Item 7. 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 future restructure charges; our expectation, from time to time, to engage in additional financing transactions; 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 2018; 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 I, Item 1A. Risk Factors." This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended August 31, 2017. 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. Our fiscal 2017 and 2016 each contain 52 weeks and fiscal 2015 contained 53 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions, except per share amounts.

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

•	Results of Operations: An analysis of our financial results consisting of the following:

◦	Consolidated results;

◦	Operating results by business segment;

◦	Operating results by product; and

◦	Operating expenses and other.

•	Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and liquidity.

•	Off-Balance Sheet Arrangements: Description of off-balance sheet arrangements.

•	Critical Accounting Estimates: Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

•	Recently Adopted and Issued Accounting Standards

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

Results of Operations

Consolidated Results

For the year ended		2017							2016							2015
Net sales		$	20,322			100	%		$	12,399			100	%		$	16,192			100	%
Cost of goods sold		11,886				58	%		9,894				80	%		10,977				68	%
Gross margin		8,436				42	%		2,505				20	%		5,215				32	%
Selling, general, and administrative		743				4	%		659				5	%		719				4	%
Research and development		1,824				9	%		1,617				13	%		1,540				10	%
Restructure and asset impairments		18				—	%		67				1	%		3				—	%
Other operating (income) expense, net		(17		)		—	%		(6		)		—	%		(45		)		—	%
Operating income		5,868				29	%		168				1	%		2,998				19	%
Interest income (expense), net		(560		)		(3	)%		(395		)		(3	)%		(336		)		(2	)%
Other non-operating income (expense), net		(112		)		(1	)%		(54		)		—	%		(53		)		—	%
Income tax (provision) benefit		(114		)		(1	)%		(19		)		—	%		(157		)		(1	)%
Equity in net income (loss) of equity method investees		8				—	%		25				—	%		447				3	%
Net income attributable to noncontrolling interests		(1		)		—	%		(1		)		—	%		—				—	%
Net income (loss) attributable to Micron		$	5,089			25	%		$	(276	)		(2	)%		$	2,899			18	%

Net Sales

For the year ended		2017							2016							2015
CNBU		$	8,624			42	%		$	4,529			37	%		$	6,725			42	%
SBU		4,514				22	%		3,262				26	%		3,687				23	%
MBU		4,424				22	%		2,569				21	%		3,692				23	%
EBU		2,695				13	%		1,939				16	%		1,999				12	%
All Other		65				—	%		100				1	%		89				1	%
		$	20,322						$	12,399						$	16,192

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

Total net sales for 2017 increased 64% as compared to 2016 due to strong conditions across our primary markets, particularly for enterprise, mobile, client, and SSD storage. The strong market conditions drove higher sales in 2017 for all

operating segments and significant increases in sales volumes for both DRAM and Trade NAND products as well as increases in average selling prices for DRAM products. Increases in sales volumes for 2017 as compared 2016 were enabled by higher manufacturing output due to improvements in product and process technology and solid execution.

Total net sales for 2016 decreased 23% as compared to 2015 primarily due to lower CNBU, MBU, and SBU sales as declines in average selling prices outpaced increases in sales volumes. The increases in sales volumes for 2016 were primarily attributable to higher manufacturing output due to improvements in product and process technology partially offset by reductions resulting from technology node transitions.

Gross Margin

Our overall gross margin percentage increased to 42% for 2017 from 20% for 2016 reflecting increases in the gross margin percentages for all operating segments, primarily due to strong markets that drove favorable pricing conditions and to manufacturing cost reductions from improvements in product and process technology and solid execution.

Our overall gross margin percentage declined to 20% for 2016 from 32% for 2015 primarily due to declines in the gross margin percentages for CNBU, MBU, and SBU, as decreases in average selling prices outpaced manufacturing cost reductions. EBU's gross margin percentage for 2016 was relatively unchanged from 2015 as manufacturing cost reductions offset declines in average selling prices.

We periodically assess the estimated useful lives of our property, plant, and equipment. In the fourth quarter of 2016, we identified factors such as the lengthening period of time between DRAM product technology node transitions, an increased re-use rate of equipment, and industry trends. As a result, 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. The effect of the revision was not material for 2016 and reduced depreciation costs by approximately $100 million per quarter in 2017.

From January 2013 through December 2015, we purchased all of Inotera's DRAM output under supply agreements at prices reflecting discounts from market prices for our comparable components. After December 2015 through December 6, 2016, the date we acquired the remaining interest in Inotera, the price for DRAM products purchased by us from Inotera was based on a formula that equally shared margin between Inotera and us. Under these agreements, we purchased $504 million, $1.43 billion, and $2.37 billion of DRAM products from Inotera in 2017, 2016, and 2015, respectively, which represented 9% of our aggregate DRAM gigabit production for 2017, 30% for 2016, and 35% for 2015. In accounting for the Inotera Acquisition, Inotera's work in process inventories were recorded at fair value, based on their estimated future selling prices, estimated costs to complete, and other factors, and was approximately $107 million higher than the cost of work in process inventory recorded by Inotera prior to the acquisition. The acquired inventory was sold in 2017.

Operating Results by Business Segments

CNBU

For the year ended		2017				2016				2015
Net sales		$	8,624			$	4,529			$	6,725
Operating income (loss)		3,755				(25		)		1,549

CNBU sales for 2017 increased 90% as compared to 2016 due to increases in average selling prices for our products sold in the client market, growth in the cloud market driven by significant increases in DRAM content per server, and increases in sales of our GDDR5 and GDDR5X products into the graphics market driven by strong demand from the gaming industry. Growth in CNBU markets drove increases for 2017 in average selling prices and sales volumes as compared to 2016. CNBU operating margin for 2017 improved from 2016 primarily due to improved pricing from strong market conditions, manufacturing cost reductions, and product mix. See "Operating Results by Product – DRAM" for further detail.

CNBU sales for 2016 decreased 33% as compared to 2015 primarily due to declines in average selling prices as a result of weakness in the PC sector, partially offset by increases in sales volumes. CNBU operating margin for 2016 declined from 2015 as decreases in average selling prices outpaced manufacturing cost reductions.

SBU

For the year ended		2017				2016				2015
Net sales		$	4,514			$	3,262			$	3,687
Operating income (loss)		552				(123		)		(39		)

SBU sales of Trade NAND products for 2017 increased 41% as compared to 2016 primarily due to increases in sales volumes from strong demand, particularly for component NAND and client and cloud SSD storage products, partially offset by declines in average selling prices. SBU sales of SSD storage products increased by 137% for 2017 as compared to 2016 primarily as a result of the launch of new SSD products incorporating our 3D TLC NAND technology. SBU sales included Non-Trade sales of $553 million, $501 million, and $463 million, for 2017, 2016, and 2015, respectively. SBU operating margin for 2017 improved from 2016 primarily due to manufacturing cost reductions, partially offset by declines in average selling prices. See "Operating Results by Product – Trade NAND" for further details.

SBU sales of Trade NAND products for 2016 decreased 16% from 2015 primarily due to declines in average selling prices partially offset by increases in sales volumes. SBU operating margin for 2016 declined from 2015 as decreases in average selling prices outpaced manufacturing cost reductions.

MBU

For the year ended		2017				2016				2015
Net sales		$	4,424			$	2,569			$	3,692
Operating income		927				97				1,166

MBU sales are comprised primarily of DRAM and NAND, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for 2017 increased 72% as compared to 2016 primarily due to significant increases in sales

volumes, driven by customer qualifications for LPDRAM and managed NAND products, combined with higher memory content in smartphones and growth in sales of eMCP products. Sales growth in 2017 was partially offset by declines in average selling prices for Trade NAND products. MBU operating income for 2017 improved from 2016 primarily due to manufacturing cost reductions and higher sales volumes, partially offset by higher R&D costs and declines in average selling prices for Trade NAND products.

MBU sales for 2016 decreased 30% as compared to 2015 primarily due to declines in average selling prices and DRAM sales volumes. MBU operating income for 2016 declined from 2015 as decreases in average selling prices outpaced manufacturing cost reductions.

EBU

For the year ended		2017				2016				2015
Net sales		$	2,695			$	1,939			$	1,999
Operating income		975				473				459

EBU sales are comprised of DRAM, NAND, and NOR Flash in decreasing order of revenue. EBU sales for 2017 increased 39% as compared to 2016 primarily due to strong demand and higher sales volumes for DRAM and eMCP in consumer markets and DRAM and eMMC products in the automotive markets. EBU operating income for 2017 increased as compared to 2016 as a result of manufacturing cost reductions, which outpaced declines in average selling prices, and increases in sales volumes.

EBU sales for 2016 decreased 3% as compared to 2015 primarily due to declines in average selling prices for DRAM and NAND products, which were partially offset by higher sales volumes as a result of increases in demand. EBU operating income for 2016 was relatively unchanged from 2015 as manufacturing cost reductions offset declines in average selling prices.

Operating Results by Product

Net Sales by Product

For the year ended		2017							2016							2015
DRAM		$	12,963			64	%		$	7,207			58	%		$	10,339			64	%
Trade NAND		6,228				31	%		4,138				33	%		4,811				30	%
Non-Trade		553				3	%		501				4	%		463				3	%
Other		578				3	%		553				4	%		579				4	%
		$	20,322						$	12,399						$	16,192

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

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

DRAM

For the year ended		2017			2016
		(percentage change from prior year)
Net sales		80	%		(30	)%
Average selling prices per gigabit		19	%		(35	)%
Gigabits sold		52	%		7	%
Cost per gigabit		(21	)%		(17	)%

Strong conditions in 2017 for enterprise, client, mobile, graphics, and networking markets as well as key customer qualifications drove increases in sales volumes and prices as compared to 2016. The reductions in cost for 2017 and 2016 as compared to prior years were primarily due to improvements in product and process technology. For 2017 compared to 2016, lower depreciation due to the change made in the fourth quarter of 2016 in estimated useful lives for equipment at our DRAM wafer fabrication facilities contributed to cost reductions.

Our gross margin percentage on sales of DRAM products for 2017 improved from 2016 primarily due to manufacturing cost reductions, increases in average selling prices, and shifts in product mix, while our gross margin percentage for 2016 declined as compared to 2015 as decreases in average selling prices outpaced manufacturing cost reductions.

Trade NAND

For the year ended		2017			2016
		(percentage change from prior year)
Net sales		50	%		(14	)%
Average selling prices per gigabit		(9	)%		(20	)%
Gigabits sold		65	%		8	%
Cost per gigabit		(26	)%		(16	)%

Strong conditions in 2017 for SSD, mobile, and client storage markets drove increases in net sales as compared to 2016, particularly for SSD and mobile products. Our ability to meet this demand was due in part to increases in production, primarily from the ramp of capacity and improvements in product and process technology, including our transition to 3D NAND products. The increase in sales volumes of Trade NAND for 2016 as compared to 2015 was primarily due to increases in demand and increases in production due to improvements in product and process technology. Increases in production for 2016 were constrained in connection with transitioning to 3D NAND products.

Our gross margin percentage on sales of Trade NAND for 2017 improved from 2016 as manufacturing cost reductions outpaced declines in average selling prices, while our gross margin percentage for 2016 declined from 2015 as decreases in average selling prices outpaced manufacturing cost reductions.

Operating Expenses and Other

Selling, General, and Administrative

SG&A expenses for 2017 were 13% higher than 2016 primarily due to increases in performance-based pay, transaction costs related to the Inotera Acquisition, and stock-based compensation, partially offset by a reduction in other payroll costs. SG&A expenses for 2016 were 8% lower than 2015 due to decreases in performance-based pay and travel costs and to an additional week in 2015.

Research and Development

R&D expenses for 2017 were 13% higher than 2016 primarily due to higher volumes of product being processed that had not been qualified and increases in performance-based pay, partially offset by lower subcontracted engineering and other professional services costs. R&D expenses for 2016 were 5% higher than 2015 primarily due to higher volumes of product being processed that had not been qualified, higher payroll costs, an increase in depreciation expense from R&D capital expenditures, partially offset by an additional week in 2015.

We generally share with Intel the costs of product design and process development activities for NAND and 3D XPoint 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 of $213 million, $205 million, and $224 million in 2017, 2016, and 2015, respectively.

See further discussion of our R&D in "Part I – Item 1. – Business – Research and Development."

Income Taxes

Our income taxes reflect 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 United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates; and a valuation allowance against substantially all of our net deferred tax assets in the United States. Income tax (provision) benefit consisted of the following:

For the year ended		2017				2016				2015
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and Inotera		$	54			$	(114	)		$	(80	)
U.S. valuation allowance release resulting from business acquisition		—				41				—
Other income tax (provision) benefit, primarily other non-U.S. operations		(168		)		54				(77		)
		$	(114	)		$	(19	)		$	(157	)
Effective tax rate		2.2		%		(6.8		)%		6.0		%

Income taxes for 2017 and 2016 included tax benefits of $28 million and $58 million, respectively, related to the favorable resolution of certain tax matters, which were previously reserved as uncertain tax positions.

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.

We operate in a number of locations outside the Unites States, including Singapore, 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, reduced our tax provision by $742 million (benefiting our diluted earnings per share by $0.64) for 2017, were not material in 2016, and by $338 million ($0.29 per diluted share) for 2015.

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

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:

For the year ended		2017				2016				2015
Inotera		$	9			$	32			$	445
Tera Probe		(3		)		(11		)		1
Other		2				4				1
		$	8			$	25			$	447

On December 6, 2016, we ceased accounting for Inotera as an equity method investment due to our acquisition of the remaining interest in Inotera. Our equity in net income (loss) of Inotera declined for 2016 as compared to 2015 primarily due to the effect to Inotera, under our supply agreements with them, of declines in average selling prices and Inotera's cost of technology node transitions. Included in our earnings for 2015 was $49 million from our equity share of Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward.

In 2017, we ceased recognizing our share of Tera Probe's earnings due to our sale of our equity interest in Tera Probe. We recorded impairment charges of $16 million, $25 million, and $10 million in 2017, 2016, and 2015, respectively, within equity in net income (loss) of equity method investees to write down the carrying value of our investment in Tera Probe to its then fair value in each of those periods based on its trading price.

Other

Net interest expense increased 42% for 2017 as compared to 2016 primarily due to increases in debt obligations, including our borrowings of 80 billion New Taiwan dollars at an effective interest rate of 3.02% on December 6, 2016 in connection with our acquisition of Inotera and $1.25 billion at an effective interest rate of 7.69% in April 2016 under the 2023 Secured Notes. Net interest expense increased 18% for 2016 as compared to 2015 primarily due to increases in debt obligations.

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

•	Equity Plans

•	Restructure and Asset Impairments

•	Other Operating Income (Expense), Net

•	Other Non-Operating Income (Expense), Net

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time in the future, to engage in a variety of financing transactions for such purposes, including the issuance of securities. We have a revolving credit facility that expires in February 2020 and provides for additional borrowings of up to $750 million based on eligible receivables. We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.

To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate that expenditures in 2018 for property, plant, and equipment, net of partner contributions, to be in the range of $7.5 billion plus or minus 5 percent, focused on technology transitions and product enablement. The actual amounts for 2018 will vary depending on market conditions. As of August 31, 2017, we had commitments of approximately $1.1 billion for the acquisition of property, plant, and equipment, substantially all of which is expected to be paid within one year.

Cash and marketable investments totaled $6.05 billion and $4.81 billion as of August 31, 2017 and September 1, 2016, respectively. Our investments consist primarily of liquid investment-grade fixed-income securities, diversified among industries

and individual issuers. As of August 31, 2017, $2.82 billion of our cash and marketable investments was held by our foreign subsidiaries. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor.

In October 2017, subsequent to the end of 2017, we issued 34 million shares of our common stock for $41.00 per share in a public offering, for net proceeds of $1.36 billion, net of underwriting fees and other offering costs. On October 12, 2017, we issued a notice to redeem $438 million of principal amount of our 2023 Secured Notes on November 13, 2017 for $470 million in cash, excluding accrued and unpaid interest. The amount redeemed represents 35% of the original principal amount of the 2023 Secured Notes issued and will be settled with proceeds from our common stock issuance in October 2017. On October 17, 2017, we issued a notice to redeem the remaining $812 million of principal amount of our 2023 Secured Notes on November 16, 2017 for approximately $885 million, excluding accrued and unpaid interest. Additionally, on October 17, 2017, we issued a notice to redeem all of our 2023 Notes on November 16, 2017 for approximately $1.05 billion in cash, excluding accrued and unpaid interest. In connection with these redemptions, we expect to recognize non-operating losses of approximately $170 million in the first quarter of 2018.

Acquisition of Inotera

Through 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 was publicly held. On December 6, 2016, we acquired the 67% interest in Inotera for an aggregate of $4.1 billion in cash. The cash paid for the Inotera Acquisition was funded with 80 billion New Taiwan dollars of proceeds from the 2021 MSTW Term Loan (see "Acquisition Financing" below), $986 million of proceeds from the sale of 58 million shares of our common stock, and cash on hand.

Acquisition Financing

2021 MSTW Term Loan: On December 6, 2016, we drew 80 billion New Taiwan dollars under a collateralized, five-year term loan that bears interest at a variable per annum rate equal to the three-month or six-month TAIBOR, at our option, plus a margin of 2.05%. Principal under the 2021 MSTW Term Loan is payable in six equal semi-annual installments, commencing in June 2019, through December 2021. The 2021 MSTW Term Loan contains financial covenants, which if not maintained, could in certain cases constitute an event of default and result in all obligations owed under the 2021 MSTW Term Loan being accelerated to be immediately due and payable. The 2021 MSTW Term Loan also contains customary events of default. The 2021 MSTW Term Loan is collateralized by certain assets and is guaranteed by Micron. To hedge our currency exposure of this borrowing, we are party to a series of currency forward contracts to purchase New Taiwan dollars under a rolling hedge strategy. As of August 31, 2017, the forward contracts expire at various dates through March 2018. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.")

Limitations on the Use of Cash and Investments

MMJ Group: Cash and marketable investments included an aggregate of $580 million held by MMJ as of August 31, 2017. As a result of the corporate reorganization proceedings of the MMJ Companies initiated in March 2012, and for so long as such proceedings are continuing, MMJ is prohibited from paying dividends to us. In addition, pursuant to an order of the Japan Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court and may, under certain circumstances, be subject to the approval of the legal trustee. As a result, the assets of MMJ are not available for use by us in our other operations. Furthermore, certain uses of the assets of MMJ, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.

MSTW and MTTW: Cash and marketable investments included an aggregate of $56 million held by MSTW and MTTW as of August 31, 2017. The 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and MTTW to pay dividends. As a result, the assets of MSTW and MTTW are not available for use by us in our other operations.

IMFT: Cash and marketable investments included $87 million held by IMFT as of August 31, 2017. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.

Indefinitely Reinvested: As of August 31, 2017, $1.29 billion of cash and marketable investments, including substantially all of the amounts held by MMJ, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the United States would be subject 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.

Cash Flows

For the year ended		2017				2016				2015
Net cash provided by operating activities		$	8,153			$	3,168			$	5,208
Net cash provided by (used for) investing activities		(7,537		)		(3,044		)		(6,216		)
Net cash provided by (used for) financing activities		349				1,745				(718		)
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash		(12		)		19				(133		)
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	953			$	1,888			$	(1,859	)

Operating Activities: For 2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $1.65 billion of cash used for increases in receivables, $361 million of payments attributed to intercompany balances in connection with the Inotera Acquisition, and $564 million of cash provided from increases in accounts payable and accrued expenses.

For 2016, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $465 million of cash provided from decreases in receivables due to a lower level of net sales, offset by $549 million of cash used for net increases in inventories.

For 2015, cash provided by operating activities was due primarily to cash generated by operations and the effect of working capital adjustments, which included $393 of cash provided from decreases in receivables due to a lower level of net sales, offset by $691 million of cash used for reductions in accounts payable and accrued expenses.

Investing Activities: For 2017, net cash used for investing activities consisted primarily of $4.73 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners), $2.63 billion of net cash paid for the Inotera Acquisition (net of $361 million of payments attributed to intercompany balances with Inotera included in operating activities), and $269 million of net outflows from sales, maturities, and purchases of available-for-sale securities.

For 2016, net cash used for investing activities consisted primarily of $5.82 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners) and $148 million for the acquisition of Tidal Systems, Ltd., partially offset by $2.66 billion of net inflows from sales, maturities, and purchases of available-for-sale securities.

For 2015, net cash used for investing activities consisted primarily of $4.02 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners) and $2.14 billion of net outflows for purchases, sales, and maturities of available-for-sale securities.

Financing Activities: For 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan, and $795 million of net proceeds from the 2021 MSAC Term Loan, partially offset by repurchases of $952 million in aggregate principal of our 2025 Notes and 2026 Notes for an aggregate of $1.00 billion in cash, redemption of $600 million principal amount of our 2022 Notes for $626 million in cash, repayments of $381 million of capital lease obligations, repayments of $550 million of other debt and convertible notes, and payments of $519 million on equipment purchase contracts.

For 2016, net cash provided by financing activities consisted primarily of $1.24 billion of proceeds (net of $13 million of issuance costs) from the 2023 Secured Notes, $734 million (net of $8 million of issuance costs and $8 million of original issue discount) from the 2022 Term Loan B, and $765 million from equipment sale-leaseback financing transactions, partially offset by repurchases of $870 million of repayments of debt and $125 million for the open-market repurchases of 7 million shares of our common stock.

For 2015, net cash used for financing activities consisted primarily of $2.33 billion for repayments of debt (including $932 million for the amount in excess of principal of our convertible notes), $831 million for the open-market repurchases of 42 million shares of our common stock, and $95 million of payments on equipment purchase contracts, partially offset by $1.98 billion in aggregate proceeds (net of $21 million of issuance costs) from our 5.25% senior notes due 2023 Notes, 2024 Notes, and 2026 Notes, $291 million of proceeds of sale-leaseback transactions, $125 million of proceeds from draws on our revolving credit facilities, and $87 million of net proceeds from term loans.

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

Potential Settlement Obligations of Convertible Notes

Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ended on September 30, 2017 exceeded 130% of the conversion price per share of our 2032 Notes and 2033 Notes, holders may convert these notes through the calendar quarter ended December 31, 2017. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending December 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 $31.97 as of August 31, 2017.

		Settlement Option for							If Settled With Minimum Cash Required Per the Terms							If Settled Entirely With Cash
		Principal Amount		Amount in Excess of Principal		Underlying Shares			Cash				Remainder in Shares
2032C Notes		Cash and/or shares		Cash and/or shares		23			$	—			23			$	742
2032D Notes		Cash and/or shares		Cash and/or shares		18			—				18			567
2033E Notes(1)		Cash		Cash and/or shares		16			204				9			425
2033F Notes		Cash		Cash and/or shares		27			297				18			869
						84			$	501			68			$	2,603

(1)

In August 2017, holders of our 2033E Notes with an aggregate principal amount of $58 million converted their notes, which were settled in the first quarter of 2018. For converted notes with an aggregate principal amount of $16 million, we elected to settle the conversion obligation in excess of the principal amount in cash. We elected to settle the remaining notes with an aggregate principal amount of $42 million with a combination of cash for the principal amount and shares of our common stock for the remainder of the settlement amount. In the first quarter of 2018, we settled the conversions for $92 million in cash and 3 million shares of our treasury stock.

Contractual Obligations

		Payments Due by Period
As of August 31, 2017		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Notes payable(1)(2)		$	12,611			$	1,037			$	3,625			$	3,050			$	4,899
Capital lease obligations(2)		1,351				401				563				159				228
Operating leases(3)		154				29				51				36				38
Purchase obligations(4)		2,219				1,895				293				9				22
Other long-term liabilities(5)		860				366				447				26				21
Total		$	17,195			$	3,728			$	4,979			$	3,280			$	5,208

(1)	Amounts include MMJ Creditor Payments, convertible notes, and other notes.

(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.

(4)

Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make specified minimum payments even if we do not take delivery of the contracted products or services. If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table. If the obligation is cancelable, but we would incur a penalty if canceled, only the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in any take-or-pay contracts were included in the above table as they represent the portion of each contract that is a firm commitment.

(5)

Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, including $366 million for the current portion of these long-term liabilities. We are unable to reliably estimate the timing of future certain payments related to uncertain tax positions and deferred tax liabilities; therefore, the amount has been excluded from the preceding table. However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and deferred tax liabilities.

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 redemptions, repurchase, or conversions of our debt, 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.

Off-Balance Sheet Arrangements

We entered into capped call transactions in connection with certain of our convertible notes and are intended to reduce the effect of potential dilution. The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above strike prices on the expiration dates. As of August 31, 2017, the dollar value of cash or shares that we would receive from our outstanding capped calls upon their expiration dates range from $0, if the trading price of our stock is below strike prices for all of the capped calls at expiration, to $527 million, if the trading price of our stock is at or above the cap prices for all capped calls. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration. For further details of our capped call arrangements, see "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Micron Shareholders' Equity – Outstanding Capped Calls."

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments.

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

•	Debt, including discount rate and timing of payments;

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

•	Fair value of consideration paid or transferred;

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

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

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

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

Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as

of the balance sheet date. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods.

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

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

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

Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.

Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves significant judgments, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories. To project average selling prices and sales volumes, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. When these analyses reflect estimated net realizable values below our manufacturing costs, we record a charge to cost of goods sold in advance of when inventories are actually sold. Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately $439 million as of August 31, 2017. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and

volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly.

U.S. GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. In determining the lower of average cost or net realizable value, inventories are primarily categorized as memory (including DRAM, NAND, and other memory) based on the major characteristics of product type and markets. The major characteristics we consider in determining inventory categories are product type and markets.

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

We periodically assess the estimated useful lives of our property, plant, and equipment. 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. The effect of the revision was not material for 2016 and reduced depreciation costs by approximately $100 million per quarter in 2017. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Significant Accounting Policies.")

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

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

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

Recently Adopted Accounting Standards

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

Recently Issued Accounting Standards

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