Equity Method Investments



As of	June 2, 2011				September 2, 2010
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Inotera	$	406	29.7	%	$	434	29.9	%
MeiYa	1		50.0	%	44		50.0	%
Transform	84		50.0	%	82		50.0	%
Aptina	8		35.0	%	22		35.0	%
	$	499			$	582

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						Nine months ended
	June 2, 2011			June 3, 2010			June 2, 2011			June 3, 2010
Inotera:
Equity method income (losses)	$	(42	)	$	(16	)	$	(113	)	$	(38	)
Inotera Amortization	12			12			36			38
Other	(2		)	—			(4		)	(3		)
	(32		)	(4		)	(81		)	(3		)
Transform	(8		)	(6		)	(24		)	(6		)
Aptina	(4		)	(11		)	(13		)	(16		)
MeiYa	—			2			—			2
	$	(44	)	$	(19	)	$	(118	)	$	(23	)

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



As of	June 2, 2011
Inotera	$	353
MeiYa	1
Transform	87

The maximum exposure to loss primarily included the carrying value of our investment 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") 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 $13 million and $65 million of license revenue in net sales during the third quarter and first nine months of 2010, 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 $38 million and $101 million for the third quarter and first nine months of 2011, respectively and $24 million in the third quarter of 2010. In addition, we received $5 million and $18 million of royalty revenue for the third quarter and first nine months of 2011, 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 the second and third quarters of 2011, our ownership interest was reduced by shares issued under Inotera's employee stock plans and as of June 2, 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 June 2, 2011, $85 million of Inotera Amortization remained to be recognized over a weighted-average period of 4 years. The $56 million gain recognized in the first quarter of 2010 on Inotera's issuance of shares included $33 million of accelerated Inotera Amortization.

In connection with the initial acquisition of our shares in Inotera, we and Nanya entered into the Inotera Supply Agreement. Our cost of the wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula that considers all parties' manufacturing costs related to wafers purchased from Inotera, as well as the selling prices of our and Nanya's products from these wafers. Under the Inotera Supply Agreement, we purchased $177 million and $481 million of DRAM products in the third quarter and first nine months of 2011, respectively, and $188 million and $543 million of DRAM products in the third quarter and first nine months of 2010, respectively.

As of June 2, 2011 and September 2, 2010, there were gains of $55 million and $7 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our investment in Inotera. As of June 2, 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 $599 million.

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 has 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. As of September 2, 2010, there were losses of $(5) million in accumulated other comprehensive income (loss) for cumulative translation adjustments from MeiYa.

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 June 2, 2011, we and Origin each held a 50% ownership interest in Transform. During the third quarter and first nine months of 2011, we and Origin each contributed $11 million and $22 million, respectively, of cash to Transform, and in the second and third quarters of 2010, we and Origin each contributed $5 million and $8 million, respectively, of cash to Transform. Our results of operations for the third quarter and first nine months of 2011 included $5 million and $16 million, respectively, of net sales, which approximates our cost, for transition services provided to Transform. Our results of operations for the first nine months of 2010 included $9 million of net sales, which approximates our cost, for these transition services.

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 the 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 June 2, 2011.

We manufacture components for CMOS image sensors for Aptina under a wafer supply agreement. For the third quarter and first nine months of 2011, we recognized net sales of $104 million and $245 million, respectively, and cost of goods sold of $102 million and $259 million, respectively, from products sold to Aptina. For the third quarter and first nine months of 2010, we recognized net sales of $92 million and $280 million, respectively, and cost of goods sold of $89 million and $283 million, respectively, from products sold to Aptina.