Equity Method Investments



As of	December 1, 2011				September 1, 2011
	Investment Balance		Ownership Percentage		Investment Balance		Ownership Percentage
Inotera	$	308	29.7	%	$	388	29.7	%
Transform	85		50.0	%	87		50.0	%
Other	4		Various		8		Various
	$	397			$	483

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



Quarter ended	December 1, 2011			December 2, 2010
Inotera:
Equity method loss	$	(72	)	$	(26	)
Inotera Amortization	12			12
Other	(3		)	—
	(63		)	(14		)
Transform	(7		)	(7		)
Other	(4		)	(5		)
	$	(74	)	$	(26	)

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



As of	December 1, 2011
Inotera	$	265
Transform	87

The maximum exposure to loss primarily included our investment balance as well as 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") to purchase 50% of Inotera's wafer production capacity of DRAM products.

Inotera

We have partnered with Nanya in Inotera, a Taiwanese DRAM memory company. We acquired our initial ownership interest in Inotera in the first quarter of 2009. As of December 1, 2011, we held a 29.7% ownership interest in Inotera, Nanya held a 30.4% ownership interest and the remaining ownership interest was publicly held.

The carrying value of our initial investment in Inotera was less than our proportionate share of its 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 December 1, 2011, $62 million of Inotera Amortization remained to be recognized, of which $37 million is scheduled to be amortized in the remainder of 2012 with the remaining amount to be amortized through 2034.

Because of significant market declines in the selling price of DRAM, Inotera incurred net losses of $521 million for the nine-month period ended September 30, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.2 billion as of September 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 plans to improve its liquidity will be successful.

In December, 2011, subsequent to the end of the first quarter of 2012, we lent $133 million to Inotera under a 90-day note with a stated annual interest rate of 2% to facilitate the purchase of capital equipment necessary to implement new process technology.

In connection with the 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 us. 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 $156 million and $137 million of DRAM products in the first quarters of 2012 and 2011, respectively. In addition, under the Inotera Supply Agreement, we accrued a liability and recognized a loss on our purchase commitment of $40 million in the first quarter of 2012 and $28 million in the fourth quarter of 2011.

As of December 1, 2011 and September 1, 2011, there were gains of $44 million and $65 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera.

As of December 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 $187 million, which was below our net carrying value of $264 million. The net carrying value is our investment balance of $308 million less the cumulative translation adjustments in accumulated other comprehensive income (loss) of $44 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 difference between market value and carrying value existed for less than two months, (2) the market value improved subsequent to the end of the first quarter of 2012, (3) Inotera's recent improvements in operational performance and (4) the volatility of Inotera's market value which is based on changes in pricing for Inotera's sole product, DRAM, that fluctuates significantly based on market cycles and other factors.

Under a cost-sharing arrangement, we share equally in DRAM development costs with Nanya. As a result, our research and development ("R&D") costs were reduced by $37 million and $30 million for the first quarters of 2012 and 2011, respectively. In addition, we received $3 million and $7 million of royalty revenue for the first quarters of 2012 and 2011, respectively, from Nanya for sales of stack DRAM products manufactured by or for Nanya on process nodes of 50nm or higher. We expect to continue receiving royalties from Nanya associated with technology developed prior to the cost-sharing arrangement.

Transform

In 2010, we acquired a 50% interest in Transform from Origin. As of December 1, 2011, we and Origin each held a 50% ownership interest in Transform. During the first quarters of 2012 and 2011, we and Origin each contributed $3 million and $7 million, respectively, of cash to Transform. Our results of operations for the first quarter of 2012 and 2011 included $4 million and $5 million, respectively, of net sales, which approximated our cost, for transition services provided to Transform.

Other

Included in other equity method investments is our 35% equity interest in Aptina. We manufacture components for CMOS image sensors for Aptina under a wafer supply agreement. For the first quarter of 2012, we recognized net sales of $94 million and cost of goods sold of $94 million from products sold to Aptina. For the first quarter 2011, we recognized net sales of $59 million and cost of goods sold of $72 million from products sold to Aptina.