Equity Method Investments



As of	2011				2010
	Investment Balance		Ownership Percentage		Investment Balance		Ownership Percentage
Inotera	$	388	29.7	%	$	434	29.9	%
MeiYa	1		50.0	%	44		50.0	%
Transform	87		50.0	%	82		50.0	%
Aptina	7		35.0	%	22		35.0	%
	$	483			$	582

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



For the year ended	2011			2010			2009
Inotera:
Equity method loss	$	(154	)	$	(56	)	$	(166	)
Inotera Amortization	48			55			38
Other	(6		)	(5		)	(2		)
	(112		)	(6		)	(130		)
Transform	(31		)	(12		)	—
Aptina	(15		)	(24		)	—
Hynix JV	—			2			—
MeiYa	—			1			(10		)
	$	(158	)	$	(39	)	$	(140	)

The summarized financial information in the tables below include the aggregate of all of our equity method investees on a stand-alone basis. The tables below include the respective years and periods through which we recorded our proportionate share of each of their results of operations, generally on a two-month lag. The summarized results of operations in the table below include the operating results of Inotera, Transform and Aptina only for the periods subsequent to our acquisition of our ownership interests.



As of	2011		2010
Current assets	$	942	$	898
Noncurrent assets (primarily property, plant and equipment)	4,189		3,537
Current liabilities	3,201		1,479
Noncurrent liabilities	173		900



For the years ended	2011			2010			2009
Net sales	$	1,839		$	1,927		$	670
Gross margin	(268		)	73			(370		)
Operating loss	(559		)	(181		)	(473		)
Net loss	(594		)	(237		)	(553		)

Our maximum exposure to loss from our ownership in our equity method investments that are VIEs was as follows:



As of	2011
Inotera	$	325
MeiYa	1
Transform	90

The maximum exposure to loss primarily included our investment balance as well as the related translation adjustments in accumulated other comprehensive income and receivables, if any. We may also incur losses in connection with our obligations under a supply agreement with Inotera (the "Inotera Supply Agreement") for rights and obligations to purchase 50% of Inotera's wafer production capacity of DRAM products.

Inotera and MeiYa DRAM joint ventures with Nanya

We have partnered with Nanya in two Taiwanese DRAM memory companies, Inotera and MeiYa. Under a licensing arrangement with Nanya, we recognized $65 million and $105 million of license revenue in net sales during 2010 and 2009, respectively, and had recognized a total of $207 million through the completion of the arrangement in April 2010. Under a cost-sharing arrangement beginning in April 2010, we share equally in DRAM development costs with Nanya and, as a result, our research and development costs were reduced by $141 million and $51 million in 2011 and 2010, respectively. In addition, we received $25 million and $6 million of royalty revenue in 2011 and 2010, respectively, from Nanya for sales of stack DRAM products manufactured by or for Nanya on process nodes of 50nm or higher and will continue to receive royalties from Nanya associated with technology developed prior to the cost-sharing arrangement.

Inotera: In the first quarter of 2009, we acquired a 35.5% ownership interest in Inotera. As a result of Inotera's sale of common shares in a public offering, our equity ownership interest decreased from 35.5% to 29.8% and we recognized a gain of $56 million in the first quarter of 2010. In the second quarter of 2010, as part of another Inotera offering of common shares, we and Nanya each paid $138 million to purchase additional shares, slightly increasing our equity ownership interest from 29.8% to 29.9%. In 2011, our ownership interest was reduced by shares issued under Inotera's employee stock plans and as of September 1, 2011, we held a 29.7% ownership interest in Inotera, Nanya held a 29.8% ownership interest, and the balance was publicly held.

The carrying value of our initial investment was less than our proportionate share of Inotera's equity. This difference is being amortized as a credit to earnings through equity in net income (loss) of equity method investees (the "Inotera Amortization"). As of September 1, 2011, $74 million of Inotera Amortization remained to be recognized of which $49 million is scheduled to be amortized in 2012 with the remaining amount to be amortized through 2034. The $56 million gain recognized in the first quarter of 2010 on Inotera's issuance of shares included $33 million of accelerated Inotera Amortization.

Because of significant market declines in the selling price of DRAM, Inotera incurred net losses of $278 million for the six-month period ended June 30, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.3 billion as of June 30, 2011, which exposes Inotera to liquidity risk. Inotera's management has developed plans to improve its liquidity. There can be no assurance that Inotera's plan to improve its liquidity will be successful.

In connection with the initial acquisition of our shares in Inotera, we and Nanya entered into the Inotera Supply Agreement. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula among Nanya, Inotera, and ourselves. Under such formula, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. Under the Inotera Supply Agreement, we purchased $641 million and $693 million of DRAM products in 2011 and 2010, respectively. In 2011, we recognized a loss on our purchase commitment under the Inotera Supply Agreement of $28 million.

In the second quarter of 2009, Qimonda filed for bankruptcy and defaulted on its obligations to purchase trench DRAM products from Inotera under a separate supply agreement between Inotera and Qimonda ("the Qimonda Supply Agreement"). Pursuant to our obligation under the Inotera Supply Agreement to purchase up to 50% of Inotera's trench DRAM capacity, less any trench DRAM products sold to Qimonda pursuant to the Qimonda Supply Agreement, we recorded $95 million in cost of goods sold in 2009 for underutilized capacity as a result of Qimonda's default.

In the third quarter of 2009, we received $50 million from Inotera pursuant to the terms of a technology transfer agreement and, in connection therewith, recognized $13 million and $15 million of revenue in 2010 and 2009, respectively.

As of September 1, 2011 and September 2, 2010, there were gains of $65 million and $7 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our investment in Inotera.

As of September 1, 2011, based on the closing trading price of Inotera's shares in an active market, the market value of our equity interest in Inotera was $296 million which was below our net carrying value of $323 million. The net carrying value is our investment balance of $388 million less the cumulative translation adjustments in accumulated other comprehensive income (loss) of $65 million. We evaluated our investment in Inotera and concluded that the decline in the market value below carrying value was not an other-than-temporary-impairment primarily for the following reasons: (1) the deficit in market value to carrying value existed for less than one month, (2) the deficit as a percentage of the carrying was relatively minor, (3) the market value subsequently appreciated to exceed the carrying value shortly after the end of our fiscal 2011, and (4) the market value is very volatile based on changes in pricing for Inotera's sole product, DRAM, which fluctuates significantly based on market cycles and other factors.

MeiYa: In 2008, we acquired a 50% interest in MeiYa. In connection with our acquisition of an equity interest in Inotera, we entered into agreements with Nanya pursuant to which both parties ceased future funding of, and resource commitments to, MeiYa. Additionally, MeiYa sold substantially all of its assets to Inotera. In the second quarter of 2011, we and Nanya each received a distribution from MeiYa of $48 million as a return of capital, representing substantially all of MeiYa's assets.

Pursuant to a technology transfer agreement, we received $50 million from MeiYa in the first quarter of 2009. Our technology transfer agreement with MeiYa was supplanted by our technology transfer agreement with Inotera and we returned the $50 million with accrued interest to MeiYa in the fourth quarter of 2009.

Transform

In 2010, we acquired a 50% interest in Transform. In exchange for the equity interest in Transform, we contributed nonmonetary assets, which consisted of manufacturing facilities, equipment, intellectual property and a fully-paid lease to a portion of our Boise, Idaho manufacturing facilities. As of September 1, 2011, we and Origin each held a 50% ownership interest in Transform. During 2011 and 2010, we and Origin each contributed $30 million and $26 million, respectively, of cash to Transform. Our results of operations for 2011 and 2010 included $20 million and $15 million, respectively, of net sales which approximates our cost for transition services provided to Transform.

As of September 1, 2011 and September 2, 2010, other noncurrent assets included $29 million and $33 million, respectively, for the manufacturing facilities leased to Transform and other noncurrent liabilities included $29 million and $33 million for deferred rent revenue on the fully-paid lease. Additionally, as of September 1, 2011 and September 2, 2010, other noncurrent assets and liabilities included $4 million and $5 million, respectively, for the value of certain equipment and intangible assets, which we were obligated to contribute to Transform.

Aptina

In 2009, we sold a 65% interest in Aptina, previously a wholly-owned subsidiary. A portion of the 65% interest we sold is in the form of convertible preferred shares that have a liquidation preference over Aptina's common shares. As a result, we recognize our share of Aptina's earnings or losses based on our common stock ownership percentage, which was 64% as of September 1, 2011.

We manufacture components for CMOS image sensors for Aptina under a wafer supply agreement. For 2011, 2010 and 2009, we recognized net sales of $349 million, $372 million and $70 million, respectively, and cost of goods sold of $358 million, $385 million and $60 million, respectively, from products sold to Aptina.