MU 10-Q: Smart Summary

• No policy changes: No changes to significant accounting policies since the Annual Report on Form 10-K for the year ended August 28, 2025.
• Fiscal year: Fiscal year 2026 contains 53 weeks (vs. 52 weeks in fiscal year 2025); the fourth quarter of fiscal year 2026 contains 14 weeks.
• Reclassifications: Certain reclassifications have been made to prior-period amounts to conform to current-period presentation.

• ASU 2023-09 (income tax disclosures): Issued December 2023 under ASC Topic 740, requiring disaggregated disclosures on the rate reconciliation and income taxes paid; effective for annual reporting for 2026 on a prospective basis (retrospective permitted), and adoption will result in expanded disclosures in the Notes to Consolidated Financial Statements.
• ASU 2024-03 (expense disaggregation): Issued November 2024 under ASC Topic 220, requiring disclosure of certain expenses in the notes to the financial statements; effective for annual reporting for 2028 on a prospective basis (retrospective permitted), and adoption will result in expanded disclosures in the Notes to Consolidated Financial Statements.
• ASU 2025-06 (internal-use software): Issued September 2025 under ASC Topic 350, making targeted improvements to accounting for internal-use software; effective for the first quarter of 2029 (early adoption permitted, prospective basis with retrospective or modified retrospective permitted); the company is evaluating the timing and effects of adoption on its financial statements.
• ASU 2025-10 (government grants): Issued December 2025 under ASC Topic 832, establishing accounting and presentation for government grants received by a business entity; effective for the first quarter of 2030 (early adoption permitted, modified prospective, modified retrospective, or retrospective basis); the company is evaluating the timing and effects of adoption on its financial statements.

• Lease SPEs: Certain third-party special purpose entities (the 'Lease SPEs') facilitate equipment lease financing transactions between the company and various financial institutions; neither party holds an equity interest in the Lease SPEs, which are variable interest entities.
• Non-consolidation: The company does not bear significant risks from variable interests with the Lease SPEs and does not have the power to direct the activities most significantly impacting their economic performance, so they are not consolidated.
• Balance sheet exposure: Financial lease liabilities and right-of-use assets under these arrangements were approximately $1.3B as of May 28, 2026 and $1.6B as of August 28, 2025.

• Classification and fair value: All short-term investments and long-term marketable investments were classified as available-for-sale as of May 28, 2026 and August 28, 2025; fair values approximated amortized costs for all periods. Total fair value of cash, cash equivalents, short-term investments, and long-term marketable investments was $30.1M as of May 28, 2026, up from $11.9M as of August 28, 2025, driven primarily by a rise in cash from $7.9M to $18.4M and growth across corporate bonds ($3.9M vs. $1.6M), asset-backed securities ($1.2M vs. $552,000), and certificates of deposit ($6.2M vs. $1.3M).
• Long-term investment maturities: Maturities of long-term marketable investments primarily range from one to five years, except for asset-backed securities which are not due at a single maturity date.
• Realized gains/losses: Gross realized gains and losses from sales of available-for-sale securities were not material for any period presented.
• Non-marketable equity investments: Non-marketable equity investments without a readily determinable fair value (recorded at cost minus impairment, adjusted for qualifying observable price changes, included in other noncurrent assets) were $185M as of May 28, 2026 and $194M as of August 28, 2025; subsequent to May 28, 2026, the company purchased non-marketable equity securities in a leading AI company.

Receivables growth: Total receivables rose to $31M as of May 28, 2026 from $9.3M as of August 28, 2025, driven primarily by trade receivables increasing from $7.2M to $26.9M over the same period.

Inventory composition: Total inventories were $8.6M as of May 28, 2026, up from $8.4M as of August 28, 2025, with work in process the dominant component at $7M; finished goods declined sharply to $621,000 from $1.1M, while raw materials and supplies rose to $986,000 from $860,000.

• PP&E composition: Gross PP&E totaled $125B as of May 28, 2026 (vs. $109.7B as of August 28, 2025), led by Equipment at $88.1B, Buildings at $23.7B, Construction in progress at $10.9B, Software at $1.8B, and Land at $420M; accumulated depreciation was ($68.6B, yielding net PP&E of $56.4B (vs. $46.6B).
• Equipment not in service: Equipment costs include $4.2B not yet placed into service as of May 28, 2026, compared to $4B as of August 28, 2025; Construction in progress primarily includes building-related construction and tool installation.
• Singapore incentive arrangements: On November 19, 2025, the company finalized an incentive arrangement for the expansion of its Singapore manufacturing facilities, followed by a second arrangement on April 17, 2026, for the expansion of its Singapore R&D; both arrangements provide government support for qualified capital spending and labor costs, but may be subject to reduction, recapture, or termination if certain conditions are not met, with terms subject to confidentiality provisions.
• Taiwan facility acquisition: In March 2026, the company completed the acquisition of a wafer fabrication facility in Tongluo, Miaoli County, Taiwan, from Powerchip Semiconductor Manufacturing Corporation for total cash consideration of $1.8B.

Balance increase: Total accounts payable and accrued expenses grew from $9.6M as of August 28, 2025 to $15.5M as of May 28, 2026, driven primarily by a $2.5M increase in property, plant, and equipment accruals and a $2.2M increase in income and other taxes.

• Debt prepayments: The company executed $8.5B in principal prepayments ($8.5B carrying value, $9B cash) across 12 instruments during the first nine months of 2026, including the 2028 Notes ($542M principal, October 24, 2025), 2029 B Notes ($1.2B, October 24, 2025), 2029 Term Loan A ($984M, October 27, 2025), 2029 A Notes ($700M, February 20, 2026), 2030 Notes ($796M, February 23, 2026), and six tranches prepaid on April 3, 2026 (2031 Notes $738M, 2032 Notes $429M, 2033 A Notes $574M, 2033 B Notes $685M, 2035 A Notes $864M, 2035 B Notes $1B).
• Prepayment losses: In connection with these prepayments, the company recognized losses in other non-operating income (expense) of $323M and $500M for the third quarter and first nine months of 2026, respectively.
• Revolving Credit Facility: On May 6, 2026, borrowing capacity was reduced from $3.5B to $2B; no amounts were outstanding as of May 28, 2026; interest would accrue at adjusted term SOFR plus 0.875% to 1.50% depending on corporate credit ratings, with maturity on March 12, 2030 and no prepayment penalty; obligations would be unsecured and subject to a net leverage covenant not to exceed 3.25 to 1.00 (temporarily 3.75 to 1.00 following certain material acquisitions).
• Fair value: As of May 28, 2026, the fair value of outstanding debt instruments approximated carrying value, estimated using Level 2 inputs including trading prices, discounted cash flows, and rates based on similar debt issued by parties with comparable credit ratings.

Legal Proceedings

• Netlist v. Micron — E.D. Tex. jury verdict ($445M, July 9, 2025 appeal filed): Jury awarded $425M on the '912 patent and $20M on the '417 patent; PTAB found both patents unpatentable and Netlist has appealed each to the Federal Circuit.
• Netlist v. Micron — W.D. Tex. (filed April 28, 2021): Two complaints alleging infringement of 4 U.S. patents by non-volatile DIMMs and LRDIMMs; seek injunctive relief, damages, attorneys' fees, and costs.
• Netlist v. Micron — Düsseldorf Regional Court (filed March 31, 2022): Two German patents asserted; Federal Patent Court declared both invalid; appeals court affirmed invalidity of first patent on May 21, 2026; second patent appeal pending.
• Netlist v. Micron — E.D. Tex./D. Del. (2025–2026 complaints): Complaints alleging infringement of HBM and DIMM patents; cases transferred to D. Del. on March 6, 2026 and April 1, 2026.
• YMTC v. Micron — U.S. and China (2023–2025): Multiple complaints in N.D. Cal., E.D. Tex., London, Unified Patent Court, Munich, and Chinese courts alleging infringement of 8, 11, 7, and additional NAND/DRAM patents; all seek injunction, damages, attorneys' fees, and costs.
• BeSang Inc. v. Micron — E.D. Tex. (Jan 23, 2023): District Court entered judgment of non-infringement on September 17, 2025; BeSang filed notice of appeal October 17, 2025.
• AMT v. Micron — W.D. Tex. (June 30, 2025): Five U.S. patents asserted against DRAM and NAND products after November 4, 2025 amendment; seeks injunction, damages, attorneys' fees, and costs.
• Nextech Semiconductor v. Micron — W.D. Tex. (March 6, 2026): Six U.S. patents alleged to be infringed by DRAM, NAND, and SSD products; seeks injunction, damages, attorneys' fees, and costs.
• Securities class action — D. Idaho (filed Jan 9, 2025): Alleged materially false statements on supply/demand and product demand; court dismissed amended complaint February 3, 2026 and plaintiffs voluntarily dismissed the case April 3, 2026.
• Shareholder derivative actions — D. Idaho and D. Del. (2025): Based on same statements as securities class action; consolidated D. Idaho action stayed then dismissed; D. Del. action dismissed April 24, 2026.
• YMTC v. Micron — D.C. District Court (June 7, 2025): Alleges false advertising, product disparagement, and unfair competition under the Lanham Act regarding YMTC's 3D NAND products; seeks injunctive relief, damages, disgorgement, attorneys' fees, and costs.
• Neighbors for a Better Micron v. Micron — N.Y. Supreme Court (Jan 16, 2026): Challenges OCIDA's environmental review of planned construction of up to four fabs in Clay, New York; seeks to annul all permits, approvals, and findings related to the project.

• Share repurchase authorization: The Board authorized discretionary repurchases of up to $10B of outstanding common stock (no expiration date); 2.5 million shares were repurchased for $650M in the first nine months of 2026, with no shares repurchased in the third quarter of 2026. Through May 28, 2026, an aggregate of $7.8B had been repurchased under the authorization. Repurchased amounts are included in treasury stock.
• Dividends declared and paid: Dividends of $0.115 per share were declared and paid in the first and second quarters of 2026, and $0.15 per share in the third quarter of 2026; on June 24, 2026, the Board declared a quarterly dividend of $0.15 per share, payable July 21, 2026, to shareholders of record as of the close of business on July 6, 2026.

• Fair value summary: As of May 28, 2026, total derivative fair value assets were $146,000 and liabilities were ($161,000); as of August 28, 2025, assets were $64,000 and liabilities were ($112,000). All forward and swap contracts are measured using market-based observable inputs (Level 2), including market spot and forward rates, interest rates, and credit-risk spreads.
• Cash flow hedges: Currency forward contracts (notional $4.1M as of May 28, 2026; $3.3M as of August 28, 2025) and commodity hedges (notional $406,000 and $393,000, respectively) are designated as cash flow hedges and generally mature within two years, covering exposure on certain capital expenditures and manufacturing costs.
• Fair value hedges: Currency forward contracts (notional $5.6M as of May 28, 2026; $3M as of August 28, 2025), generally maturing within one year, hedge non-U.S.-dollar-denominated cash and investments in debt securities; the fair value of hedged items was $5.5B and $3B as of May 28, 2026 and August 28, 2025, respectively.
• Non-designated hedges and P&L impact: Non-designated currency forward contracts (notional $12.4M as of May 28, 2026; $3.5M as of August 28, 2025) employ a rolling strategy maturing within one year; gains and losses from all derivative instruments were not material for the periods presented.

• Shares available: As of May 28, 2026, 48 million shares of common stock were available for future awards under equity compensation plans, including 7 million shares approved for issuance under the ESPP.
• Restricted stock awards: 7 million shares granted in the nine months ended May 28, 2026 (vs. 11 million in the nine months ended May 29, 2025) at a weighted-average grant-date fair value of $227.18 per share (vs. $100.25 per share).
• ESPP purchases: Employees purchased 2 million shares in each six-month ESPP offering period that ended in the second quarter of 2026 and 2025 at share prices of $92.77 and $78.63, respectively.
• Unrecognized compensation / capitalized SBC: As of May 28, 2026, $2.1B of total unrecognized compensation costs for unvested awards (before future forfeitures) is expected to be recognized through the third quarter of 2030, with a weighted-average period of 1.2 years; separately, $132M and $96M of stock-based compensation expense was capitalized and remained in inventory as of May 28, 2026 and August 28, 2025, respectively.

• Strategic customer agreements: The company recently executed take-or-pay agreements, including agreements executed subsequent to May 28, 2026, with binding commitments for specific volumes over multi-year terms; pricing is fixed or subject to minimum/maximum bands for most agreements, while a minority have no fixed pricing or price bands and are subject to market conditions.
• Remaining performance obligations: As of May 28, 2026, the transaction price allocated to remaining performance obligations was approximately $5B (not material as of August 28, 2025), of which $422M has been recognized as contract liabilities consisting primarily of customer deposits associated with strategic customer agreements included in other noncurrent liabilities; approximately one-third of the remaining performance obligations are expected to be recognized as revenue over the next twelve months.
• Customer consideration payable: Other current liabilities included $3.3B and $1.2B as of May 28, 2026 and August 28, 2025, respectively, for estimates of consideration payable to customers, including pricing adjustments and returns.

• Effective tax rate: The effective tax rate was 15.0% for the quarter ended May 28, 2026 (vs. 11.1% for the quarter ended May 29, 2025) and 14.8% for the nine months ended May 28, 2026 (vs. 11.5% for the nine months ended May 29, 2025); the increase in both periods was primarily due to the 15% minimum tax Pillar Two Model Rules (Pillar Two), following Singapore's enactment of legislation to implement Pillar Two effective for the company in 2026, which largely offsets the benefit from Singapore tax incentive arrangements.
• Income tax provision: Income tax provision was $5M for the quarter ended May 28, 2026 (vs. $235,000 for the quarter ended May 29, 2025) and $8.2M for the nine months ended May 28, 2026 (vs. $695,000 for the nine months ended May 29, 2025).
• OBBBA legislation: The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, introduced broad changes to the U.S. tax code including modifications to corporate and international tax provisions primarily effective beginning in 2026 and 2027; management states the aggregate impact remains uncertain and could have a material impact on the income tax provision pending regulatory guidance and interpretations.
• Income taxes payable: Other noncurrent liabilities included $5.8B and $648M related to income taxes payable as of May 28, 2026 and August 28, 2025, respectively.

• Antidilutive shares excluded: Antidilutive potential common shares excluded from the diluted EPS computation were not material for the third quarter or first nine months of 2026, and were 7 million shares and 10 million shares for the third quarter and first nine months of 2025, respectively.

• Segment structure: 4 reportable segments — Cloud Memory Business Unit (CMBU), Core Data Center Business Unit (CDBU), Mobile and Client Business Unit (MCBU), and Automotive and Embedded Business Unit (AEBU) — plus an All Other category for operations below reportable thresholds. CMBU focuses on hyperscale cloud and HBM for data center; CDBU on mid-tier cloud, enterprise, OEM, and storage; MCBU on mobile and client; AEBU on automotive, industrial, and consumer.
• Unallocated items: Substantially all unallocated amounts relate to stock-based compensation. Assets (other than goodwill), capital expenditures, equity method investment gains/losses, interest, other non-operating items, and taxes are not allocated to segments.
• Customer concentration: Revenue from one customer was 10% (primarily in CMBU) of total revenue for the first nine months of 2026 and 16% for the first nine months of 2025.
• Goodwill by segment: As of May 28, 2026 and August 28, 2025, CMBU, CDBU, MCBU, and AEBU had goodwill of $654M, $109M, $284M, and $103M, respectively.

• MCBU revenue growth (sequential): MCBU revenue increased 49% from Q2 2026 to Q3 2026, primarily due to increases in average selling prices, partially offset by lower bit shipments.
• MCBU revenue growth (year-over-year): MCBU revenue increased 254% in Q3 2026 vs. Q3 2025, and 190% for the first nine months of 2026 vs. the corresponding period of 2025, primarily due to increases in average selling prices, partially offset by lower bit shipments.

• Q3 2026 vs. Q2 2026 drivers: All four business units posted higher sequential operating income: CMBU benefited from higher average selling prices and higher bit shipments; CDBU from higher average selling prices; MCBU from higher average selling prices and favorable mix, partially offset by lower bit shipments; and AEBU from higher average selling prices, higher bit shipments, and favorable mix.
• Q3 2026 and first nine months of 2026 vs. prior-year drivers: All four business units posted higher year-over-year operating income: CMBU and CDBU each benefited from higher average selling prices, higher bit shipments, and manufacturing cost reductions; MCBU benefited from higher average selling prices and manufacturing cost reductions, partially offset by lower bit shipments; and AEBU benefited from higher average selling prices, higher bit shipments, and manufacturing cost reductions.

• R&D expense drivers: R&D expenses vary primarily with development and pre-qualification wafer volumes, personnel costs, and cost of advanced equipment; development is deemed complete upon qualification through internal reviews and tests for performance, functionality, and reliability. Expenses increased 5% in the third quarter of 2026 vs. the second quarter of 2026 due to higher employee compensation, and increased 36% vs. both the third quarter and first nine months of 2025, driven by higher volumes of development and pre-qualification wafers as the company ramps R&D investments in support of long-term opportunities in memory and storage, plus increases in employee compensation.
• SG&A expense trends: SG&A expenses increased 18% in the third quarter of 2026 vs. the second quarter of 2026; increased 28% vs. the third quarter of 2025; and increased 22% for the first nine months of 2026 vs. the first nine months of 2025 — all primarily due to increases in employee compensation.
• Interest income (expense), net: Interest income (expense) improved in the third quarter of 2026 vs. the second quarter of 2026, and for both the third quarter and first nine months of 2026 vs. the corresponding periods of 2025, primarily due to lower debt balances reducing interest expense and higher cash and investments balances increasing interest income.
• Tax legislation risks: The One Big Beautiful Bill Act enacted July 4, 2025 introduced broad U.S. tax code changes primarily effective beginning in 2026 and 2027, with aggregate impact described as uncertain; Singapore's enactment of Pillar Two minimum tax rules, effective for the company in 2026, largely offsets the benefit from its Singapore tax incentive arrangements, and management continues to monitor regulatory guidance that could materially impact the income tax provision.

• Liquidity position: Cash and marketable investments totaled $30.1B as of May 28, 2026, up from $11.9B as of August 28, 2025; $5.4B of the May 28, 2026 balance was held by foreign subsidiaries, and $2B remained available under the Revolving Credit Facility.
• Strategic customer agreements: In connection with strategic customer agreements concluded to date (including agreements executed subsequent to May 28, 2026), the company expects to receive cash deposits and related financial commitments of $22B, approximately $18B of which will be in the form of cash deposits.
• Capital expenditures and obligations: Estimated capital expenditures for property, plant, and equipment, net of government incentive proceeds, are approximately $27B in 2026; purchase obligations for property, plant, and equipment were approximately $2.9B as of May 28, 2026, substantially all expected to be paid within one year.
• CHIPS Act and government incentives: Total CHIPS Act grants of up to $6.4B have been awarded — up to $6.1B (via December 2024 and June 2025 agreements with the U.S. Department of Commerce) for planned fabs in Boise, Idaho and Clay, New York, plus up to $275M to expand and modernize the Manassas, Virginia fab — supplemented by a 35% investment tax credit on qualified U.S. semiconductor manufacturing investments and a non-binding term sheet with the State of New York for up to $5.5B over 20-plus years.
• Capital returns and liquidity adequacy: The Board has authorized repurchase of up to $10B of common stock, of which $7.8B had been repurchased through May 28, 2026; on June 24, 2026, the Board declared a quarterly dividend of $0.15 per share payable July 21, 2026; management expects cash, investments, operating cash flows, government incentives, customer deposits, and available financing to be sufficient to meet requirements at least through the next 12 months and for the foreseeable future thereafter.

• Operating cash flow: Cash provided by operating activities rose to $45.7B in the nine months ended May 28, 2026 from $11.8B in the nine months ended May 29, 2025, driven primarily by higher net income adjusted for non-cash items, increases in accounts payable and accrued expenses (mostly related to property, plant and equipment and income and other taxes), higher consideration payable to customers in other current liabilities, and higher noncurrent income taxes payable related to Pillar Two implementation; partially offset by a significant increase in receivables tied to higher revenue.
• Investing activities: Net cash used for investing activities was $19.7B in the nine months ended May 28, 2026 (vs. $8.9B prior year), consisting primarily of $19.6B in property, plant, and equipment expenditures and $2.8B of net outflows from available-for-sale securities, partially offset by $3B of proceeds from government incentives; the prior-year period reflected $10.2B in capital expenditures partially offset by $1.3B of government incentive proceeds.
• Financing activities: Net cash used for financing activities was $10.6B in the nine months ended May 28, 2026, driven by $9.4B of debt repayments (including full prepayment of the 2028 Notes, 2029 Term Loan A, 2029 A Notes, 2029 B Notes, and 2030 Notes, plus partial prepayments on six other note series), $762M for common stock repurchases related to employee equity award withholdings, $650M for the acquisition of 2.5 million shares under the share repurchase authorization, and $437M of dividend payments; the prior-year period generated $214M net cash from financing, reflecting $4.4B of new debt issuances partially offset by $3.6B of repayments, $392M of dividends, and $290M of equity award withholding repurchases.

Critical accounting estimates: No significant changes since the Annual Report on Form 10-K for the year ended August 28, 2025.