inotera acquisition.is guaranteed by Micron.

Micron Shares: We haveIn connection with the option to issue Micron Shares in an amount equivalent to up to 31.5 billion New Taiwan dollars (equivalent to $964 million, assuming 32.6 New Taiwan dollars per U.S. dollar) (the "Private Placement"), which would be used to fund a portion of the consideration for the transaction. The per-share selling price for the Micron Shares would be equalInotera Acquisition, subsequent to the greaterend of the New Taiwan dollar equivalentour first quarter of (i) the average of the closing sale price2017, we sold 58 million shares of our common stock during the 30 consecutive trading day period ending on and including the 30th trading day prior to the consummationNanya for $981 million (the "Micron Shares"), of which 54 million were issued from treasury stock. The sale of the Micron Shares was exempt from the registration requirements of the Securities Act of 1933, as amended, and the Micron Shares are subject to certain restrictions on transfers. Our accounting for the Inotera Acquisition will include the fair value of the Micron Shares as of the acquisition or (ii) $10.00.date as consideration.

2021 Convertible Notes: We have the option to issue up to 12.6 billion New Taiwan dollars (equivalent to $386 million, assuming 32.6 New Taiwan dollars per U.S. dollar) in lieu of a corresponding value of Micron Shares so long as we also issue Micron Shares to Nanya of at least 6.3 billion New Taiwan dollars (equivalent to $193 million) pursuant to the Private Placement.


Technology Transfer and License Agreements with Nanya

InBeginning effective December 6, 2016, under the second quarterterms of 2016, we entered into technology transfer and license agreements, pursuant to which Nanya has the optionoptions to require us to transfer to Nanya for Nanya's use certain technology and deliverables related to the next DRAM process node generation (the "1X Process Node") after our 20nm process node (the "1X Process Node") and the next DRAM process node generation after the 1X Process Node for Nanya's use.Node. Under the terms of the agreements, Nanya would pay royalties to us for a license to the transferred technologytechnologies based on revenues from products implementingutilizing the technology,technologies, subject to an agreed cap,specified caps, and we would also receive an equity interest in Nanya upon the achievement of certain milestones. Nanya's option becomes exercisable upon the closing of the Inotera acquisition transaction.












Cash and Investments

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

As of June 2, 2016 September 3, 2015 December 1, 2016 September 1, 2016
 Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(3)
 Total Fair Value Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(3)
 Total Fair Value Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(1)
 Total Fair Value Cash and Equivalents Short-term Investments 
Long-term Marketable Investments(1)
 Total Fair Value
Cash $2,067
 $—
 $—
 $2,067
 $1,684
 $—
 $—
 $1,684
 $3,923
 $—
 $—
 $3,923
 $2,258
 $—
 $—
 $2,258
Level 1(1)(2)
                                
Money market funds 2,255
 —
 —
 2,255
 168
 —
 —
 168
 82
 —
 —
 82
 1,507
 —
 —
 1,507
Level 2(2)(3)
                                
Certificates of deposit 134
 3
 —
 137
 373
 33
 —
 406
Corporate bonds —
 245
 393
 638
 2
 616
 1,261
 1,879
 —
 14
 71
 85
 —
 142
 235
 377
Certificates of deposit 298
 6
 3
 307
 311
 28
 23
 362
Government securities —
 13
 63
 76
 2
 62
 82
 146
Asset-backed securities —
 5
 186
 191
 —
 8
 575
 583
 —
 —
 21
 21
 —
 12
 97
 109
Government securities 5
 88
 89
 182
 58
 391
 254
 703
Commercial paper 2
 10
 —
 12
 64
 191
 —
 255
 —
 —
 —
 —
 —
 9
 —
 9
 $4,627
 $354
 $671
 $5,652
 $2,287
 $1,234
 $2,113
 $5,634
 $4,139
 $30
 $155
 $4,324
 $4,140
 $258
 $414
 $4,812
(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.
(2)(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 such pricing information as of June 2,December 1, 2016.
(3)
The maturities of long-term marketable investments range from one to four years.

Proceeds from sales of available-for-sale securities for the first quarters of 2017 and 2016 were $902$512 million and $1.89 billion for the third quarter and first nine months of 2016, respectively, and $562$407 million, and $938 million for the third quarter and first nine months of 2015, respectively. Gross realized gains and losses from sales of available-for-sale securities were not significantmaterial for any period presented. As of June 2,December 1, 2016, there were no available-for-sale securities that had been in a loss position for longer than 12 months. As of December 1, 2016 and September 1, 2016, we also had certificates of deposit classified as restricted cash (included in other noncurrent assets) of $2 million and $59 million, respectively, valued using Level 2 fair value measurements.


Receivables

As of June 2,
2016		 September 3,
2015		 December 1,
2016		 September 1,
2016
Trade receivables $1,752
 $2,188
 $2,162
 $1,765
Income and other taxes 130
 116
 135
 119
Other 191
 203
 156
 184
 $2,073
 $2,507
 $2,453
 $2,068

As of June 2,December 1, 2016 and September 3, 20151, 2016, other receivables included $7058 million and $12053 million, respectively, due from Intel for amounts related to product design and process development activities under cost-sharing agreements for NAND Flash memory and 3D XPointTM memory.  (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)








Inventories

As of June 2,
2016		 September 3,
2015		 December 1,
2016		 September 1,
2016
Finished goods $857
 $785
 $787
 $899
Work in process 1,813
 1,315
 1,722
 1,761
Raw materials and supplies 250
 240
 241
 229
 $2,920
 $2,340
 $2,750
 $2,889


Property, Plant, and Equipment

 September 3,
2015		 Additions Retirements and Other June 2,
2016
As of September 1,
2016		 Additions Retirements and Other December 1,
2016
Land $88
 $—
 $—
 $88
 $145
 $3
 $(3) $145
Buildings 5,358
 928
 (25) 6,261
 6,653
 183
 (8) 6,828
Equipment(1)
 21,020
 3,732
 (499) 24,253
 25,910
 1,282
 (96) 27,096
Construction in progress(2)
 436
 208
 (34) 610
 475
 (90) 3
 388
Software 373
 30
 (1) 402
 422
 6
 —
 428
 27,275
 4,898
 (559) 31,614
 33,605
 1,384
 (104) 34,885
Accumulated depreciation (16,721) (2,176) 492
 (18,405) (18,919) (744) 99
 (19,564)
 $10,554
 $2,722
 $(67) $13,209
 $14,686
 $640
 $(5) $15,321
(1) 
Included costs related to equipment not placed into service of $1.98$1.11 billion and $928 million$1.47 billion as of June 2,December 1, 2016 and September 3, 2015,1, 2016, respectively.
(2) 
Included building-related construction and tool installation costs for assets not placed into service.

Depreciation expense was $725$744 million and $2.18 billion for the third quarter and first nine months of 2016, respectively, and $644 million and $1.87 billion706 million for the third quarter and first nine monthsquarters of 20152017 and 2016, respectively.


Equity Method Investments

As of June 2, 2016 September 3, 2015
  Investment Balance Ownership Percentage Investment Balance Ownership Percentage
Inotera(1)
 $1,321
 33% $1,332
 33%
Tera Probe 26
 40% 38
 40%
Other 14
 Various
 9
 Various
  $1,361
  
 $1,379
  
(1) Entity is a variable interest entity.
As of December 1, 2016 September 1, 2016
  Investment Balance Ownership Percentage Investment Balance Ownership Percentage
Inotera $1,360
 33% $1,314
 33%
Tera Probe 25
 40% 36
 40%
Other 16
 Various
 14
 Various
  $1,401
  
 $1,364
  

As of June 2, 2016, substantially all of our maximum exposure to loss from our VIEs that were not consolidated was the $1.32 billion carrying value of our investment in Inotera.  We may also incur losses in connection with our rights and obligations to purchase all of Inotera's wafer production capacity under our supply agreement with Inotera.



We recognize our share of earnings or losses from our equity method investees generally on a two-month lag.  Included in our share of earnings for the first nine months of 2015 was $55 million related to Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent periods. Equity in net income (loss) of equity method investees, net of tax, included the following:

 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Quarter ended December 1,
2016		 December 3,
2015
Inotera $(19) $67
 $35
 $402
 $9
 $52
Tera Probe (22) 3
 (16) (3) (12) 3
Other 1
 (2) 5
 1
 1
 4
 $(40) $68
 $24
 $400
 $(2) $59






Inotera

We have partnered with Nanya in Inotera, a Taiwan DRAM memory company, since 2009.  Inthrough December 6, 2016, at which time we acquired the second quarter of 2016, we entered into agreements to acquire the remaining 67% interest in Inotera. As a result, we will consolidate Inotera's operating results beginning December 6, 2016. (See "Proposed Acquisition"Acquisition of Inotera" note.)

As of June 2,December 1, 2016, the market value of our equity interest in Inotera was $1.93$2.00 billion based on the closing trading price of 29.3529.80 New Taiwan dollars per share in an active market. As of June 2,December 1, 2016 and September 3, 2015,1, 2016, there were losses of $41$9 million and gains of $13$44 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera.

From January 2013 through December 2015, we purchased all of Inotera's DRAM output under a supply agreementagreements at prices reflecting discounts from market prices for our comparable components. Effective beginning on January 1, 2016,After December 2015, the price for DRAM products sold topurchased by us iswas based on a formula that equally sharesshared margin between Inotera and us. We purchased $348$504 million and $1.05 billion$379 million of DRAM products from Inotera in the third quarterfirst quarters of 2017 and first nine months of 2016 respectively, and $533 million and $1.89 billion in the third quarter and first nine months of 2015,, respectively. The supply agreement with Inotera (as extended in December 2015) has an initial three-year term, followed by a three-year wind-down period. Upon termination of the initial three-year term, the share of Inotera's capacity we would purchase would decline over the wind-down period.

Tera Probe

In 2013, we acquiredWe have a 40% interest in Tera Probe, which provides semiconductor wafer testing and probe services to us and others. DuringIn the thirdfirst quarter of 2016,2017, we recorded an impairment charge of $25$16 million within equity in net income (loss) of equity method investees to write down the carrying value of our investment in Tera Probe to its fair value based on its trading price (Level 1 fair value measurement). As of June 2,December 1, 2016, the difference between our investment balance and our proportionate share of Tera Probe's underlying equity in Tera Probe was $43exceeded our investment balance by $52 million, andwhich is expected to be amortizedaccreted to earnings over a weighted-average period of seven years. We incurred manufacturing costs for services performed by Tera Probe for us of $19$16 million and $58$21 million forin the third quarterfirst quarters of 2017 and first nine months of 2016, respectively, and $19 million and $66 million for the third quarter and first nine months of 2015, respectively.



Intangible Assets and Goodwill

As of June 2, 2016 September 3, 2015 December 1, 2016 September 1, 2016
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Amortizing assets                
Product and process technology $824
 $(442) $864
 $(416) $757
 $(421) $757
 $(402)
Other 1
 —
 2
 (1) 1
 —
 1
 —
 825
 (442) 866
 (417) 758
 (421) 758
 (402)
Non-amortizing assets                
In-process R&D 108
 —
 —
 —
 108
 —
 108
 —
                
 $933
 $(442) $866
 $(417)
Intangible assets $866
 $(421) $866
 $(402)
                
Goodwill(1)
 $104
   $23
   $104
   $104
  
(1) 
Included in other noncurrent assets.

During the first nine monthsquarters of 20162017 and 2015,2016, we capitalized $24$8 million and $51$9 million, respectively, for product and process technology with weighted-average useful lives of 10 years and seven years, respectively.nine years. Amortization expense was $30$27 million and $9031 million for the third quarterfirst quarters of 2017 and first nine months of 2016,, respectively, and $29 million and $89 million for the third quarter and first nine months of 2015, respectively. The expected annual amortization expense for amortizing intangible assets held as of June 2, 2016 is $119$82 million for 2016, $107the remainder of 2017, $94 million for 2017, $942018, $46 million for 2018, $462019, $30 million for 2019,2020, and $28$26 million for 2021.2020.

In the first quarter of 2016, we acquired Tidal Systems, Ltd., a developer of PCIe NAND Flash storage controllers, to enhance our NAND Flash controller technology for $148 million. In connection therewith, we recognized $108 million of in-process R&D; $81 million of goodwill, which was derived from expected cost reductions and other synergies and was assigned to our Storage Business Unit; and $41 million of deferred tax liabilities; which, in aggregate, represented substantially all of the purchase price. The in-process R&D was valued using a replacement cost approach, which included inputs of reproduction cost, including developer's profit, and opportunity cost. We will begin amortizing the in-process R&D when development is complete, which is estimated to be in 2017, and will amortize it over its then estimated useful life. The goodwill is not expected to be deductible for tax purposes.









Accounts Payable and Accrued Expenses

As of June 2,
2016		 September 3,
2015		 December 1,
2016		 September 1,
2016
Accounts payable $1,105
 $1,020
 $1,304
 $1,186
Property, plant, and equipment payables 1,559
 577
 1,583
 1,649
Salaries, wages, and benefits 292
 321
 351
 289
Related party payables 258
 338
 340
 273
Customer advances 156
 132
Income and other taxes 50
 85
 60
 41
Other 335
 270
 361
 309
 $3,599
 $2,611
 $4,155
 $3,879

As of June 2,December 1, 2016 and September 3, 20151, 2016, related party payables included $250329 million and $327266 million, respectively, due to Inotera primarily for the purchase of DRAM products. As of June 2,December 1, 2016 and September 3, 20151, 2016, related party payables also included $711 million and $11$7 million, respectively, due to Tera Probe for probe services performed. (See "Equity Method Investments" note.)services.

As of December 1, 2016 and September 1, 2016, customer advances included $130 million and $108 million, respectively, and other noncurrent liabilities also included $85 million and $107 million, respectively, for amounts received from Intel in 2016 under a Trade Non-Volatile Memory supply agreement.


Debt

     June 2, 2016 September 3, 2015     December 1, 2016 September 1, 2016
Instrument(1)
 Stated Rate Effective Rate Current Long-Term Total Current Long-Term Total 
Stated Rate(1)
 
Effective Rate(1)
 Current Long-Term Total Current Long-Term Total
MMJ creditor installment payments N/A
 6.25% $175
 $632
 $807
 $161
 $701
 $862
 N/A
 6.52% $156
 $588
 $744
 $189
 $680
 $869
Capital lease obligations(2)
 N/A
 N/A
 347
 816
 1,163
 326
 466
 792
 N/A
 N/A
 338
 925
 1,263
 380
 1,026
 1,406
1.258% notes 1.258% 1.97% 87
 175
 262
 87
 217
 304
 1.258% 1.97% 87
 132
 219
 87
 131
 218
2022 senior notes 5.875% 6.14% —
 590
 590
 —
 589
 589
 5.875% 6.14% —
 591
 591
 —
 590
 590
2022 senior secured term loan B 6.460% 6.91% 3
 732
 735
 —
 —
 —
 4.360% 4.77% 5
 729
 734
 5
 730
 735
2023 senior notes 5.250% 5.43% —
 989
 989
 —
 988
 988
 5.250% 5.43% —
 990
 990
 —
 990
 990
2023 senior secured notes 7.500% 7.67% —
 1,238
 1,238
 —
 —
 —
 7.500% 7.69% —
 1,237
 1,237
 —
 1,237
 1,237
2024 senior notes 5.250% 5.38% —
 545
 545
 —
 545
 545
 5.250% 5.38% —
 546
 546
 —
 546
 546
2025 senior notes 5.500% 5.56% —
 1,139
 1,139
 —
 1,138
 1,138
 5.500% 5.56% —
 1,139
 1,139
 —
 1,139
 1,139
2026 senior notes 5.625% 5.73% —
 446
 446
 —
 446
 446
 5.625% 5.73% —
 446
 446
 —
 446
 446
2032C convertible senior notes(3)
 2.375% 5.95% —
 202
 202
 —
 197
 197
 2.375% 5.95% —
 206
 206
 —
 204
 204
2032D convertible senior notes(3)
 3.125% 6.33% —
 153
 153
 —
 150
 150
 3.125% 6.33% —
 155
 155
 —
 154
 154
2033E convertible senior notes(3)
 1.625% 4.50% —
 167
 167
 217
 —
 217
 1.625% 4.50% 170
 —
 170
 —
 168
 168
2033F convertible senior notes(3)
 2.125% 4.93% —
 269
 269
 264
 —
 264
 2.125% 4.93% 273
 —
 273
 —
 271
 271
2043G convertible senior notes 3.000% 6.76% —
 654
 654
 —
 644
 644
 3.000% 6.76% —
 661
 661
 —
 657
 657
Other notes payable 2.705% 2.90% 100
 172
 272
 34
 171
 205
 2.513% 2.65% 126
 145
 271
 95
 185
 280
     $712
 $8,919
 $9,631
 $1,089
 $6,252
 $7,341
     $1,155
 $8,490
 $9,645
 $756
 $9,154
 $9,910
(1)
(1) As of December 1, 2016.
We have either the obligation or the option to pay cash for the principal amount due upon conversion for all of our convertible notes. Since it is our current intent to settle in cash the principal amount of all of our convertible notes upon conversion, the dilutive effect of such notes on earnings per share is computed under the treasury stock method.
(2) 
Weighted-average imputed rate of 3.3%3.4% and 3.7%3.3% as of June 2,December 1, 2016 and September 3, 20151, 2016, respectively.
(3) 
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 endingended on March 31,September 30, 2016, did not exceed 130% of the conversion price per share, these notes were not convertible by the holders afterduring the calendar quarter ended December 31, 2016. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended December 31, 2016; therefore, these notes are convertible by the holders through March 31, 2016.2017. The 2033 Notes were classified as current as of September 3, 2015December 1, 2016 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 at that date.

2022 Senior Secured Term Loan B

On April 26, 2016, we entered into the 2022 Term Loan B and drew an aggregate principal amount of $750 million, which is due April 2022. The 2022 Term Loan B is collateralized by substantially all of the assets of Micron and Micron Semiconductor Products, Inc. ("MSP"), a subsidiary of Micron, subject to certain exceptions and permitted liens on such assets. The assets collateralizing the 2022 Term Loan B had an aggregate carrying value of $6.26 billion as of June 2, 2016 and also collateralize the 2023 Secured Notes (described below) on an equal and ratable basis, subject to certain limitations. Issuance costs for the 2022 Term Loan B totaled $16 million, which included an original issue discount of 1% of the initial aggregate principal amount.

The 2022 Term Loan B bears interest, at our election, of either (1) a base rate plus 5.00%, which base rate is defined as the greatest of (a) the prime rate, (b) the federal funds rate plus 0.50%, or (c) a one-month London Interbank Offered Rate ("LIBOR") plus 1.0%, or (2) an up to twelve-month LIBOR, subject to certain adjustments, plus 6.00%. We may, from time to time, elect to convert outstanding term loans from one rate to another. Principal payments are due quarterly beginning on September 30, 2016 in an amount equal to 0.25% of the initial aggregate principal amount with the balance due at maturity and may be prepaid without penalty. Interest is payable at least quarterly, but may be monthly if we elect a monthly LIBOR rate. We are also obligated to pay certain customary fees for a credit facility of this size and type.



The 2022 Term Loan B contains covenants that, among other things, limit, in certain circumstances, the ability of Micron and/or its domestic restricted subsidiaries, which are generally subsidiaries in the U.S. in which Micron owns at least 80% of the voting stock, to (1) create or incur certain liens and enter into sale-leaseback financing transactions; (2) in the case of domestic restricted subsidiaries, create, assume, incur, or guarantee additional indebtedness; and (3) in the case of Micron, consolidate or merge with or into, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of its assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.

Subsidiary Guarantee: The 2022 Term Loan B is guaranteed by MSP and substantially all of the assets of MSP are also collateral for the 2022 Term Loan B.

2023 Senior Secured Notes

On April 26, 2016, we issued $1.25 billion in principal amount of 2023 Secured Notes due September 2023. The 2023 Secured Notes are collateralized by substantially all of the assets of Micron and MSP, subject to certain exceptions and permitted liens on such assets, on an equal and ratable basis with the 2022 Term Loan B (described above), subject to certain exceptions. Issuance costs for the 2023 Secured Notes totaled $13 million.

The 2023 Secured Notes contain covenants that, among other things, limit, in certain circumstances, the ability of Micron and/or its domestic restricted subsidiaries to (1) create or incur certain liens and enter into sale-leaseback financing transactions; (2) in the case of domestic restricted subsidiaries, create, assume, incur, or guarantee additional indebtedness; and (3) in the case of Micron, consolidate or merge with or into, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of its assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.
Cash Redemption at Our Option:Prior to April 15, 2019, we may redeem the 2023 Secured Notes at a price equal to the principal amount thereof, plus a "make-whole" premium as described in the indenture governing the 2023 Secured Notes, together with accrued and unpaid interest. On or after April 15, 2019, we may redeem the 2023 Secured 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. Additionally, prior to April 15, 2019, we may use the net cash proceeds of one or more equity offerings to redeem up to 35% of the aggregate principal amount of the 2023 Secured Notes at a price equal to 107.5% of the principal amount together with accrued and unpaid interest.
Subsidiary Guarantee: The 2023 Secured Notes are guaranteed by MSP and substantially all of the assets of MSP are also collateral for the 2023 Secured Notes.

Debt Restructure

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

Throughout 2015, we consummated a number of transactions to restructure our debt, including conversions, settlements and repurchases of convertible notes, the issuance of non-convertible senior notes, and the early repayment of a note. The following table presents the effect of each of the actions in the first nine months of 2015:

  Increase (Decrease) in Principal Increase (Decrease) in Carrying Value Increase (Decrease) in Cash (Decrease) in Equity 
(Loss)(1)
Conversions and settlements $(121) $(367) $(408) $(15) $(22)
Repurchases (305) (261) (907) (624) (21)
Issuance 2,000
 1,979
 1,979
 —
 —
Early repayment (121) (115) (122) —
 (5)
  $1,453
 $1,236
 $542
 $(639) $(48)
(1)
Included in other non-operating expense.



Conversions and Settlements: Holders of substantially all of our then remaining 2031B Notes with an aggregateto pay cash for the principal amount of $114 millionany converted notes and holders of these notes had the right to convert their notes in August 2014. As a resultas of our election to settle the conversion amounts entirely in cash, the settlement obligations became derivative debt liabilities, increasing the carrying value of the 2031B Notes by $275 million in 2014 before being settled in 2015 for an aggregate of $389 million in cash. Additionally, holders converted $7 million principal amount of our 2033E Notes and we settled the conversions in cash for $19 million in 2015.
Repurchases: Repurchased $305 million in aggregate principal amount of our 2032C and 2032D Notes.
Issuance: Issued $2.00 billion in aggregate principal amounts of 2023 senior notes, 2024 senior notes, and 2026 senior notes.
that date.

Capital Lease Obligations

In the thirdfirst quarter of 2016, we recorded capital lease obligations aggregating $130$51 million including $114 million related to equipment sale-leaseback transactions, at a weighted-average effective interest rate of 3.5%, with6.5% and a weighted-average expected term of five12 years. In the first nine months of 2016, we recorded capital lease obligations aggregating $574 million, including $538 million related to equipment sale-leaseback transactions.

Convertible Senior Notes

As of June 2,December 1, 2016, the trading price of our common stock was higher than the initial conversion prices of our 2032 Notes and our 2033 Notes. As a result, the conversion values were in excess offor these notes exceeded the principal amounts for such notes. The following table summarizes our convertible notes outstandingby $683 million as of June 2, 2016:December 1, 2016.

2022 Senior Secured Term Loan B Repricing Amendment
  
Holder Put Date(1)
 Outstanding Principal Underlying Shares Conversion Price Per Share 
Conversion Price Per Share Threshold(2)
 
Conversion Value in Excess of Principal(3)
2032C Notes May 2019 $223
 23
 $9.63
 $12.52
 $81
2032D Notes May 2021 177
 18
 9.98
 12.97
 56
2033E Notes February 2018 176
 16
 10.93
 14.21
 35
2033F Notes February 2020 297
 27
 10.93
 14.21
 59
2043G Notes(4)
 November 2028 1,025
 35
 29.16
 37.91
 —
    $1,898
 119
     $231

(1)
On October 27, 2016, we amended our 2022 Term Loan B, substantially all of which was treated as a debt modification, to reduce the margins added to the base rate from 5.00% to 2.75% and to the adjusted LIBOR rate from 6.00% to 3.75%.
The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date prior to the contractual maturity at a price equal to the principal amount thereof plus accrued interest.
(2)
Holders have the right to convert all or a portion of their notes at a date prior to the contractual maturity if, during any calendar quarter, 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. The closing price of our common stock did not exceed the thresholds for the calendar quarter ended March 31, 2016; therefore, the notes were not convertible by the holders after March 31, 2016.
(3)
Based on our closing share price of $13.11 as of June 2, 2016.
(4)
The original principal amount of $820 million accretes up to $917 million in November 2028 and $1.03 billion at maturity in 2043.

Other Facilities

In connection with entering into the 2022 Term Loan B, on April 25,On November 18, 2016, we terminated our revolving credit facility that was entered into on December 2, 2014, and repaid the $50a five-year variable-rate facility agreement to obtain up to $800 million outstanding principal amount.

On December 1, 2015, we drew the remaining $174 million under our term loan agreement entered into on May 28, 2015. Amounts drawn areof financing, collateralized by certain property, plant, andproduction equipment, and are subject to a three-year loan with equalwhich may be utilized in multiple draws until June 10, 2017. Interest is payable quarterly principal payments beginning December 2015 and accrue interest at a variable rate equal to the three-month LIBOR plus 2.4% per annum. Principal is payable in 16 equal quarterly installments beginning in March 2018. The facility agreement contains covenants which are customary for financings of this type, including negative covenants that limit or restrict our ability to create liens or dispose of the equipment securing the facility agreement. The facility also contains a margincovenant that the ratio of the outstanding loan to the fair value of the equipment collateralizing the loan not exceed 0.8. If such ratio is exceeded, we are required to exceed 2.2%. Asgrant a security interest in additional equipment and/or prepay the loan in an amount sufficient to reduce such ratio to 0.8 or less. The facility agreement also contains customary events of Junedefault which could result in the acceleration of all amounts to be immediately due and payable and cancellation of all commitments under the facility agreement. On December 2, 2016, subsequent to the outstanding balance was $174 million.



Maturitiesend of Notes Payable and Future Minimum Lease Payments

The following presents, asour first quarter of June 2, 2016, maturities of notes payable (including the MMJ Creditor Installment Payments) and future minimum lease payments2017, we drew $450 million under capital lease obligations.

  Notes Payable Capital Lease Obligations
Remainder of 2016 $71
 $118
2017 376
 334
2018 535
 286
2019 547
 242
2020 677
 130
2021 and thereafter 6,815
 151
Unamortized amounts and interest, respectively (553) (98)
  $8,468
 $1,163
this facility.


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 applicable balance sheet dates,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 their intellectual property rights.

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

On December 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against usMicron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND Flash products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs.

On June 24, 2016, the President and Fellows of Harvard University filed a patent infringement action against Micron in the U.S. District Court for the District of Massachusetts. The complaint alleges that a variety of our DRAM products infringe two U.S. patents and seeks damages, injunctive relief, and other unspecified relief.



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

We are unable to predict the outcome of assertions of infringement made against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.



Qimonda

On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), which representsrepresenting approximately 55%18% of our totalInotera's outstanding shares in Inotera as of June 2,December 1, 2016, 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 such 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 it 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 it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.

We are unable to predict the outcome of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition.  As of June 2, 2016, the Inotera Shares had a carrying value in equity method investments of $677 million and a market value of $1.07 billion.

Other

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


Redeemable Convertible Notes

Under the terms of the indentures governing the 2033 Notes, upon conversion, we would be required to pay cash equal to the lesser amount 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 thresholds for conversion for the calendar quarter ended September 30, 2016; therefore, the 2033 Notes were convertible at the option ofby the holders during the calendar


quarter ended December 31, 2016. As a result, the 2033 Notes were classified as of September 3, 2015current debt and the aggregate difference between the principal amount and the carrying value of $49$31 million was classified as redeemable convertible notes in the accompanying consolidated balance sheet. Due to declines in the trading price of our common stock during 2016, theThe closing price of our common stock did not meet or exceed the thresholds for the calendar quarter ended March 31,June 30, 2016; therefore, the 2033 Notes were not convertible by the holders after March 31, 2016 and will not be convertible until the conversion terms or thresholds are met or exceeded or another convertibility condition is met. As a result, in the third quarteras of September 1, 2016. Therefore, as of September 1, 2016, the 2033 Notes werehad been classified as noncurrent debt and the aggregate difference between the principal amount and the carrying value was reclassified from redeemable convertible notes tohad been classified as additional capital. (See "Debt" note.)





Equity

Micron Shareholders' Equity

CommonTreasury Stock Repurchases: Our BoardAs of Directors has authorized the discretionary repurchase of up to $1.25 billion of our outstanding common stock, which may be made in open-market purchases, block trades, privately-negotiated transactions, or derivative transactions. During the first nine months ofDecember 1, 2016, we repurchased 7held 54 million shares for $125 million (including commissions) through open-market transactions, which were recorded asof treasury stock. ThroughAll 54 million shares of treasury stock were included as part of the sale of the Micron Shares to Nanya subsequent to the end of the thirdour first quarter of 2016, we had repurchased a total of 49 million shares for $956 million (including commissions) through open-market transactions pursuant to such authorization. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash.2017.

Issued and Outstanding Capped Calls: We haveOur capped calls (with strike prices that range from $9.80 to $10.93 and cap prices that range from $14.51 to $16.04), which wereare intended to reduce the effect of potential dilution from our convertible notes.  The capped callsnotes and provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above strike prices on theirthe expiration dates, which range from November 2016 to February 2020. The amounts receivable vary based on the trading price of our stock, up to the cap prices.dates. As of June 2,December 1, 2016, the dollar value of cash or shares that we would receive from our outstanding capped calls upon their expiration date rangesdates range from $0, if the trading price of our stock iswas below strike prices for all capped calls, to $719 million, if the trading price of our stock iswas at or above the cap prices for all capped calls.

Expiration of Capped Calls: A portion of our 2032C Capped Calls and 20312032D Capped Calls expired in the first nine monthsquarter of 2016.2017. We elected share settlement and in the second quarter of 2017 received 24 million shares of our stock, in the first nine monthsequal to a value of 2016, equivalent to $23$67 million, based on the volume-weighted trading stock priceprices at the time of expiration. expiration dates.The shares received were recorded as treasury stock.

Accumulated Other Comprehensive Income (Loss): Changes in accumulated other comprehensive income (loss) by component for the nine monthsquarter ended June 2,December 1, 2016 were as follows:

  Cumulative Foreign Currency Translation Adjustments Gains (Losses) on Derivative Instruments, Net Gains (Losses) on Investments, Net Pension Liability Adjustments Total
Balance as of September 3, 2015 $—
 $(5) $(3) $21
 $13
Other comprehensive income (loss) before reclassifications (50) 5
 2
 (6) (49)
Amount reclassified out of accumulated other comprehensive income (loss) —
 (3) —
 (1) (4)
Tax effects —
 —
 —
 2
 2
Other comprehensive income (loss) (50) 2
 2
 (5) (51)
Balance as of June 2, 2016 $(50) $(3) $(1) $16
 $(38)
  Cumulative Foreign Currency Translation Adjustments Gains (Losses) on Derivative Instruments, Net Gains (Losses) on Investments, Net Pension Liability Adjustments Total
As of September 1, 2016 $(49) $2
 $—
 $12
 $(35)
Other comprehensive income (loss) 37
 (9) (1) (1) 26
Tax effects —
 2
 —
 —
 2
Other comprehensive income (loss) 37
 (7) (1) (1) 28
As of December 1, 2016 $(12) $(5) $(1) $11
 $(7)

Noncontrolling Interests in Subsidiaries

As of June 2, 2016 September 3, 2015
  Noncontrolling Interest Balance Noncontrolling Interest Percentage Noncontrolling Interest Balance Noncontrolling Interest Percentage
IMFT(1)
 $832
 49% $829
 49%
MP Mask(1)
 —
 —% 93
 50%
Other 15
 Various
 15
 Various
  $847
   $937
  
(1)
IMFT is a variable interest entity. MP Mask was a variable interest entity through May 5, 2016. (See "Variable Interest Entities" note.)


As of December 1, 2016 September 1, 2016
  Noncontrolling Interest Balance Noncontrolling Interest Percentage Noncontrolling Interest Balance Noncontrolling Interest Percentage
IMFT $832
 49% $832
 49%
Other 16
 Various
 16
 Various
  $848
   $848
  

IMFT: Since IMFT's inception in 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacturethat manufactures NAND Flash and 3D XPoint memory products exclusively for the exclusive usemembers. The members share the output of the members.IMFT generally in proportion to their investment. 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. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. On January 5, 2016, we amended the IMFT joint venture agreement to change the dates of the buy-sell rights. Pursuant to the amendment, commencing in January 2016,Through December 2018, Intel can put to us, and commencing infrom January 2019 through December 2021, we can call from Intel, Intel's interest in IMFT, in either case, for an amount equal to the


noncontrolling interest balance attributable to Intel at such time.time either member exercises its right. If Intel exercises its put right, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date. Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets. In the first quarter of 2016, we and Intel contributed $38 million and $37 million, respectively, to IMFT.

IMFT manufactures memory products using designs and technology we develop with Intel. We generally share with Intel the costs of product design and process development activities for NAND Flash and 3D XPoint memory.memory at IMFT and our other facilities. Our R&D expenses were reduced by reimbursements from Intel of $54$56 million and $153$46 million for the third quarter and first nine monthsquarters of 2016, respectively, and $58 million2017 and $158 million for the third quarter and first nine months of 20152016, respectively.

Our sales include Non-Trade Non-Volatile Memory, which primarily consists of products sold to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. Non-Trade Non-Volatile Memory sales to Intel were $120$123 million and $372$126 million for the third quarterfirst quarters of 2017 and first nine months of 2016, respectively, and were $110 million and $342 million for the third quarter and first nine months of 2015, respectively.

The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:

As of June 2,
2016		 September 3,
2015
Assets    
Cash and equivalents $100
 $134
Receivables 85
 79
Inventories 73
 65
Other current assets 4
 7
Total current assets 262
 285
Property, plant, and equipment, net 1,775
 1,768
Other noncurrent assets 49
 49
Total assets $2,086
 $2,102
     
Liabilities  
  
Accounts payable and accrued expenses $196
 $182
Deferred income 8
 9
Current debt 17
 22
Total current liabilities 221
 213
Long-term debt 37
 49
Other noncurrent liabilities 96
 100
Total liabilities $354
 $362
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

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 IMFT's distributions to and contributions from its shareholders:

  Quarter Ended Nine Months Ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
IMFT distributions to Micron $36
 $—
 $36
 $6
IMFT distributions to Intel 34
 —
 34
 6
Micron contributions to IMFT —
 85
 38
 106
Intel contributions to IMFT —
 82
 37
 102

MP Mask:In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation semiconductors.  Through May 5, 2016, we and Photronics each owned approximately 50% of MP Mask.  We purchased a substantial majority of the photomasks produced by MP Mask pursuant to a supply arrangement. On May 5, 2016 we acquired Photronics' interest in MP Mask for $93 million.

The assets and liabilities of MP Mask included in our September 3, 2015 consolidated balance sheet were as follows:

As of September 3,
2015
Current assets $21
Noncurrent assets (primarily property, plant, and equipment) 180
Current liabilities 21
As of December 1,
2016		 September 1,
2016
Assets    
Cash and equivalents $77
 $98
Receivables 83
 89
Inventories 91
 68
Other current assets 4
 6
Total current assets 255
 261
Property, plant, and equipment, net 1,748
 1,792
Other noncurrent assets 47
 50
Total assets $2,050
 $2,103
     
Liabilities  
  
Accounts payable and accrued expenses $131
 $175
Deferred income 6
 7
Current debt 53
 16
Total current liabilities 190
 198
Long-term debt 41
 66
Other noncurrent liabilities 92
 94
Total liabilities $323
 $358
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

Restrictions on Net Assets

As a result of the corporate reorganization proceedings of the MMJ Companies initiated in March 2012, and for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. In addition, our ability to access IMFT's cash and other assets through dividends, loans, or advances, including to finance our other operations, is subject to agreement by Intel. As a result, our total restricted net assets (net assets less intercompany balances and noncontrolling interests) as of June 2,December 1, 2016 were $3.17$3.13 billion for the MMJ Group and $900$895 million for IMFT, which included cash and equivalents of $598$684 million for the MMJ Group and $100$77 million for IMFT.

As of June 2,December 1, 2016, our retained earnings included undistributed earnings from our equity method investees of $281$290 million.






Fair Value Measurements

Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

All of our marketable debt and equity investments (excluding equity method investments) were classified as available-for-sale and carried at fair value. In addition to the fair value measurements disclosed in "Cash and Investments" as of June 2, 2016 and September 3, 2015, we had certificates of deposit classified as restricted cash (included in other noncurrent assets) of $48 million and $45 million, respectively, valued using Level 2 fair value measurements.

In connection with our repurchases of debt in the first quarter of 2016, we determined the fair value of the debt components of our convertible notes as if they were stand-alone instruments, using interest rates for similar nonconvertible debt issued by entities with credit ratings comparable to ours (Level 2).



Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and carrying value of debt instruments (carrying(excluding the carrying value excludesof the equity and mezzanine equity components of our convertible notes) were as follows:

As of June 2, 2016 September 3, 2015 December 1, 2016 September 1, 2016
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes and MMJ creditor installment payments $6,723
 $7,023
 $5,020
 $5,077
 $7,139
 $6,917
 $7,257
 $7,050
Convertible notes 1,988
 1,445
 2,508
 1,472
 2,548
 1,465
 2,408
 1,454

The fair values of our convertible notes were determined based on inputs that were observable in the market or that could be derived from, or corroborated with, observable market data, 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 (Level 2). The fair valuevalues of our other debt instruments waswere estimated based on discounted cash flows using inputs that were observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).


Derivative Instruments

We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in cash. We do not use derivative instruments for speculative purpose.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives:To hedge our exposures of monetary assets and liabilities to changes in currency exchange rates, we generally utilize a rolling hedge strategy with currency forward contracts that mature within 35 days. In addition, to mitigate the risk of the yen strengthening against the U.S. dollar on MMJ creditor installment payments due in December 2017 and 2018, we entered into forward contracts to purchase 18 billion yen on December 1, 2017 and 28 billion yen on December 3, 2018. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured ininto 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 fair value measurements)2).

In connection with the Inotera Acquisition, we borrowed 80 billion New Taiwan dollars. To mitigate the riskhedge our currency exposure of the yen strengthening against the U.S. dollar on the MMJ creditor installment payments duethis borrowing, in December 2014 and December 2015,2016, subsequent to the end of our first quarter of 2017, we entered into a series of currency forward contracts to purchase 20an aggregate of 80 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarters of 2016 and 2015, we paid $21 million and $33 million, respectively, upon settlement of the New Taiwan dollars under a rolling hedge strategy. The forward contracts.contracts expire at various dates through June 2017.
















The following summarizes our derivative instruments without hedge accounting designation, which consisted of forward contracts to purchase the noted currencies as a hedge of our net position in monetary assets:assets and liabilities:

 Notional Amount (in U.S. dollars) Fair Value of Notional Amount (in U.S. Dollars) Fair Value
Current Assets(1)
 
Current Liabilities(2)
Current Liabilities(1)
 
Noncurrent Liabilities(2)
As of June 2, 2016      
As of December 1, 2016      
Yen $1,298
 $14
 $—
 $1,396
 $(18) $(4)
Singapore dollar 179
 —
 —
 204
 (1) —
Euro 50
 —
 —
 175
 —
 —
Other 93
 1
 —
 48
 (1) —
 $1,620
 $15
 $—
 $1,823
 $(20) $(4)
As of September 3, 2015      
As of September 1, 2016      
Yen $928
 $—
 $(24) $1,668
 $(10) $—
Singapore dollar 282
 —
 —
 206
 —
 —
Euro 29
 —
 —
 93
 —
 —
Other 167
 1
 —
 85
 (1) —
 $1,406
 $1
 $(24) $2,052
 $(11) $—
(1) 
Included in receivablesaccounts payable and accrued expenses – other.
(2) 
Included in accounts payable and accrued expenses – other.other noncurrent liabilities.

Realized and unrealized gains and losses on currency derivativesderivative instruments without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense), net. Net gains (losses)losses for derivative instrumentsforeign exchange contracts without hedge accounting designation were as follows:

  Quarter ended Nine months ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Foreign exchange contracts $42
 $(10) $113
 $(83)
Convertible notes settlement obligations —
 1
 —
 7
$178 million and $21 million for the first quarters of 2017 and 2016, respectively.

Derivative Instruments with Cash Flow Hedge Accounting Designation

Currency Derivatives:We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures. 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 fair value measurements)2).



For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss). Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same line items of the consolidated statements of operations and in the same periods in which the underlying transactions affect earnings. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense), net.. Total notional amounts and gross fair values for derivative instruments with cash flow hedge accounting designation were as follows:

 Notional Amount (in U.S. Dollars) Fair Value of Notional Amount (in U.S. Dollars) Fair Value
 
Current Assets(1)
 
Current Liabilities(2)
  
Current Assets(1)
 
Current Liabilities(2)
As of June 2, 2016      
As of December 1, 2016      
Yen $62
 $—
 $(6)
Euro $197
 $—
 $(1) 10
 —
 (1)
 $72
 $—

$(7)
As of September 1, 2016  
    
Yen 84
 1
 —
 $107
 $2
 $(1)
Euro 65
 —
 (1)
 $281
 $1
 $(1) $172
 $2

$(2)
      
As of September 3, 2015  
    
Euro $12
 $—
 $—
Yen 81
 3
 —
 $93
 $3

$—
(1) 
Included in receivables – other.
(2) 
Included in accounts payable and accrued expenses – other.



WeFor the first quarters of 2017 and 2016, we recognized gainslosses of $9 million and $4 million, respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges in accumulated other comprehensive income (loss) of $4 million and $5 million for the third quarter and first nine months of 2016, respectively, and losses of $14 million in the first nine months of 2015.hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income (expense) were not significantmaterial in the thirdfirst quarters of 2017and 2016. For the first nine monthsquarter of 2016 and 2015.  Amounts, we reclassified gains of $1 million from accumulated other comprehensive income (loss) to earnings. As of December 1, 2016, $2 million of net gains from cash flow hedges included in accumulated other comprehensive income (loss) is expected to be reclassified into earnings in the third quarters and first nine months of 2016 and 2015, and expected amounts for the next 12 months after June 2, 2016, were not significant.months.


Equity Plans

As of June 2,December 1, 2016,, our equity plans permit us to issue an aggregate of up to 152 84 million shares of common stock, of which 87 million shares were available for future awards.awards under our equity plans.

Stock Options

Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows:
  Quarter ended Nine months ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Stock options granted 1
 —
 8
 8
Weighted-average grant-date fair value per share $4.92
 $10.89
 $6.96
 $14.86
Average expected life in years 5.6
 5.6
 5.5
 5.6
Weighted-average expected volatility 51% 42% 47% 45%
Weighted-average risk-free interest rate 1.3% 1.6% 1.7% 1.7%

The expected volatilities utilized were based on implied volatilities from traded options on our stock and on our historical volatility. 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. No dividends were assumed in estimated option values.


Quarter ended December 1,
2016		 December 3,
2015
Stock options granted 2
 2
Weighted-average grant-date fair value per share $7.66
 $7.99
Average expected life in years 5.7
 5.6
Weighted-average expected volatility 46% 46%
Weighted-average risk-free interest rate 1.4% 1.5%
Expected dividend yield 0% 0%

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

As of June 2, 2016, there were 19 million shares of Restricted Stock Awards outstanding, of which 2 million were performance-based or market-based Restricted Stock Awards.  For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth increments during each year of employment after the grant date.  Vesting for performance-based awards is contingent upon meeting a specified return on assets ("ROA"), as defined, over a three-year performance period and vesting for market-based Restricted Stock Awards is contingent upon achieving total shareholder return ("TSR") relative to the companies included in the S&P 500 over a three-year performance period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts, depending upon the achievement level of the specified ROA or TSR.  Restricted Stock Awards activity was as follows:

 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Restricted stock awards granted —
 —
 9
 6
Quarter ended December 1,
2016		 December 3,
2015
Restricted stock award shares granted 3
 3
Weighted-average grant-date fair value per share $10.35
 $27.34
 $15.75
 $33.93
 $18.22
 $18.52

Stock-based Compensation Expense

Quarter ended December 1,
2016		 December 3,
2015
Stock-based compensation expense by caption    
Cost of goods sold $19
 $18
Selling, general, and administrative 15
 17
Research and development 12
 11
  $46
 $46
     
Stock-based compensation expense by type of award  
  
Stock options $17
 $20
Restricted stock awards 29
 26
  $46
 $46

As of June 2,December 1, 2016 $405, $369 million of total unrecognized compensation costs for unvested awards net of estimated forfeitures, was expected to be recognized through the thirdfirst quarter of 2020,2021, resulting in a weighted-average period of 1.2 years. Stock-based compensation expense in the belowabove presentation does not reflect any significant income tax benefits, which is consistent with our treatment of income or loss from our U.S. operations:

  Quarter ended Nine months ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Stock-based compensation expense by caption        
Cost of goods sold $20
 $17
 $58
 $48
Selling, general, and administrative 15
 15
 52
 48
Research and development 12
 11
 38
 31
  $47
 $43
 $148
 $127
         
Stock-based compensation expense by type of award  
  
    
Stock options $19
 $20
 $61
 $61
Restricted stock awards 28
 23
 87
 66
  $47
 $43
 $148
 $127
operations.





Other Operating (Income) Expense, Net
Restructure and Asset Impairments

  Quarter ended Nine months ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Restructure and asset impairments $—
 $1
 $16
 $3
(Gain) loss on disposition of property, plant, and equipment (3) (4) 2
 (14)
Other (2) (1) —
 (25)
  $(5) $(4) $18
 $(36)

In the first quarter of 2016, we recorded $9 million of charges for the restructure of manufacturing activities in Agrate, Italy and $5 million of severance benefits and equipment-related retirement and impairment costs to close our module assembly and test facility in Aguadilla, Puerto Rico. As of June 2, 2016, we do not anticipate incurring significant additional costs for these restructure activities.
Quarter ended December 1,
2016		 December 3,
2015
2016 Restructuring Plan $29
 $—
Other —
 15
  $29
 $15

In the fourth quarter of 2016, we initiated a restructure plan in response to the current business environmentconditions and the need to accelerate focus on our key priorities.  We plan to implement a cost savings program in which we expect to save approximately $80 million per quarter in 2017.priorities (the "2016 Restructuring Plan"). The savings are expected to result from a combination2016 Restructuring Plan includes the elimination of a more focused set ofcertain projects and programs, the permanent closure of a number of open headcount requisitions, a workforce reductionreductions in certain areas of the business, and other non-headcount related spending reductions. In connection with the plan, we expect to incurincurred charges of $70$29 million substantially all in cash expenditures, the majorityfirst quarter of which is expected to be incurred2017 and $58 million in the fourth quarter of 2016 withand do not expect to incur additional material charges. As of December 1, 2016 and September 1, 2016, we had accrued liabilities of $17 million and $24 million, respectively, related to the remainder in2016 Restructuring Plan. For the early partfirst quarter of 2017.2017, the restructure and asset impairment charges related primarily to our CNBU and MBU operating segments.


Other Non-Operating Income (Expense), Net

  Quarter ended Nine months ended
  June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Gain (loss) from changes in currency exchange rates $(5) $1
 $(13) $(26)
Loss on restructure of debt (3) (18) (4) (48)
Other (26) 1
 (27) 3
  $(34) $(16) $(44) $(71)
Quarter ended December 1, 2016 December 3, 2015
Loss from changes in currency exchange rates $(12) $(3)
Other (2) (1)
  $(14) $(4)

InLosses from changes in currency exchange rates for the thirdfirst quarter of 2016, we recognized other non-operating expense2017 included net losses for foreign exchange contracts without hedge accounting designation of $30$178 million to write off indemnification receivables upon the resolutionoffset by revaluations of uncertain tax positions.our monetary assets and liabilities.


Income Taxes

Income taxes forOur income tax (provision) benefit included the third quarter and first nine months of 2016 included $71 million and $103 million, respectively, and for the third quarter and first nine months of 2015 included $67 million and $138 million, respectively, related to changes in amounts of net deferred tax assets associated with MMJ and MMT. Income taxes also included a benefit of $41 million in the first quarter of 2016 related to a U.S. valuation allowance release resulting from the acquisition of Tidal Systems, Ltd. Income taxes for the third quarter and first nine months of 2016 also included tax benefits of $52 million and $58 million, respectively, related to the favorable resolution of certain prior year tax matters, which were previously reserved as uncertain tax positions. The remaining taxes for these periods primarily reflect taxes for our other non-U.S. operations.following:


Quarter ended December 1, 2016 December 3, 2015
Utilization of and other changes in net deferred tax assets of MMJ and MMT $(13) $(22)
U.S. valuation allowance release resulting from business acquisition —
 41
Other, primarily non-U.S. operations (18) (15)
  $(31) $4

We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowance.  The amount of the deferred tax asset considered realizable could be adjusted if sufficientsignificant positive evidence exists.increases. Income taxes on U.S. operations in the thirdfirst quarters of 2017 and first nine months of 2016 and 2015 were substantially offset by changes in the valuation allowance.

We operate in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and are taxed at lower effective tax rates than the U.S. statutory rate. We operaterate and in a number of locations outside the U.S., including Singapore, and, to a lesser extent, Taiwan, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, were not significant to our tax provision for the third quarter or the first nine months of 2016. These arrangements reduced our tax provision for the third quarterfirst quarters of 2017 and first nine months of 20152016 by $52$40 million (benefitting our diluted earnings per share by $0.04), and $289$12 million ($0.240.01 per diluted share), respectively.





Earnings Per Share

 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Net income (loss) available to Micron shareholders – Basic $(215) $491
 $(106) $2,428
Dilutive effect related to equity method investment —
 (1) —
 (3)
Net income (loss) available to Micron shareholders – Diluted $(215) $490
 $(106) $2,425
Quarter ended December 1,
2016		 December 3,
2015
Net income available to Micron shareholders – Basic and Diluted $180
 $206
            
Weighted-average common shares outstanding – Basic 1,036
 1,073
 1,035
 1,072
 1,040
 1,035
Dilutive effect of equity plans and convertible notes —
 97
 —
 113
 51
 50
Weighted-average common shares outstanding – Diluted 1,036
 1,170
 1,035
 1,185
 1,091
 1,085
            
Earnings (loss) per share        
Earnings per share    
Basic $(0.21) $0.46
 $(0.10) $2.26
 $0.17
 $0.20
Diluted (0.21) 0.42
 (0.10) 2.05
 0.16
 0.19

Antidilutive potential common shares that could dilute basic earnings per share in the future were 18464 million and 66 million for the third quarterfirst quarters of 2017 and first nine months of 2016, and 55 million and 27 million for the third quarter and first nine months of 2015, respectively.


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 compute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Mobile Business Unit ("MBU"):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Embedded Business Unit ("EBU"): Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.

Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production.


In the first quarter of 2017, we revised the measure of segment profitability reviewed by our chief operating decision maker and, as a result, certain items are no longer allocated to our business units. Items not allocated are identified in the table below. Comparative periods have been revised to reflect these changes.

We do not identify or report internally our assets 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. There are no differences in the accounting policies for segment reporting and our consolidated results of operations.



 Quarter ended Nine months ended
 June 2,
2016		 June 4,
2015		 June 2,
2016		 June 4,
2015
Quarter ended December 1,
2016		 December 3,
2015
Net sales            
CNBU $1,090
 $1,514
 $3,282
 $5,424
 $1,470
 $1,139
MBU 1,032
 834
SBU 719
 901
 2,504
 2,839
 860
 884
MBU 561
 938
 1,898
 2,734
EBU 487
 483
 1,426
 1,524
 578
 479
All Other 41
 17
 72
 71
 30
 14
 $2,898
 $3,853
 $9,182
 $12,592
 $3,970
 $3,350
            
Operating income (loss)  
  
    
Operating income  
  
CNBU $(64) $266
 $(106) $1,382
 $204
 $40
MBU 89
 148
SBU (67) (33) (118) (43) (45) (14)
MBU (18) 296
 96
 864
EBU 107
 98
 307
 331
 178
 121
All Other 15
 4
 21
 37
 12
 3
 $(27) $631
 $200
 $2,571
 438
 298
    
Unallocated    
Stock-based compensation (46) (46)
Restructure and asset impairments (29) (15)
Other (4) (5)
 (79) (66)
    
Operating income $359
 $232


Certain Concentrations

Customer concentrations included net sales to Apple of 11% and Intel of 14%11% for the first nine monthsquarter of 2016.2017.





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made regarding benefits from the acquisition of the remaining shares of Inotera;Inotera Acquisition; changes in future costs and savings for restructure activities;depreciation expense; our pursuit of additional financing and debt restructuring including expected funding of the Inotera acquisition;restructuring; the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements for at least the next 12 months; capital spending in 2016;2017; and the timing of payments for certain contractual obligations. We are under no obligation to update these forward-looking statements. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Part II Other Information – Item 1A. Risk Factors." This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended September 3, 2015.1, 2016. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal yearOur fiscal 2017 and 2016 containseach contain 52 weeks and fiscal year 2015 contained 53 weeks. The first quarter of 53-week years contains 14 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions except per share amounts.

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

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


Overview

We are a global leader in advanced semiconductor systems. Our broad portfolio of high-performance memory technologies, including DRAM, NAND Flash, and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded, and automotive applications. We market our products through our internal sales force, independent sales representatives, and distributors primarily to OEMsoriginal equipment manufacturers and retailers located around the world. We face intense competition in the semiconductor memory market and in order to remain competitive we must continuously develop and implement new technologies and decrease manufacturing costs. Our success is largely dependent on the market acceptance of our diversified portfolio of semiconductor products, efficient utilization of our manufacturing infrastructure, successful ongoing development of advanced product and process technologies, and generating a return on R&D investments.

We obtain products for sale to our customers from our wholly-owned manufacturing facilities and our joint ventures. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various partnering arrangements.



We make significant investments to develop the proprietary product and process technologies that are implemented in our worldwide manufacturing facilities and our joint ventures. These investments enable our production of semiconductor products with increasing functionality and performance at lower costs. We generally reduce the manufacturing cost of each generation of product through advancements in product and process technologies, such as our leading-edge line-width process technology. We continue to introduce new generations of products that offer improved performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability, and increased memory density. To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory product and process technologies with joint venture partners. In addition, from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.

Proposed Acquisition of Inotera

InOn December 6, 2016, subsequent to the secondend of our first quarter of 2016,2017, we entered into agreements to acquireacquired the remaining67% interest in Inotera not owned by us for 30an aggregate of $4.1 billion in cash (the "Inotera Acquisition"), funded with 80 billion New Taiwan dollars per share in cash (equivalent to approximately $0.92 per share, assuming 32.6 New Taiwan dollars per U.S. dollar,$2.5 billion) of proceeds from the exchange rate as2021 Term Loan, the sale of June 2, 2016). Asshares of June 2,our common stock to Nanya, and cash on hand. Prior to December 6, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. Based on the exchange rate as of June 2, 2016, we estimate the aggregate consideration payable for the 67% of Inotera shares not owned by us would be approximately $4.1 billion. We anticipate financing the acquisition with a combination of proceeds from the 80 billion New Taiwan dollar debt financing described below, a combination of issuance of Micron Shares and convertible notes to Nanya described below, additional borrowings under our existing credit agreement, and cash on hand.

On March 29, 2016, the transaction was approved by the shareholders of Inotera including Nanyamanufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and certain of Nanya's affiliates (which approval was provided pursuantsold such products exclusively to voting and support agreements). Under the voting and support agreements, the parties have further agreed not to transfer any of their Inotera shares so long as the voting and support agreements are in effect. These agreements will terminate automatically upon the termination of the agreement to purchase the Inotera shares.

Consummation of the acquisition of Inotera is subject to various conditions, including but not limited to:

the receipt of necessary regulatory approvals from authorities in Taiwan, which have been received;
the consummation and funding of debt financing of at least 80 billion New Taiwan dollars (equivalent to $2.5 billion, assuming 32.6 New Taiwan dollars per U.S. dollar), on terms that are satisfactory to us; and
unless we determine otherwise, the consummation and funding of the Private Placement (described below).

In addition, the agreement to acquire the Inotera shares contains certain termination rights, including but not limited to termination by either us or Inotera if we have not completed the purchase of the remaining shares of Inotera by November 30, 2016.

The date for the closingthrough supply agreements. As a result of the Inotera transaction is not determinable at this time. ConsummationAcquisition, we expect to experience greater operational flexibility to drive new technology in products manufactured by Inotera, optimize the deployment of the cash flows of Inotera transaction is subjectacross our operations, and enhance our ability to significant uncertainties and there can be no assurance that the Inotera transaction will be consummated.

Issuance of Micron Shares and Convertible Notesadapt our product offerings to Nanya:In the second and third quarters of 2016, we entered into agreements with Nanya pursuant to which we have the option to issue a combination of shares of our common stock (the "Micron Shares") and 2.00% convertible senior notes due 2021 (the "2021 Convertible Notes") to Nanya, which is subject to regulatory approvals and various otherchanges in market conditions. The issuance of the Micron Shares or the 2021 Convertible Notes is subject to the consummation of the Inotera acquisition and the proceeds would be used to fund a portion of the consideration payable in the Inotera acquisition.

Micron Shares: We have the option to issue Micron Shares in an amount equivalent to up to 31.5 billion New Taiwan dollars (equivalent to $964 million, assuming 32.6 New Taiwan dollars per U.S. dollar) (the "Private Placement"), which would be used to fund a portion of the consideration for the transaction. The per-share selling price for the Micron Shares would be equal to the greater of the New Taiwan dollar equivalent of (i) the average of the closing sale price of our common stock during the 30 consecutive trading day period ending on and including the 30th trading day prior to the consummation of the Inotera acquisition or (ii) $10.00.



2021 Convertible Notes: We haveare evaluating the option to issue up to 12.6 billion New Taiwan dollars (equivalent to $386 million, assuming 32.6 New Taiwan dollars per U.S. dollar) in lieufair values of a correspondingthe accounting consideration transferred, assets acquired, and liabilities assumed. Our accounting for the Inotera Acquisition will include the fair value of Micron Shares so longour previously-held noncontrolling equity interest in Inotera as we also issue Micron Sharesof the acquisition date as consideration, which differs from the per share amount paid to Nanya of at least 6.3 billion New Taiwan dollars (equivalent to $193 million) pursuantacquire the controlling interest in Inotera. We will recognize a gain or loss to the Private Placement.

Technology Transferextent of the difference between the fair value and License Agreements with Nanya

In the carrying value as of the acquisition date. We expect to complete the provisional purchase price allocation for the Inotera Acquisition in our second quarter of 2016, we entered into technology transfer and license agreements pursuant to which Nanya has the option to require us to transfer to Nanya certain technology and deliverables related to the next DRAM process node generation (the "1X Process Node") after our 20nm process node and the next DRAM process node generation after the 1X Process Node for Nanya's use. Under the terms of the agreements, Nanya would pay royalties to us for a license to the transferred technology based on revenues from products implementing the technology, subject to an agreed cap, and we would also receive an equity interest in Nanya upon the achievement of certain milestones. Nanya's option becomes exercisable upon the closing of the Inotera acquisition transaction.

Business Segments

We have the following four business units, which are our reportable segments:

Compute and Networking Business Unit ("CNBU"):Includes memory products sold into compute, networking, graphics, and cloud server markets.
Storage Business Unit ("SBU"):Includes memory products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Mobile Business Unit ("MBU"):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Embedded Business Unit ("EBU"):Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.2017.




Results of Operations

Consolidated Results

 Third Quarter Second Quarter Nine Months First Quarter Fourth Quarter
 2016 % of Net Sales 2015 % of Net Sales 2016 % of Net Sales 2016 % of Net Sales 2015 % of Net Sales 2017 % of Net Sales 2016 % of Net Sales 2016 % of Net Sales
Net sales $2,898
 100 % $3,853
 100 % $2,934
 100 % $9,182
 100 % $12,592
 100 % $3,970
 100 % $3,350
 100 % $3,217
 100 %
Cost of goods sold 2,400
 83 % 2,651
 69 % 2,355
 80 % 7,256
 79 % 8,347
 66 % 2,959
 75 % 2,501
 75 % 2,638
 82 %
Gross margin 498
 17 % 1,202
 31 % 579
 20 % 1,926
 21 % 4,245
 34 % 1,011
 25 % 849
 25 % 579
 18 %
                                
SG&A 148
 5 % 169
 4 % 175
 6 % 502
 5 % 549
 4 %
R&D 382
 13 % 406
 11 % 403
 14 % 1,206
 13 % 1,161
 9 %
Selling, general, and administrative 159
 4 % 179
 5 % 157
 5 %
Research and development 470
 12 % 421
 13 % 411
 13 %
Restructure and asset impairments 29
 1 % 15
 — % 51
 2 %
Other operating (income) expense, net (5) — % (4) — % 6
 — % 18
 — % (36) — % (6) — % 2
 — % (8) — %
Operating income (loss) (27) (1)% 631
 16 % (5) — % 200
 2 % 2,571
 20 % 359
 9 % 232
 7 % (32) (1)%
               

                
Interest income (expense), net (99) (3)% (88) (2)% (85) (3)% (269) (3)% (246) (2)% (132) (3)% (85) (3)% (126) (4)%
Other non-operating income (expense), net (34) (1)% (16) — % (6) — % (44) — % (71) (1)% (14) — % (4) — % (10) — %
Income tax (provision) benefit (15) (1)% (104) (3)% (5) — % (16) — % (226) (2)% (31) (1)% 4
 — % (3) — %
Equity in net income (loss) of equity method investees (40) (1)% 68
 2 % 5
 — % 24
 — % 400
 3 % (2) — % 59
 2 % 1
 — %
Net (income) loss attributable to noncontrolling interests —
 — % —
 — % (1) — % (1) — % —
 — %
Net income attributable to noncontrolling interests —
 — % —
 — % —
 — %
Net income (loss) attributable to Micron $(215) (7)% $491
 13 % $(97) (3)% $(106) (1)% $2,428
 19 % $180
 5 % $206
 6 % $(170) (5)%

Net Sales

 Third Quarter Second Quarter Nine MonthsFirst Quarter Fourth Quarter
 2016 % of Total 2015 % of Total 2016 % of Total 2016 % of Total 2015 % of Total2017 % of Total 2016 % of Total 2016 % of Total
CNBU $1,090
 38% $1,514
 39% $1,053
 36% $3,282
 36% $5,424
 43%$1,470
 37% $1,139
 34% $1,247
 39%
MBU1,032
 26% 834
 25% 671
 21%
SBU 719
 25% 901
 23% 901
 31% 2,504
 27% 2,839
 23%860
 22% 884
 26% 758
 24%
MBU 561
 19% 938
 24% 503
 17% 1,898
 21% 2,734
 22%
EBU 487
 17% 483
 13% 460
 16% 1,426
 16% 1,524
 12%578
 15% 479
 14% 513
 16%
All Other 41
 1% 17
 —% 17
 1% 72
 1% 71
 1%30
 1% 14
 —% 28
 1%
 $2,898
 
 $3,853
 

 $2,934
 

 $9,182
 
 $12,592
 

$3,970
   $3,350
   $3,217
  
Percentages of total net sales reflect rounding and may not total 100%.

Total net sales for the thirdfirst quarter of 2016 were relatively unchanged2017 increased 23% as compared to the secondfourth quarter of 2016 as decreases in SBU2016. Higher sales were offset byfor all operating segments resulted from increases in MBU, CNBU,gigabits sold and EBU sales. SBUDRAM average selling prices. The increases in gigabits sold for the first quarter of 2017 were primarily attributable to increases in market demand and higher manufacturing output due to improvements in product and process technologies.



Total net sales for the thirdfirst quarter of 2016 decreased2017 increased 19% as compared to the second quarter of 2016 primarily due to lower gigabit sales volumes and declines in average selling prices. MBU, CNBU, and EBU sales for the third quarter of 2016 increased as compared to the secondfirst quarter of 2016 primarily due to higher gigabitCNBU, MBU, and EBU sales volumes partially offset byas increases in gigabits sold outpaced declines in average selling prices.

Total net sales The increases in gigabits sold for the thirdfirst quarter of 2017 were primarily attributable to increases in market demand and first nine months of 2016 decreased 25% and 27%, respectively, as compared to the corresponding periods of 2015 primarilyhigher manufacturing output due to lower CNBU, MBU,improvements in product and SBU sales as a result of declines in average selling prices.


process technologies.

Gross Margin

Our overall gross margin percentage declinedincreased to 17%25% for the thirdfirst quarter of 2017 from 18% for the fourth quarter of 2016 from 20% for the second quarter of 2016 primarily due to declinesreflecting increases in the gross margin percentages for all operating segments, primarily due to manufacturing cost reductions and to increases in average selling prices for DRAM products.

Our overall gross margin percentage for MBU, SBU,the first quarter of 2017 was essentially unchanged from the first quarter of 2016. CNBU and CNBUEBU gross margin percentages for the first quarter of 2017 improved as a resultcompared to the first quarter of 2016 as manufacturing cost reductions outpaced declines in average selling price, while MBU and SBU gross margin percentages declined as decreases in average selling prices partially offset byoutpaced manufacturing cost reductions.

Due to the lengthening period of time between DRAM product technology node transitions, an increased re-use rate of equipment, and industry trends, we revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years in the fourth quarter of 2016. For 2017, we estimate the effect of the revision reduces depreciation costs by approximately $100 million per quarter.

From January 2013 through December 2015, we purchased all of Inotera's DRAM output under a supply agreementagreements at prices reflecting discounts from market prices for our comparable components. Effective beginning on January 1, 2016,After December 2015, the price for DRAM products sold topurchased by us iswas based on a formula that equally sharesshared margin between Inotera and us. We purchased $348$504 million, $326$372 million, and $533$379 million of DRAM products from Inotera in the thirdfirst quarter of 2016, second2017, the fourth quarter of 2016, and third quarter of 2015, respectively. In 2015 and the first quarter of 2016, the cost for Inotera products was higher than the cost for similar products manufactured in our wholly-owned facilities. Due to declines in average selling prices, our per gigabit cost ofrespectively. DRAM products purchased from Inotera have decreased significantly throughout 2015 andaccounted for 37% of our aggregate DRAM gigabit production for the first nine monthsquarter of 2016 such that, beginning in2017 as compared to 28% for the secondfourth quarter of 2016 the costs for Inotera products have more closely approximated the cost for similar products manufactured in our wholly-owned facilities. The supply agreement with Inotera (as extended in December 2015) has an initial three-year term, which commenced on January 1, 2016, followed by a three-year wind-down period. Upon termination of the initial three-year term, the share of Inotera's capacity we would purchase would decline over the wind-down period.

Our overall gross margin percentage declined to 17% for the third quarter of 2016 from 31% for the third quarter of 2015 as a result of declines in the gross margin percentage for MBU, CNBU, and SBU, primarily due to declines in average selling prices partially offset by manufacturing cost reductions. Our overall gross margin percentage declined to 21%29% for the first nine monthsquarter of 2016 from 34% for the first nine months of 2015 as a result of declines in the gross margin percentage for CNBU, MBU, and SBU, primarily due to declines in average selling prices partially offset by manufacturing cost reductions.2016.

Operating Results by Business Segments

In the first quarter of 2017, we revised the measure of segment profitability reviewed by our chief operating decision maker and, as a result, certain items are no longer allocated to our business units. Comparative periods have been revised to reflect these changes. (See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Segment Information.")

CNBU

 Third Quarter Second Quarter Nine Months First Quarter Fourth Quarter
 2016 2015 2016 2016 2015 2017 2016 2016
Net sales $1,090
 $1,514
 $1,053
 $3,282
 $5,424
 $1,470
 $1,139
 $1,247
Operating income (loss) (64) 266
 (56) (106) 1,382
Operating income 204
 40
 10

CNBU sales and operating results are significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our DRAM products. (See "Operating Results by Product – DRAM" for further detail.) CNBU sales for the thirdfirst quarter of 20162017 increased 4%18% as compared to the secondfourth quarter of 2016 primarily due to increases in average selling prices and gigabits sold as a result of stronger demand as well as additional customer qualifications and higher shipments of our 20nm products. CNBU operating income for the first quarter of 2017 increased from the fourth quarter of 2016 due to increases in average selling prices and manufacturing cost reductions.

CNBU sales for the first quarter of 2017 increased 29% as compared to the first quarter of 2016 primarily due to increases in gigabits sold partially offset by declines in average selling prices. CNBU operating marginincome for the thirdfirst quarter of 2017 improved from the first quarter of 2016 was relatively unchanged from the second quarter of 2016.as manufacturing cost reductions outpaced decreases in average selling prices.

CNBU



MBU

  First Quarter Fourth Quarter
  2017 2016 2016
Net sales $1,032
 $834
 $671
Operating income (loss) 89
 148
 (35)

MBU sales are primarily composed of DRAM and Non-Volatile Memory, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for the thirdfirst quarter and first nine months of 2016 decreased 28% and 39%, respectively,2017 increased 54% as compared to the corresponding periodsfourth quarter of 20152016 primarily due to increases in both DRAM and Non-Volatile Memory gigabits sold driven by the completion of customer qualifications and higher memory content in smartphones. MBU operating margin for the first quarter of 2017 increased from the fourth quarter of 2016 due to increases in gigabits sold and manufacturing cost reductions for Non-Volatile Memory products partially offset by higher R&D costs.

MBU sales for the first quarter of 2017 increased 24% as compared to the first quarter of 2016 primarily due to significant increases in gigabits sold partially offset by declines in average selling prices as a result of continued weakness in the PC sector. CNBUprices. MBU operating margin for the thirdfirst quarter and first nine months of 20162017 declined from the corresponding periodsfirst quarter of 2015 as2016 due to decreases in average selling prices that outpaced manufacturing cost reductions.reductions and to higher R&D costs.

SBU

 Third Quarter Second Quarter Nine Months First Quarter Fourth Quarter
 2016 2015 2016 2016 2015 2017 2016 2016
Net sales $719
 $901
 $901
 $2,504
 $2,839
 $860
 $884
 $758
Operating loss (67) (33) (18) (118) (43) (45) (14) (57)

SBU sales and operating results are significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our Non-Volatile Memory products. (See "Operating Results by Product"Product – Trade Non-Volatile Memory" for further details.) SBU sales for the thirdfirst quarter of 2016 decreased 20%2017 increased 13% from the second quarter of 2016 primarily due to decreases in gigabits sold and declines in average selling prices. SBU sales include Non-Trade Non-Volatile Memory. Non-Trade Non-Volatile Memory sales were $120 million, $126 million, and $110 million for the third quarter of 2016, second quarter of 2016, and third quarter of 2015, respectively.

SBU sales of Trade Non-Volatile Memory products for the third quarter of 2016 decreased 22% as compared to the second quarter of 2016 primarily due to decreases in gigabits sold and declines in average selling prices. Decreases in gigabits sold for the third quarter of 2016 as compared to the second quarter of 2016 were primarily due to reduced production of planar NAND-based SSDs partially offset by an increase in production of 3D NAND-based SSDs. SBU operating margin for the third quarter of 2016 declined from the second quarter of 2016 primarily due to the reduction in gigabits sold and declines in average selling prices partially offset by cost reductions.

SBU sales of Trade Non-Volatile Memory products for the third quarter and first nine months of 2016 decreased 24% and 15%, respectively, from the corresponding periods of 2015 primarily due to declines in average selling prices. SBU operating margin for the third quarter and first nine months of 2016 declined from the corresponding periods of 2015 primarily due to declines in average selling prices partially offset by manufacturing cost reductions.

MBU

  Third Quarter Second Quarter Nine Months
  2016 2015 2016 2016 2015
Net sales $561
 $938
 $503
 $1,898
 $2,734
Operating income (loss) (18) 296
 (21) 96
 864

In 2016 and 2015, MBU sales were comprised primarily of DRAM and NAND Flash, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for the third quarter of 2016 increased 12% as compared to the secondfourth quarter of 2016 primarily due to increases in gigabits sold partially offset by declines in average selling prices. The increaseSBU sales included Non-Trade Non-Volatile Memory sales of $123 million, $129 million and $126 million, for the first quarter of 2017, fourth quarter of 2016, and first quarter of 2016, respectively.

SBU sales of Trade Non-Volatile Memory products for the first quarter of 2017 increased 17% from the fourth quarter of 2016 primarily due to increases in gigabits sold foras a result of higher SSD sales and strong demand in the third quarter of 2016 was primarily due to increased production. MBUNAND Flash market combined with higher manufacturing output, partially offset by declines in average selling prices. SBU operating margin for the thirdfirst quarter of 2017 improved from the fourth quarter of 2016 was relatively unchanged fromas manufacturing cost reductions outpaced declines in average selling prices, partially offset by higher R&D costs.

SBU sales of Trade Non-Volatile Memory products for the secondfirst quarter of 2016.

MBU sales for the third quarter and first nine months of 20162017 decreased 40% and 31%, respectively,3% as compared to the corresponding periodsfirst quarter of 20152016 primarily due to declines in average selling prices. MBUprices partially offset by increases in gigabits sold as a result of strong demand combined with higher manufacturing output. SBU operating margin for the thirdfirst quarter and first nine months of 20162017 declined from the corresponding periodsfirst quarter of 2015 primarily due to the declines2016 as decreases in average selling prices.prices outpaced manufacturing cost reductions, partially offset by lower operating expenses.

EBU

 Third Quarter Second Quarter Nine Months First Quarter Fourth Quarter
 2016 2015 2016 2016 2015 2017 2016 2016
Net sales $487
 $483
 $460
 $1,426
 $1,524
 $578
 $479
 $513
Operating income 107
 98
 87
 307
 331
 178
 121
 141

In 2016 and 2015,

EBU sales were comprisedare composed of DRAM, NAND Flash,Non-Volatile Memory, and NOR Flash in decreasing order of revenue. EBU sales for the thirdfirst quarter of 20162017 increased 6% from13% as compared to the secondfourth quarter of 2016 primarily due to increaseshigher sales volumes for Non-Volatile Memory products as a result of strong sales in gigabit sales of NAND Flash products partially offset by declines in average selling prices.our automotive and our consumer businesses, particularly for home automation and camera applications. EBU operating income for the thirdfirst quarter of 20162017 increased from the secondfourth quarter of 2016 primarily due to improved margins for NAND Flash products as a result of the increase in gigabits sales andmanufacturing cost reductions partially offset by declinesand the increases in average selling prices.


sales volumes.

EBU sales for the thirdfirst quarter of 2016 were relatively unchanged from the third quarter of 2015 as increases in gigabit sales offset declines in average selling prices. EBU sales for the first nine months of 2016 decreased 6%2017 increased 21% as compared to the first nine monthsquarter of 20152016 primarily due to declines in average selling prices forhigher sales volumes of DRAM and NAND FlashNon-Volatile Memory products which were partially offset by higher sales volumes.as a result of increases in demand. EBU operating income for the thirdfirst quarter of 2017 improved as compared to the first quarter of 2016 increased from the third quarter of 2015 primarily due to improved margins for DRAM products as manufacturing cost reductions outpaced declines in average selling prices. EBU operating income for the first nine months of 2016 declinedprices and as compared to the first nine months of 2015 primarily due to declines in margins for NAND Flash and NOR Flash products as a result of decreases in average selling prices partially offset by lower costs.sales volumes increased.

Operating Results by Product

Net Sales by Product

Third Quarter Second Quarter Nine MonthsFirst Quarter Fourth Quarter
2016 % of total net sales 2015 % of total net sales 2016 % of total net sales 2016 % of total net sales 2015 % of total net sales2017 % of Total 2016 % of Total 2016 % of Total
DRAM$1,728
 60% $2,359
 61% $1,588
 54% $5,261
 57% $8,166
 65%$2,421
 61% $1,945
 58% $1,946
 60%
Non-Volatile Memory  

   

   

   

   
           
Trade908
 31% 1,249
 32% 1,074
 37% 3,125
 34% 3,645
 29%1,272
 32% 1,143
 34% 1,013
 31%
Non-Trade120
 4% 110
 3% 126
 4% 372
 4% 342
 3%123
 3% 126
 4% 129
 4%
Other142
 5% 135
 4% 146
 5% 424
 5% 439
 3%154
 4% 136
 4% 129
 4%
$2,898
 

 $3,853
   $2,934
 

 $9,182
   $12,592
  $3,970
   $3,350
   $3,217
  
Percentages of total net sales reflect rounding and may not total 100%.

Trade Non-Volatile Memory includes NAND Flash and 3D XPoint memory. Non-Trade Non-Volatile Memory primarily consists of Non-Volatile Memory products manufactured and sold to Intel through IMFT at long-term negotiated prices approximating cost. Information regarding our MCP products, which combine both NAND Flash and DRAM components, is reported within Trade Non-Volatile Memory. Sales of NOR Flash products are included in Other.

DRAM

 First Quarter 2017 Versus
 
Third Quarter 2016
Versus
 
First Nine
Months 2016
Versus
 Fourth Quarter First Quarter
 
Second
Quarter
2016
 
Third
Quarter
2015
 
First Nine
Months
2015
 2016 2016
          
 (percentage change from period indicated) (percentage change from period indicated)
Net sales 9 % (27)% (36)% 24 % 24 %
Average selling prices per gigabit (11)% (35)% (34)% 5 % (21)%
Gigabits sold 22 % 13 % (2)% 18 % 57 %
Cost per gigabit (9)% (14)% (15)% (5)% (20)%

The increaseincreases in gigabits sold for the first quarter of 2017 as compared to the fourth and decreasefirst quarters of 2016 were primarily due to strong demand across key markets and customer qualifications combined with increases in gigabit production. The decreases in cost per gigabit for the thirdfirst quarter of 20162017 as compared to the second quarterfourth and first quarters of 2016 and third quarter of 2015 waswere primarily due to increases in gigabit production due to improvements in product and process technologies.technologies and lower depreciation due to a change made in the fourth quarter of 2016 in estimated useful lives for equipment at our DRAM wafer fabrication facilities. Gigabit production inand cost reductions for the first quarter of 2017 and the fourth quarter of 2016 has been constrainedwere affected by equipment downtime incurred in connection with transitioning from 25nm to 20nm-based products and a shifttransition to a higher mix of DDR4 products, which have larger die sizes and fewer bits per wafer. The decrease in gigabits sold for the first nine months of 2016 as compared to the first nine months of 2015 was primarily due to our transition to 20nm-based products and a shift to a higher mix of DDR4 products, partially offset by improvements in product and process technologies.





Our DRAM products purchased from Inotera accountedgross margin percentage for 32% of our aggregate DRAM gigabit production for the third quarter of 2016 as compared to 29% for the second quarter of 2016 and 33% for the third quarter of 2015. In 2015 and the first quarter of 2017 increased as compared to the fourth quarter of 2016 ourprimarily due to manufacturing cost of for Inotera products was higher than our cost for similar products manufactured in our wholly-owned facilities. Due to declinesreductions and increases in average selling prices, our per gigabit cost of products purchased from Inotera have decreased significantly throughout 2015 and the first nine months of 2016 such that, beginning in the second quarter of 2016, our costs for Inotera products have more closely approximated our cost for similar products manufactured in our wholly-owned facilities.

prices. Our gross margin percentage on sales of DRAM products for the thirdfirst quarter of 2016 declined2017 was relatively unchanged from the secondfirst quarter of 2016 as decreasesmanufacturing cost reductions offset declines in average selling prices outpaced manufacturing cost reductions. Our gross margin percentage for the third quarter and first nine months of 2016 declined as compared to the corresponding periods of 2015 as decreases in average selling prices outpaced manufacturing cost reductions. Manufacturing cost reductions for the third quarter of 2016 as compared to the second quarter of 2016 were primarily due to improvements in product and process technologies. Manufacturing cost reductions for the third quarter and first nine months of 2016 as compared to the corresponding periods of 2015 primarily reflected lower costs for product purchased from Inotera and improvements in product and process technologies.prices.

Trade Non-Volatile Memory

 First Quarter 2017 Versus
 Third Quarter 2016
Versus		 First Nine
Months 2016
Versus		 Fourth Quarter First Quarter
 Second
Quarter
2016		 Third
Quarter
2015		 First Nine
Months
2015		 2016 2016
          
 (percentage change from period indicated) (percentage change from period indicated)
Sales to trade customers          
Net sales (15)% (27)% (14)% 26 % 11 %
Average selling prices per gigabit (6)% (26)% (18)% 0 % (21)%
Gigabits sold (10)% (2)% 5 % 26 % 40 %
Cost per gigabit (3)% (21)% (15)% (8)% (20)%

Through the thirdfirst quarter of 2016,2017, substantially all of our Trade Non-Volatile Memory sales were from NAND Flash products. The decreasesincrease in gigabits sold of Trade Non-Volatile Memory for the thirdfirst quarter of 20162017 as compared to the secondfourth quarter of 2016 and thirdfirst quarter of 2015 were primarily2016 was due to reduced production of planar-NAND based SSDs partially offset byan increase in demand, primarily for SSD and MCP products. Our ability to meet this demand was due in part to an increase in production from our facilities, primarily due to the ramp of 3D NAND-based SSDs. Gigabit productionadditional capacity and improvements in 2016 has been constrained by equipment downtime incurred in connection with transitioningproduct and process technology, including our transition to 3D NAND Flash products. Increases in gigabit production for the first quarter of 2017 as compared to the fourth quarter of 2016 were limited by a shift in product mix to higher levels of managed NAND Flash and MCP products, which have both higher average selling prices and costs per gigabit.

Our gross margin percentage on sales of Trade Non-Volatile Memory products for the thirdfirst quarter of 2017 increased from the fourth quarter of 2016 declinedprimarily due to manufacturing cost reductions. Our gross margin percentage on sales of Trade Non-Volatile Memory products for the first quarter of 2017 was relatively unchanged from the secondfirst quarter of 2016 and third quarter of 2015 as themanufacturing cost reductions offset declines in average selling prices outpaced manufacturing cost reductions. Manufacturing cost reductions for the third quarter of 2016 as compared to the second quarter of 2016 and third quarter of 2015 primarily resulted from improvements in product and process technologies.prices.

Operating Expenses and Other

Selling, General, and Administrative

SG&A expenses for the thirdfirst quarter of 2016 decreased 15% as2017 were relatively unchanged compared to the secondfourth quarter of 2016 due to lower payroll costs resulting primarily from the suspension of variable-pay plans.2016. SG&A expenses for the thirdfirst quarter of 2017 were 11% lower than the first quarter of 2016 decreased 12% as compared to the third quarter of 2015primarily due to decreases in payroll costs resulting primarily fromas a result of the suspension of variable-pay plans, and travel costs, partially offset by increases in legal fees. SG&A expenses for the first nine months of 2016 decreased 9% as compared to the first nine months of 2015 due to decreases in payroll costs, resulting primarily from the suspension of variable-pay plans, and travel costs.


Restructuring Plan.

Research and Development

R&D expenses for the thirdfirst quarter of 2016 decreased 5% from2017 were 14% higher than the secondfourth quarter of 2016 primarily due to lower payroll costs resulting primarily from the suspension of variable-pay plans. R&D expenses for the third quarter of 2016 decreased 6% from the third quarter of 2015 primarily due to lowerhigher volumes of development wafers processed and lower payroll costs resulting primarily from the suspension of variable-pay plans.higher variable pay costs. R&D expenses for the first nine monthsquarter of 2017 were 12% higher than the first quarter of 2016 increased 4% from the first nine months of 2015 primarily due to an increase in depreciation expense from R&D capital expenditures, higher volumes of development wafers processed, higher payroll costs, and an increase in amortization of product and process technology.processed.

We generally share with Intel the costs of product design and process development activities for NAND Flash and 3D XPoint memory.memory at IMFT and our other facilities. Our R&D expenses reflect net reductions as a result of reimbursements under our cost-sharing arrangements with Intel and others of $55$56 million for the thirdfirst quarter of 2016, $532017, $52 million for the secondfourth quarter of 2016, and $62$48 million for the thirdfirst quarter of 2015.2016.

Our process technology R&D efforts are focused primarily on development of successively smaller line-width and 3D NAND Flash process technologies which are designed to facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our core semiconductor expertise, and the development of new manufacturing materials. Product design and development efforts include our high density DDR3 and DDR4 DRAM products, Mobile LPDRAM products, high density NAND Flash memory (including 3D NAND and MLC and TLC technologies), 3D XPoint memory, SSDs (including firmware and controllers), hybrid memory cubes, specialty memory, NOR Flash memory, and other memory technologies and systems.







Income Taxes

Our effectiveincome tax rates were 9.4%, 5.2%, and 19.7% for(provision) benefit included the third quarter of 2016, second quarter of 2016, and third quarter of 2015, respectively, primarily reflecting provisions on non-U.S. operations. following:
  First Quarter Fourth Quarter
  2017 2016 2016
Utilization of and other changes in net deferred tax assets of MMJ and MMT $(13) $(22) $(12)
U.S. valuation allowance release resulting from business acquisition —
 41
 —
Other, primarily other non-U.S. operations (18) (15) 9
  $(31) $4
 $(3)
       
Effective tax rate 14.6% 2.8% 1.8%

Our effective tax rates reflect the following:

operations in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and the tax rates are significantly lower than the U.S. statutory rate;
operations outside the U.S., including Singapore, and, to a lesser extent, Taiwan, where we have tax incentive arrangements that further decrease our effective tax rates;
exclusion of certain jurisdictions from the consolidated effective tax rate computations for instances where no benefit is recorded on forecasted losses or where a small change in estimated ordinary income has a significant impact on the annual effective tax rate;losses; and
a valuation allowance against substantially all of our U.S. net deferred tax assets.

Income taxes for the third quarter of 2016, second quarter of 2016, and third quarter of 2015 included provisions of $71 million, $10 million, and $67 million, respectively, related to utilization of, and other changes in, deferred tax assets of MMJ and MMT. Income taxes for the third quarter of 2016 also included tax benefits of $52 million related to the favorable resolution of certain prior year tax matters, which were previously reserved as uncertain tax positions. The remaining taxes for these periods primarily reflect taxes for our other non-U.S. operations. Income taxes for U.S. operations in 2016 and 2015 were substantially offset by changes in the valuation allowance.

We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowance.  The amount of the deferred tax asset considered realizable could be adjusted if sufficient positive evidence exists.increases.

We operate in a number of locations outside the U.S., including Singapore, and, to a lesser extent, Taiwan, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operationsoperation and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, were not significant to our tax provision for the third quarter of 2016 or the second quarter of 2016, and reduced our tax provision by $52$40 million (benefitting our diluted earnings per share by $0.04) for the thirdfirst quarter of 2015.


2017, were not material for the fourth quarter of 2016, and by $12 million ($0.01 per diluted share) for the first quarter of 2016.

Equity in Net Income (Loss) of Equity Method Investees

We recognize our share of earnings or losses from equity method investments generally on a two-month lag. Equity in net income (loss) of equity method investees, net of tax, included the following:

 Third Quarter Second Quarter Nine Months First Quarter Fourth Quarter
 2016 2015 2016 2016 2015 2017 2016 2016
Inotera $(19) $67
 $2
 $35
 $402
 $9
 $52
 $(3)
Tera Probe (22) 3
 3
 (16) (3) (12) 3
 5
Other 1
 (2) —
 5
 1
 1
 4
 (1)
 $(40) $68
 $5
 $24
 $400
 $(2) $59
 $1

DuringOur equity in net income (loss) of Inotera increased for the thirdfirst quarter of 2017 compared to the fourth quarter of 2016 primarily due to increases in average selling prices and sales volume. Our equity in net income of Inotera declined for the first quarter of 2017 as compared to the first quarter of 2016 primarily due to declines in average selling prices.

In the first quarter of 2017, we recorded an impairment charge of $25$16 million within equity in net income (loss) of equity method investees to write down the carrying value of our investment in Tera Probe to its fair value based on its trading price.

Our equity in net income (loss) of Inotera declined for the third quarter of 2016 as compared to the second quarter of 2016 primarily due to declines in average selling prices and adverse effects of changes in currency exchange rates. Our equity in net income (loss) of Inotera declined for the third quarter and first nine months of 2016 as compared to the corresponding periods of 2015 primarily due to declines in average selling prices and cost of transitioning to the next technology node. Included in our earnings for the first nine months of 2015 was $55 million from Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent periods.





Other

In the fourth quarterFurther discussion of 2016, we initiated a restructure plan in response to the current business environmentother operating and the need to accelerate focus on our key priorities.  We plan to implement a cost savings program in which we expect to save approximately $80 million per quarter in 2017.  The savings are expected to result from a combination of a more focused set of projectsnon-operating income and programs, the permanent closure of a number of open headcount requisitions, a workforce reduction in certain areas of the business, and other non-headcount related spending reductions. In connection with the plan, we expect to incur charges of $70 million, substantially all in cash expenditures, the majority of which is expected to be incurred in the fourth quarter of 2016, with the remainder in the early part of 2017.

In the first quarter of 2016, we recorded an aggregate of $15 million of charges for restructure activities primarily in Agrate, Italy and Aguadilla, Puerto Rico. As of June 2, 2016, we do not anticipate incurring significant additional costs for these restructure activities. Other non-operating expenses for the first nine months of 2015 included $48 million from the restructure of debt and $26 million from changes in currency exchange rates. Further discussion can be found in the following notes contained in "Item 1. Financial Statements – Notes to Consolidated Financial Statements":

Equity Plans
Other Operating (Income) Expense, NetRestructure and Asset Impairments
Other Non-Operating Income (Expense), Net


Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets. We generated cash from operations of $2.27 billion in the first nine months of 2016 and $5.21 billion in 2015. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We obtained debt and sale-leaseback financing of $2.70 billion in the first nine months of 2016 and $2.50 billion in 2015. As of June 2, 2016, we had a revolving credit facility available for up to $412 million of additional financing based on eligible receivables. We are continuously evaluating alternatives for efficiently funding our capital expenditures dilution-management activities, and ongoing operations. We expect, from time to time in the future, to engage in a variety of transactions for such purposes, including the issuance or incurrence of secured and unsecured debt and the refinancing and restructuring of existing debt. As of December 1, 2016, we had a revolving credit facility available for up to $675 million of additional financing based on eligible receivables. As of December 1, 2016, we also had an available five-year variable-rate facility agreement to obtain up to $800 million of financing, collateralized by certain production equipment, of which we drew $450 million on December 2, 2016, and for which the remainder may be utilized in multiple draws until June 10, 2017. We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements through at least through the next 12 months.



To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate that net cash expenditures in 20162017 for property, plant, and equipment will be approximately $5.0$4.8 billion to $5.5$5.2 billion, which reflects the offset of amounts we expect to be funded by our partners. The actual amounts for 20162017 will vary depending on market conditions. Total additions to property, plant, and equipment in the first nine months of 2016 were $4.90 billion, which, in comparison to cash expenditures, reflects differences in timing of receipts and payments for equipment as well as non-cash additions such as equipment leases. As of June 2,December 1, 2016, we had commitments of approximately $2.26 billion$550 million for the acquisition of property, plant, and equipment, substantially all of which is expected to be paid within one year.

Cash and marketable investments included the following:

As of June 2,
2016		 September 3,
2015		 December 1, 2016 September 1, 2016
Cash and equivalents and short-term investments $4,981
 $3,521
 $4,169
 $4,398
Long-term marketable investments 671
 2,113
 155
 414

Our investments consist primarily of liquid investment-grade fixed-income securities, diversified among industries and individual issuers. As of June 2,December 1, 2016, $1.55$1.83 billion of our cash and equivalents and short-term investments was held by our foreign subsidiaries, substantially all of which is$1.33 billion was denominated in currencies other than the U.S. dollar. To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor.

Proposed Acquisition of Inotera

InOn December 6, 2016, subsequent to the secondend of our first quarter of 2016,2017, we entered into agreements to acquireacquired the remaining67% interest in Inotera for 30 New Taiwan dollars per share in cash (equivalent to approximately $0.92 per share, assuming 32.6 New Taiwan dollars per U.S. dollar, the exchange rate as of June 2, 2016). As of June 2, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. Based on the exchange rate as of June 2, 2016, we estimate the aggregate consideration payable for the 67% of Inotera shares not owned by us would be approximatelyfor an aggregate of $4.1 billion. We anticipate financing the acquisitionbillion in cash (the "Inotera Acquisition"), funded with a combination of proceeds from the 80 billion New Taiwan dollar debt financing described below, a combination2021 Term Loan (defined below), the sale of issuanceshares of Micron Shares and convertible notesour common stock to Nanya, described below, additional borrowings under our existing credit agreement, and cash on hand.

On March 29, 2016, the transaction was approved by the shareholders of Inotera, including Nanya and certain of Nanya's affiliates (which approval was provided pursuant to voting and support agreements). Under the voting and support agreements, the parties have further agreed not to transfer any of their Inotera shares so long as the voting and support agreements are in effect. These agreements will terminate automatically upon the termination of the agreement to purchase the Inotera shares.Acquisition Financing

Consummation of the acquisition of Inotera is subject to various conditions, including but not limited to:

the receipt of necessary regulatory approvals from authorities in Taiwan, which have been received;
the consummation and funding of debt financing of at least2021 Term Loan: On December 6, 2016, we drew 80 billion New Taiwan dollars (equivalent to $2.5 billion) under a collateralized, five-year term loan that bears interest at a variable rate equal to the three-month or six-month TAIBOR, at our option, plus a margin of 2.05% per annum (the "2021 Term Loan"). Principal under the 2021 Term Loan is payable in six equal semi-annual installments, commencing in June 2019, through December 2021. The 2021 Term Loan is collateralized by certain assets including a real estate mortgage on Inotera's main production facility and site, a chattel mortgage over certain equipment of Inotera, all of the stock of our MSTW subsidiary, and the 82% of stock of Inotera owned by MSTW.



The 2021 Term Loan contains affirmative and negative covenants, including covenants that limit or restrict our ability to create liens in or dispose of collateral securing obligations under the 2021 Term Loan, mergers involving MSTW and/or Inotera, loans or guarantees to third parties by Inotera and/or MSTW, and MSTW's distribution of cash dividends (subject to satisfaction of certain financial conditions). The 2021 Term Loan also contains financial covenants as follows, which are tested semi-annually:

MSTW must maintain a consolidated ratio of total debt to adjusted EBITDA not higher than 5.5x in 2017 and 2018, and not higher than 4.5x in 2019 through 2021;
MSTW must maintain adjusted consolidated tangible net worth of not less than 4.0 billion assuming 32.6 New Taiwan dollars per U.S. dollar), (equivalent to $125 million) in 2017 and 2018, not less than 6.5 billion New Taiwan dollars (equivalent to $203 million) in 2019 and 2020, and not less than 12.0 billion New Taiwan dollars (equivalent to $374 million) in 2021;
on terms that are satisfactorya consolidated basis, we must maintain a ratio of total debt to us;adjusted EBITDA not higher than 3.5x in 2017, not higher than 3.0x in 2018 and 2019, and not higher than 2.5x in 2020 and 2021; and
unlesson a consolidated basis, we determine otherwise, the consummationmust maintain adjusted tangible net worth not less than $9.0 billion in 2017, not less than $12.5 billion in 2018 and funding of the Private Placement (described below).2019, and not less than $16.5 billion in 2020 and 2021.

The date for the closingIf one or more of the Inotera transactionrequired financial ratios is not determinablemaintained at this time. Consummation of the Inotera transaction is subject to significant uncertainties and there can be no assurance thattime the Inotera transactionratios are tested, the interest rate will be consummated.increased by 0.25% until such time as the required financial ratios are maintained. In addition, if MSTW fails to maintain a required financial ratio for two consecutive semi-annual periods, such failure will constitute an event of default that could result in all obligations owed under the 2021 Term Loan being accelerated to be immediately due and payable. Our failure to maintain a required consolidated financial ratio will only result in an increase to the interest rate and will not constitute an event of default. The 2021 Term Loan also contains customary events of default and is guaranteed by Micron.

IssuanceTo hedge our currency exposure of Micron Shares and Convertible Notesthis borrowing, in December 2016, subsequent to Nanya:In the second and third quartersend of 2016,our first quarter of 2017, we entered into agreements with Nanya pursuanta series of currency forward contracts to which we have the option to issuepurchase an aggregate of 80 billion New Taiwan dollars under a combination of shares of our common stock (the "Micron Shares") and 2.00% convertible senior notes due 2021 (the "2021 Convertible Notes") to Nanya, which is subject to regulatory approvals androlling hedge strategy. The forward contracts expire at various other conditions. The issuance of the Micron Shares or the 2021 Convertible Notes is subject to the consummation of the Inotera acquisition and the proceeds would be used to fund a portion of the consideration payable in the Inotera acquisition.


dates through June 2017.

Micron Shares: We haveIn connection with the option to issue Micron Shares in an amount equivalent to up to 31.5 billion New Taiwan dollars (equivalent to $964 million, assuming 32.6 New Taiwan dollars per U.S. dollar) (the "Private Placement"), which would be used to fund a portion of the consideration for the transaction. The per-share selling price for the Micron Shares would be equalInotera Acquisition, subsequent to the greaterend of the New Taiwan dollar equivalentour first quarter of (i) the average of the closing sale price2017, we sold 58 million shares of our common stock during the 30 consecutive trading day period ending on and including the 30th trading day prior to the consummationNanya for $981 million (the "Micron Shares"), of which 54 million were issued from treasury stock. The sale of the Micron Shares was exempt from the registration requirements of the Securities Act of 1933, as amended, and the Micron Shares are subject to certain restrictions on transfers.Our accounting for the Inotera acquisition or (ii) $10.00.

2021 Convertible Notes: We haveAcquisition will include the option to issue up to 12.6 billion New Taiwan dollars (equivalent to $386 million, assuming 32.6 New Taiwan dollars per U.S. dollar) in lieu of a correspondingfair value of the Micron Shares so long as we also issue Micron Shares to Nanya of at least 6.3 billion New Taiwan dollars (equivalent to $193 million) pursuant to the Private Placement.acquisition date as consideration.

(See "Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Proposed Acquisition of Inotera.")

Limitations on the Use of Cash and Investments

MMJ Group: Cash and equivalents and short-term investments in the table above included an aggregate of $598$684 million held by the MMJ Group as of June 2,December 1, 2016. As a result of the corporate reorganization proceedings of the MMJ Companies entered intoinitiated in March 2012, and for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companiesprohibited from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends.us. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ CompaniesCourt and may, under certain circumstances, be considered outside of the ordinary course of business and subject to approval of the legal trusteetrustees and Japan Court. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.

IMFT:IMFT: Cash and equivalents and short-term investments in the table above included $100$77 million held by IMFT as of June 2,December 1, 2016. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.

Indefinitely Reinvested:Reinvested: As of June 2,December 1, 2016, $798$723 million of cash and equivalents and short-term investments, including substantially all of the amounts held by the MMJ Group, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the U.S. would subject these funds to U.S. federal income taxes. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.

Operating Activities

Net cash provided by operating activities was $2.27 billion for


Cash Flows

  First Quarter
  2017 2016
Net cash provided by operating activities $1,138
 $1,120
Net cash provided by (used for) investing activities (890) (660)
Net cash provided by (used for) financing activities (212) (140)
Effect of changes in currency exchange rates on cash and equivalents (37) (2)
Net increase (decrease) in cash and equivalents $(1) $318

Operating Activities:For the first nine monthsquarter of 2016. Cash2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $401 million cash used for net increases in receivables and $299 million cash provided by net increases in accounts payable and accrued expenses. For the first nine monthsquarter of 2016, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $468$297 million of cash provided from net reductions in receivables due to a lower level of sales, offset by $580 million of cash used from net increases in inventory.receivables.

Investing Activities

Net: For the first quarter of 2017, net cash used for investing activities was $1.64 billion for the first nine months of 2016, which consisted primarily of cash$1.26 billion of expenditures of $3.89 billion for property, plant, and equipment and $148 million for the acquisition(which excludes offsets of Tidal Systems, Ltd.amounts funded by our partners), partially offset by $2.31 billion$483 million of net inflows from sales, maturities, and purchases of available-for-sale securities.



Financing Activities

Net cash provided by financing activities was $1.70 billion for For the first nine monthsquarter of 2016, net cash used for investing activities consisted primarily of $990 million of expenditures for property, plant, and included $1.25 billion from the issuanceequipment (which excludes offsets of amounts funded by our 2023 Senior Secured Notes, $742partners) and $148 million (netfor our acquisition of original issue discount) from the issuance of our 2022 Term Loan B notes, and $538 million from equipment sale-leaseback financing transactions, which wereTidal Systems, Ltd., partially offset by $534 million of net inflows from sales, maturities, and purchases of available-for-sale securities.

Financing Activities:For the first quarter of 2017, net cash outflowsused for financing activities consisted primarily of $689$188 million for repayments of debt. For the first quarter of 2016, net cash used for financing activities consisted primarily of $197 million for repayments of debt (including $36 million for the amount in excess of principal in connection with the repurchase of a portion of our convertible notes) and $125 million for the open-market repurchases of 7 million shares of our common stock. (Seestock, partially offset by $174 million of proceeds from the issuance of debt. See "Item 1. Financial InformationStatements – Notes to Consolidated Financial Statements – Debt.")

DuringPotential Settlement Obligations of Convertible Notes

Since the first quarter of 2016, we repurchased $57 million in aggregate principal amount of our 2033E Notes, which had a carrying value of $54 million, for $94 million in cash. As a result, we eliminated notes that were convertible into approximately 5 million sharesclosing price of our common stock.stock for at least 20 trading days in the 30 trading day period ended on December 31, 2016 exceeded 130% of the conversion price per share of our 2032 Notes and 2033 Notes, those notes will be convertible by the holders during the calendar quarter ended March 31, 2017. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending March 31, 2017 if all holders converted their 2032 Notes and 2033 Notes. The amounts in the table below are based on our closing share price of $18.48 as of December 1, 2016.

  Settlement Option for   If Settled With Minimum Cash Required If Settled Entirely With Cash
  Principal Amount Amount in Excess of Principal Underlying Shares Cash Remainder in Shares Cash
2032C Notes Cash and/or shares Cash and/or shares 23
 $—
 23
 $429
2032D Notes Cash and/or shares Cash and/or shares 18
 —
 18
 328
2033E Notes Cash Cash and/or shares 16
 176
 7
 297
2033F Notes Cash Cash and/or shares 27
 297
 11
 502
    
 84
 $473
 59
 $1,556









Contractual Obligations

 Payments Due by Period Payments Due by Period
As of June 2, 2016 Total Remainder of 2016 2017 2018 2019 2020 2021 and Thereafter
As of December 1, 2016 Total Remainder of 2017 2018 2019 2020 2021 2022 and Thereafter
Notes payable(1)(2)
 $12,128
 $187
 $771
 $935
 $943
 $1,065
 $8,227
 $11,713
 $675
 $893
 $898
 $1,040
 $551
 $7,656
Capital lease obligations(2)
 1,261
 118
 334
 286
 242
 130
 151
 1,405
 292
 352
 299
 204
 77
 181
Operating leases(3)
 1,035
 95
 396
 374
 117
 14
 39
 903
 317
 404
 129
 14
 11
 28
 $14,424
 $400
 $1,501
 $1,595
 $1,302
 $1,209
 $8,417
Total $14,021
 $1,284
 $1,649
 $1,326
 $1,258
 $639
 $7,865
(1) 
Amounts include MMJ Creditor Installment Payments, convertible notes, and other notes. Any future redemptions, repurchases, or conversions of debt could impact the amount and timing of our cash payments.
(2) 
Amounts include principal and interest.
(3) 
Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year. Under the supply agreement with Inotera effective beginning on January 1, 2016, a portion ofyear and primarily relate to the expected costs under such agreementwhich meet the criteria of a minimum operating lease payment under an operating lease.our Inotera supply agreement. As a result of the Inotera Acquisition on December 6, 2016, subsequent to the end of our first quarter of 2017, these amounts become intercompany transactions and will be eliminated in our consolidated financial statements.

The expected timing of payment amounts of the obligations discussed above is estimated based on current information. Timing and actual amounts paid may differ depending on the timing of receipt of goods or services, market prices, changes to agreed-upon amounts, or timing of certain events for some obligations. The contractual obligations in the table above include the current portions of the related long-term obligations. All other current liabilities are excluded.


Recently Adopted Accounting Standards

See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards."


Recently Issued Accounting Standards

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


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate Risk

We are exposed to interest rate risk related to our indebtedness and our investment portfolio. A substantial portion of our indebtedness is at fixed interest rates. As a result, the fair value of our debt fluctuates based on changes in market interest rates. We estimate that, as of June 2,December 1, 2016 and September 3, 2015,1, 2016, a hypothetical decrease in market interest rates of 1% would increase the fair value of our notes payable by approximately $373$395 million and $366$420 million, respectively. A 1% increase in the interest rates of our variable-rate debt would result in an increase in interest expense of approximately $10 million per year. In addition, in connection with the Inotera Acquisition, we drew 80 billion New Taiwan dollars under the 2021 Term Loan on December 6, 2016, subsequent to the end of our first quarter of 2017, at a variable interest rate. A 1% increase in the interest rates of our 2021 Term Loan would result in an increase in interest expense of approximately $25 million per year.

As of June 2,December 1, 2016 and September 3, 2015,1, 2016, we held fixed-rate debt securities of $1.38 billion$321 million and $3.83$1.11 billion, respectively, that were subject to interest rate risk. We estimate that a 0.5% increase in market interest rates would decrease the fair value of these instruments by approximately $1 million as of June 2,December 1, 2016 and $13 million as of September 3, 2015.1, 2016.






Foreign Currency Exchange Rate Risk

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

The functional currency for all of our consolidated subsidiariesoperations is the U.S. dollar. The substantial majority of our sales are transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Singapore dollar, the New Taiwan dollar, and the yen. We have established currency risk management programs for our operating expenditures and capital purchases to hedge against fluctuations in the fair value and volatility of future cash flows caused by changes in currency exchange rates. We generally utilize currency forward and option contracts in these hedging programs, which reduce, but do not always entirely eliminate, the impact of currency exchange rate movements. We do not use derivative financial instruments for trading or speculative purposes.

To hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities, we utilize a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within 35 days.  Based on our foreign currency exposuresbalances from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $1$289 million as of June 2,December 1, 2016 (or, after giving effect to the 80 billion New Taiwan dollars we drew on the 2021 Term Loan on December 6, 2016 and $3the use of cash to fund the Inotera Acquisition, losses of $462 million) and $241 million as of September 3, 2015.1, 2016. We hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities by utilizing a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within 35 days. In addition, we have entered into foreign currency forward contracts that mature in as many as 24 months to hedge our currency exchange rate risk on certain debt. The effectiveness of these hedges is dependent upon our ability to accurately forecast our monetary assets and liabilities. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital expenditures, we utilize currency forward contracts that generally mature within 12 months.(See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Derivative Instruments.")


ITEM 4. CONTROLS AND PROCEDURES


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

During the quarterly period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

Reorganization Proceedings of the MMJ Companies

In July 2013, we completed the acquisition of Elpida, now known as MMJ, a Japanese corporation, pursuant to the terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that we entered into in July 2012 with the trustees of the MMJ Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan.

The MMJ Companies filed petitions for commencement of corporate reorganization proceedings with the Japan Court under the Corporate Reorganization Act of Japan in February 2012, and the Japan Court issued an order to commence the reorganization proceedings (the "Japan Proceedings") in March 2012. In July 2012, we entered into the Sponsor Agreement with the legal trustees of the MMJ Companies and the Japan Court approved the Sponsor Agreement. Under the Sponsor Agreement, we agreed to provide certain support for the reorganization of the MMJ Companies and the trustees agreed to prepare and seek approval from the Japan Court and the MMJ Companies' creditors of plans of reorganization consistent with such support.

The trustees initially submitted the proposed plans of reorganization for the MMJ Companies to the Japan Court in August 2012 and submitted final proposed plans in October 2012. In October 2012, the Japan Court approved submission of the trustees' proposed plans of reorganization to creditors for approval. In February 2013, the MMJ Companies' creditors approved the reorganization plans and in February 2013, the Japan Court issued an order approving the plans of reorganization. Appeals filed by certain creditors of MMJ in Japan challenging the plan approval order issued by the Japan Court were denied.

In a related action, MMJ filed a Verified Petition for Recognition and Chapter 15 Relief in the United States Bankruptcy Court for the District of Delaware (the "U.S. Court") in March 2012 and, in April 2012, the U.S. Court entered an order that, among other things, recognized MMJ's corporate reorganization proceeding as a foreign main proceeding pursuant to 11 U.S.C. § 1517(b). InOn June 25, 2013, the U.S. Court issued a recognition order, which recognized the order of the Japan Court approving MMJ's plan of reorganization. In November 2013, the U.S. Court closed the U.S. Chapter 15 proceeding.

The plans of reorganization provide for payments by the MMJ Companies to their secured and unsecured creditors in an aggregate amount of 200 billion yen, less certain expenses of the reorganization proceedings and certain other items. The plans of reorganization also provided for the investment by us pursuant to the Sponsor Agreement of 60 billion yen ($615 million) paid at closing in cash into MMJ in exchange for 100% ownership of MMJ's equity and the use of such investment to fund the initial installment payment by the MMJ Companies to their creditors of 60 billion yen, subject to reduction for certain items specified in the Sponsor Agreement and plans of reorganization.

Under MMJ's plan of reorganization, secured creditors will recover 100% of the amount of their fixed claims and unsecured creditors will recover at least 17.4% of the amount of their fixed claims. The actual recovery of unsecured creditors will be higher, however, based, in part, on events and circumstances occurring following the plan approval. The remaining portion of the unsecured claims will be discharged, without payment, over the period that payments are made pursuant to the plans of reorganization. The secured creditors will be paid in full on or before the sixth installment payment date, while the unsecured creditors will be paid in seven installments. MAI's plan of reorganization provides that secured creditors will recover 100% of the amount of their claims, whereas unsecured creditors will recover 19% of the amount of their claims. The secured creditors of MAI were paid in full on the first installment payment date, while the unsecured creditors will be paid in seven installments.



Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of the MMJ acquisition, the Japan Proceedings are continuing and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee makes decisions in relation to the operation of the businesses of the MMJ Companies, other than decisions in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. The Japan Proceedings and oversight of the Japan Court will continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. The MMJ Companies may petition the Japan Court for an early termination of the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Japan Court will grant any such petition in these particular cases.



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

Other Proceedings

For a discussion of other legal proceedings, see "Part 1.I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies" and "Item 1A. Risk Factors."


ITEM 1A. RISK FACTORS

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

We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.

If average selling prices for our memory products decrease faster than we can decrease per gigabit costs, our business, results of operations, or financial condition could be materially adversely affected. For the first nine months of 2016, average selling prices per gigabit for our DRAM and Trade Non-Volatile products declined 34% and 18%, respectively, compared to the first nine months of 2015. We have experienced significant decreases in our average selling prices per gigabit in previous years as noted in the table below and may continue to experience such decreases in the future. In some prior periods, average selling prices for our memory products have been below our manufacturing costs and we may experience such circumstances in the future.

 DRAM Trade Non-Volatile DRAM Trade Non-Volatile
        
 (percentage change in average selling prices) (percentage change in average selling prices)
2016 from 2015 (35)% (20)%
2015 from 2014 (11)% (17)% (11)% (17)%
2014 from 2013 6 % (23)% 6 % (23)%
2013 from 2012 (11)% (18)% (11)% (18)%
2012 from 2011 (45)% (55)% (45)% (55)%
2011 from 2010 (39)% (12)%

We may be unable to maintain or improve gross margins.

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



The semiconductor memory industry is highly competitive.

We face intense competition in the semiconductor memory market from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SK Hynix Inc.; Toshiba Corporation; and Western Digital Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments, such as China, have provided, and may continue to provide, significant financial assistance to some of our competitors or to new entrants. Our competitors seek to increase silicon capacity, improve yields, reduce die size, and minimize mask levels in their product designs. Transitions to smaller line-width process technologies and product and process improvements have resulteddesigns resulting in significant increases in the worldwide supply of semiconductor memory.memory and downward pressure on prices. Increases in worldwide supply of semiconductor memory also result from semiconductor memory fab capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. In recent periods, weWe and some of our competitors have begun construction on or announced plans to buildor are constructing or ramping production at new fabrication facilities. Increases in worldwide supply of semiconductor memory, if not accompanied by commensurate increases in demand, would lead to further declines in average selling prices for our products and would materially adversely affect our business, results of operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.

Debt obligations could adversely affect our financial condition.

In recent periods, our debt levels have increased due to the capital intensive nature of our business, business acquisitions, and restructuring of our capital structure. As of June 2,December 1, 2016, we had debt with a carrying value of $9.63$9.65 billion. In addition, in connection with the first quarter ofInotera Acquisition, on December 6, 2016, we paid $94 milliondrew 80 billion New Taiwan dollars (equivalent to repurchase convertible notes with a principal amount of $57 million. In 2015, we paid $1.43 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $489 million. In 2014, we paid $2.30 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $1.09 billion.$2.5 billion) under the 2021 Term Loan. As of JuneDecember 1, 2016, we also had an available five-year variable-rate facility agreement to obtain up to $800 million of financing, collateralized by certain production equipment, of which we drew $450 million on December 2, 2016, and the remainder may be utilized in multiple draws until June 10, 2017. As of December 1, 2016, we also had a revolving credit facility available for up to $412$675 million of additional financing. The availability of this revolving facility is subject to certain conditions, including outstanding balances of eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy these applicable draw-down conditions and utilize this facility. We have incurred in the past, and expect to incur in the future, to continue to incur additional debt to finance our capital investments, business acquisitions, and restructuring of our capital structure. In the first nine months of 2016, we issued $1.25 billion of our 2023 Secured Notes and $750 million of our 2022 Term Loan B notes, and received an aggregate of $538 million in equipment sale-leaseback financing transactions. In connection with our proposed acquisition of the remaining interest in Inotera, we plan to fund a portion of the acquisition with approximately $2.5 billion of debt sourced in Taiwan and up to $386 million from the issuance of the 2021 Convertible Notes. The date for the closing of the Inotera transaction is not determinable at this time.

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

require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
result in all obligations owing under the 2021 Term Loan being accelerated to be immediately due and payable if our MSTW subsidiary fails to comply with financial covenants;
increase the interest rate under the 2021 Term Loan if we or MSTW fails to maintain certain financial covenants;
adversely impact our credit rating, which could increase future borrowing costs;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
restrict Micron'sour ability and that of its domestic restricted subsidiaries to incur indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
increase our vulnerability to adverse economic and semiconductor memory industry conditions;


continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.

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


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

Our cash flows from operations depend primarily on the volume of semiconductor memory sold, average selling prices, and manufacturing costs. To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate that net cash expenditures in 20162017 for property, plant, and equipment will be approximately $5.5$4.8 billion to $5.2 billion, which reflects the offset of amounts we expect to be funded by our partners. Investments in capital expenditures for the first nine monthsquarter of 20162017, offset by amounts funded by our partners, were $3.89$1.18 billion. As of June 2,December 1, 2016, we had cash and marketable investments of $5.65$4.32 billion. As of June 2,December 1, 2016, $798$723 million of cash and equivalents and short-term investments, including substantially all of the $598$684 million held by the MMJ Group, were held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the U.S. would subject these funds to U.S. federal income taxes. In addition, cash held by IMFT of $100$77 million was generally not available to finance our other operations.

As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companiesprohibited from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends to us in respect of the shares of such subsidiaries owned by the MMJ Companies, as any such dividends would have to be first paid to the MMJ Companies which are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ CompaniesCourt and may, under certain circumstances, be considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court. As a result, the assets of the MMJ Companies and their subsidiaries, while available to satisfy the MMJ Companies' installment payments and the other obligations, capital expenditures, and other operating needs of the MMJ Companies and their subsidiaries, are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.

In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assurance that we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do the foregoing could have a material adverse effect on our business, results of operations, or financial conditions.



Our proposed acquisition of the remaining shares of Inotera involves numerous risks.

InOn December 6, 2016, subsequent to the secondend of our first quarter of 2016,2017, we entered into agreements to acquireacquired the remaining67% interest in Inotera not owned by us for 30an aggregate of $4.1 billion in cash (the "Inotera Acquisition"), funded with 80 billion New Taiwan dollars per share in cash (equivalent to approximately $0.92 per share, assuming 32.6 New Taiwan dollars per U.S. dollar,$2.5 billion) of proceeds from the exchange rate as2021 Term Loan, $981 million of June 2, 2016). Asproceeds from the sale of June 2,shares of our common stock to Nanya, and cash on hand. Prior to December 6, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest in Inotera was publicly held. Based on the exchange rate as of June 2, 2016, we estimate the aggregate consideration payable for the 67% of Inotera shares not owned by us would be approximately $4.1 billion. We anticipate financing the acquisition with a combination of the following:

80 billion New Taiwan dollar debt financing (equivalent to $2.5 billion, assuming 32.6 New Taiwan dollars per U.S. dollar) sourced in Taiwan at an expected interest rate of approximately 3%;
up to 31.5 billion New Taiwan dollars (equivalent to $964 million) from the issuance of the Micron Shares under the Private Placement;
up to 12.6 billion New Taiwan dollars (equivalent to $386 million) from the issuance of the 2021 Convertible Notes in lieu of a corresponding amount of Micron Shares so long as we also issue Micron Shares to Nanya of at least 6.3 billion New Taiwan dollars (equivalent to $193 million) pursuant to the Private Placement;
additional borrowings under our existing credit agreement; and
cash on hand.

On March 29, 2016, the transaction was approved by the shareholders of Inotera, including Nanya and certain of Nanya's affiliates (which approval was provided pursuant to voting and support agreements). Consummation of the Inotera transaction is subject to significant uncertainties, including regulatory approvals and availability of debt financing on terms satisfactory to us, and there can be no assurance that the Inotera transaction will be consummated. There can be no assurance that the various conditions will be satisfied or that the Inotera transaction will ultimately be consummated. If the remaining closing conditions are not satisfied or waived, we will be unable to close the acquisition. The date for the closing of the Inotera transaction is not determinable at this time.
 
In addition to the acquisition risks described elsewhere, the acquisition is expected to involve the following significant risks:
 
we may be unable to realize the anticipated financial benefits of the acquisition;
increased exposure to the DRAM market, which experienced significant declines in pricing during 2015 and the first nine months of 2016;
our consolidated financial condition may be adversely impacted by the increased leverage resulting from the transaction;
higher capital expenditures in future periods;
increased exposure to operating costs denominated in New Taiwan dollars;
changed relationship with Nanya and its affiliated companies;
effectiveness of internal controls and disclosure controls and procedures;
effectiveness of environmental, health and safety, anti-corruption, human resource, or other policies or practices;
integration issues with Inotera's manufacturing operations in Taiwan; and
integration of business systems and processes.

Our proposed acquisition of the remaining shares of Inotera is inherently risky may not be successful, and may materially adversely affect our business, results of operations, or financial condition. (See "Part I.I Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Proposed Acquisition of Inotera.")





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

Our key semiconductor memory technologies of DRAM and NAND Flash face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on the ability to shrink products in order to reduce costs, meet higher density requirements, and improve power consumption and reliability. To meet these requirements, we expect that new memory technologies will be developed by the semiconductor memory industry. Our competitors are working to develop new memory technologies that may offer performance and/orand cost advantages to our existing memory technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory technologies.technologies. There can be no assurance of the following:

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



In the fourth quarter of 2015, we announced the development of new 3D XPoint technology, which is an entirely new class of non-volatile memory. There is no assurance that our efforts to develop and market this new product technology will be successful. If our efforts to develop new semiconductor memory technologies are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.

New product development may be unsuccessful.

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

•that our product development efforts will be successful;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;
•that we will be able to qualify new products with our customers on a timely basis; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.

If our efforts to develop new products are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.

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

Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time we experience problems with nonconforming, defective or incompatible products after we have shipped such products. In recent periods we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. As a result of these problems, we could be adversely affected in several ways, including the following:

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





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 materially adversely affect our business, results of operations, or financial condition.

As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights. We are unable to predict the outcome of assertions of infringement made against us. A determination that our products or manufacturing processes infringe the intellectual property rights of others, or entering 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 results could have a material adverse effect on our business, results of operations, or financial condition. (See "Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.")

We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.



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

On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), representing approximately 55%18% of our totalInotera's outstanding shares in Inotera as of June 2,December 1, 2016, 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 such shares and all other benefits; (4) denying Qimonda’sQimonda's claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda'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 it 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 it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.

We are unable to predict the outcome of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera sharesShares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition.  As of June 2, 2016, the Inotera Shares had a carrying value for purposes of our financial reporting of $677 million and a market value of $1.07 billion.

Our joint ventures and strategic relationships involve numerous risks.

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

our interests could diverge from our partners or we may not be able to agree with partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint venture;
our joint venture partners' products may compete with our products;


we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
we may recognize losses from our equity method investments;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, we and our partners may decide not participate to join us inthe same extent on funding capital investmentinvestments in our joint ventures, which may result in higher levels of cash expenditures by us;ventures;
cash flows may be inadequate to fund increased capital requirements;
we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal, or regulatory requirements may necessitate changes in the agreements with our partners.

If our joint ventures and strategic relationships are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.



If our manufacturing process is disrupted, our business, results of operations, or financial condition could be materially adversely affected.

We manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We maintain operations and continuously implement new product and process technology at our manufacturing operations which are widely dispersed in multiple locations in several countries including the U.S., Singapore, Taiwan, Japan, Malaysia, and China. Additionally, our control over operations at IMFT Inotera, and Tera Probe is limited by our agreements with our partners. From time to time, we have experienced disruptions in our manufacturing process as a result of power outages, improperly functioning equipment, equipment failures, earthquakes, or other environmental events. If production at a fabrication facility is disrupted for any reason, manufacturing yields may be adversely affected or we may be unable to meet our customers' requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenues, or damage to customer relationships, any of which could materially adversely affect our business, results of operations, or financial condition.

We may incur additional restructure charges in future periods.

In the fourth quarter of 2016, we initiated a restructure plan in response to the current business environmentconditions and the need to accelerate focus on our key priorities.  We plan to implement a cost savings program in which we expect to save approximately $80 million per quarter in 2017.priorities (the "2016 Restructuring Plan"). The savings are expected to result from a combination2016 Restructuring Plan includes the elimination of a more focused set ofcertain projects and programs, the permanent closure of a number of open headcount requisitions, a workforce reductionreductions in certain areas of the business, and other non-headcount related spending reductions. In connection with the plan, we expect to incurincurred charges of $70$29 million substantially all in cash expenditures, the majorityfirst quarter of which is expected to be incurred2017 and $58 million in the fourth quarter of 2016 withand do not expect to incur additional material charges. As of December 1, 2016 and September 1, 2016, we had accrued liabilities of $17 million and $24 million, respectively, related to the remainder in the early part of 2017.2016 Restructuring Plan.

We may not realize the expected savings or other benefits from our restructure plans and may also incur additional restructure charges or other losses associated with other initiatives in future periods. In connection with those initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products.products, which could materially adversely affect our business, results of operations, or financial condition.

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

Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of our acquisition of MMJ, the Japan Proceedings are continuing, and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings. The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to


petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made, there can be no assurance that the Japan Court will grant any such petition.

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



Our Inotera supply agreement involves numerous risks.

For the first nine months of 2016, we purchased $1.05 billion of DRAM products from Inotera and our supply from Inotera accounted for 30% of our aggregate DRAM gigabit production. In 2015 and the first quarter of 2016, the cost for Inotera products was higher than the cost for similar products manufactured in our wholly-owned facilities. Due to declines in average selling prices, our per gigabit cost of products purchased from Inotera have decreased significantly throughout 2015 and the first nine months of 2016 such that, beginning in the second quarter of 2016, the costs for Inotera products have more closely approximated the cost for similar products manufactured in our wholly-owned facilities. If our supply of DRAM from Inotera is impacted, our business, results of operations, or financial condition could be materially adversely affected. Our Inotera supply agreement involves numerous risks including the following:

higher costs for supply obtained under the Inotera supply agreement as compared to our wholly-owned facilities;
difficulties and delays in ramping production at Inotera;
difficulties in transferring technology to Inotera; and
difficulties in coming to an agreement with Nanya regarding major corporate decisions, such as capital expenditures or capital structure.

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

Across our global operations, certainsignificant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. We recorded net losses from changes in currency exchange rates of $13$12 million for the first nine monthsquarter of 2017, $24 million for 2016, and $27 million for 2015, and $28 million for 2014.2015. Based on our foreign currency exposures frombalances of monetary assets and liabilities offset by balance sheet hedges,as of December 1, 2016 and after giving effect to the 80 billion New Taiwan dollars we drew on the 2021 Term Loan on December 6, 2016 and the use of cash to fund the Inotera Acquisition, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $1 million as$462 million. Although we hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities by hedging our primary currency exposures with currency forward contracts, the effectiveness of June 2, 2016.these hedges is dependent upon our ability to accurately forecast our monetary assets and liabilities. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. In the event that exchange rates for the U.S. dollar adversely change against our foreign currency exposures, our results of operations or financial condition may be adversely affected. In addition, in connection with Inotera Acquisition, our exposure to changes in foreign currency exchange rates could increase if not offset by corresponding hedges.

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

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

integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
diverting management's attention from daily operations;
managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor, and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.



In previous years, supply of memory products has significantly exceeded customer demand, resulting in significant declines in average selling prices for DRAM, NAND Flash, and NOR Flash products. Resulting operating losses have led to the


deterioration in the financial condition of a number of industry participants, including the liquidation of Qimonda and the 2012 bankruptcy filing by Elpida (now known as MMJ). These types of proceedings often lead to court-directed processes involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of consolidation as a result of these market conditions and other factors, and we may engage in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, high-technology companies are inherently risky and may not be successful and may materially adversely affect our business, results of operations, or financial condition.

Breaches of our network security systems could expose us to losses.

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

Compliance with regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metals used in manufacturing our products.

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

We are subject to a variety of laws and regulations that may result in additional costs and liabilities.

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

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



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

We operate in a number of locations outside the U.S., including in Singapore, and, to a lesser extent, Taiwan, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the distribution of our earnings among these different jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to


our tax structure and intercompany transfer pricing agreements, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, failure to meet performance obligations with respect to tax incentive agreements, and changes in tax laws and regulations. We file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 20112012 through 2015.2016. In addition, tax returns remain open to examination in multiple other taxing jurisdictionsSingapore, Japan, and Taiwan range from the years 20072011 to 2015.2016. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability.

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

We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of September 3, 2015,1, 2016, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $4.02$3.90 billion and $2.05$1.94 billion, respectively, which, if not utilized, will expire at various dates from 20162017 through 2035.2036. As of September 3, 2015,1, 2016, our foreign net operating loss carryforwards were $5.15$6.04 billion, including $3.81$4.28 billion pertaining to Japan, which will, if not utilized, substantially all expire at various dates from 20172019 through 2025. As of September 3, 2015,1, 2016, we had valuation allowances of $1.16 billion and $710$765 million against our net deferred tax assets in the U.S. and Japan, respectively.

A change in ownership may limit our ability to utilize our net operating loss carryforwards.

If we experience a 50% or greater change in ownership involving shareholders owning 5% or more of our stock, it could adversely impact our ability to utilize our existing net operating loss and credit carryforwards. The inability to utilize existing net operating loss and credit carryforwards would significantly increase the amount of our annual cash taxes reducing the overall amount of cash available to be used in other areas of the business.

On July 20, 2016, our board of directors adopted a Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the close of business on August 1, 2016 received one right for each share of common stock outstanding. The Rights Agreement is intended to avoid an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986, as amended, and thereby preserve our current ability to utilize certain net operating loss and credit carryforwards. In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownership of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board of Directors or without meeting certain customary exceptions, the rights would become exercisable and entitle shareholders (other than the acquiring shareholder or group) to purchase additional shares of our common stock at a significant discount and result in significant dilution in the economic interest and voting power of acquiring shareholder or group. Although the Rights Agreement is intended to reduce the likelihood of an ownership change that could adversely affect us, there is no assurance that the Rights Agreement will prevent all transfers that could result in such an ownership change. The Rights Agreement is subject to shareholder approval at the Company’s Fiscal 2016 Annual Meeting of Shareholders to be held on January 18, 2017. If not approved by the shareholders, the Rights Agreement will terminate on July 19, 2017.

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

Our operations require raw materials and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials and services. However, only a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards. In some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as silicon wafers, controllers, photomasks, chemicals, gases, photoresist, lead frames, and molding compound. Shortages may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials or services is disrupted or our lead times extended, our business, results of operations, or financial condition could be materially adversely affected.

Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time we have experienced difficulties in obtaining some equipment on a timely basis due to the supplier's limited capacity. Our inability to obtain this equipment timely could adversely affect our


ability to transition to next generation manufacturing processes and reduce costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and increase our overall costs of the ramp. If we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, our business, results of operations, or financial condition could be materially adversely affected.

A downturn in the worldwide economy may harm our business.

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



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

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

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

Sales to customers outside the United States approximated 86%84% of our consolidated net sales for the third quarter of 2016. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, and Japan. Our international sales and operations are subject to a variety of risks, including:

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

These factors may materially adversely affect our business, results of operations, or financial condition.

We are subject to counterparty default risks.

We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, capped-call contracts on our stock, and derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may not comply with their contractual commitments which could then lead to their defaulting on their obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective


action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceeding. In the event of such default, we could incur significant losses, which could adversely impact our business, results of operations, or financial condition.





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

Our Board of Directors has authorized the discretionary repurchase of up to $1.25 billion of our outstanding common stock, which may be made in open marketopen-market purchases, block trades, privately-negotiated transactions, or derivative transactions. Through the first quarter of 2017, we had repurchased a total of 49 million shares for $956 million through open-market transactions pursuant to such authorization, which were recorded as treasury stock. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash.
During the third quarter 2016, we received 369,085 shares of our common stock in lieu of cash from the settlement of the remaining portion of our 2032C Capped Calls.

Period Total number of shares purchased Average price paid per share Total number of shares (or units) purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
March 4, 2016–April 7, 2016 —
 $—
 —
 $294,184,917
April 8, 2016–May 5, 2016 —
 —
 —
 294,184,917
May 6, 2016–June 2, 2016 369,085
 11.24
 —
 294,184,917
    369,085
 11.24
 —
�� 
Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares (or units) purchased as part of publicly announced plans or programs (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
September 2, 2016–October 6, 2016 —
 $—
 —
 $294,184,917
October 7, 2016–November 3, 2016 —
 —
 —
 294,184,917
November 4, 2016–December 1, 2016 —
 —
 —
 294,184,917
    —
 —
 —
  

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




ITEM 6. EXHIBITS FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

Exhibit Number Description of Exhibit
3.110.63 Restated Certificate
English translation of Incorporation of the Registrant (1)
3.2Bylaws of the Registrant,Syndicated Loan Agreement dated October 11, 2016, as Amended and Restated (2)
4.29Indenture, dated as of April 26,on November 23, 2016 by and among Micron Technology,Inotera Memories, Inc., the subsidiary guarantors from the time to timeMicron Semiconductor Taiwan Co., Ltd., certain financial institutions party thereto and U.S. Bank National Association,of Taiwan, as trusteeFacility Agent and collateral agent. (3)Mega International Commercial Bank Co., Ltd., as Collateral Agent
4.3010.64 Form of Note (included in Exhibit 4.1). (3)Deferred Compensation Plan
10.60*10.65 First Amendment to Technology Transfer and License Option Agreement for 1X Process Node dated as of May 17, 2016 by and between Micron Technology Inc. and Nanya Technology Corporation.
10.61*Amendment to Technology Transfer and License Option Agreement for 1Y Process Node dated as of May 17, 2016 by and between Micron Technology Inc. and Nanya Technology Corporation.
10.62Security Agreement, dated as of April 26, 2016 made by Micron Technology, Inc. and certain subsidiaries in favor of U.S. Bank National Association, as collateral agent. (3)
10.63the Credit Agreement, dated as of April 26, 2016, by and among Micron Technology, Inc., as borrower, Morgan Stanley Senior Funding, Inc. as administrative agent and collateral agent, and the other agents party thereto and each financial institution party from time to time thereto. (3)thereto
10.6410.66 Guarantee and Collateral
English translation of Facility Agreement dated as of April 26,November 18, 2016, made by and among Micron Technology, Inc.Semiconductor Asia Capital II Pte. Ltd.,certain financial institutions party thereto and certain of its subsidiaries in favor of Morgan Stanley Senior Funding, Inc.DBS Bank Ltd., as collateral agent. (3)Facility Agent, Security Agent and Account Bank
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
__________________________
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.

(1) Incorporated by reference to Current Report on Form 8-K dated January 26, 2015.
(2) Incorporated by reference to Current Report on Form 8-K dated February 1, 2016.
(3) Incorporated by reference to Current Report on Form 8-K dated April 26, 2016.





SIGNATURES

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

  Micron Technology, Inc.
  (Registrant)
   
   
Date:July 6, 2016January 9, 2017/s/ Ernest E. Maddock
  
Ernest E. Maddock
Chief Financial Officer and Vice President, Finance
(Principal Financial and Accounting Officer)




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