Equity Method Investments



As of	May 31, 2012				September 1, 2011
	Investment Balance		Ownership Percentage		Investment Balance		Ownership Percentage
Inotera	$	403	39.7	%	$	388	29.7	%
Transform	—		50.0	%	87		50.0	%
Other	—		Various		8		Various
	$	403			$	483

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



	Quarter Ended						Nine Months Ended
	May 31, 2012			June 2, 2011			May 31, 2012			June 2, 2011
Inotera:
Equity method loss	$	(48	)	$	(42	)	$	(184	)	$	(113	)
Inotera Amortization	12			12			36			36
Other	(2		)	(2		)	(9		)	(4		)
	(38		)	(32		)	(157		)	(81		)
Transform	(77		)	(8		)	(99		)	(24		)
Other	—			(4		)	(6		)	(13		)
	$	(115	)	$	(44	)	$	(262	)	$	(118	)

Our maximum exposure to loss from our involvement with our equity method investments that were VIEs was $350 million and primarily included our Inotera 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 rights and obligations to purchase a portion of Inotera's wafer production capacity under a supply agreement with Inotera. As a result of our March 2012 equity contribution to Inotera, our obligation to purchase Inotera's capacity may increase when additional output results from Inotera's capital investments enabled by our equity investment.

Inotera

We have partnered with Nanya in Inotera, a Taiwanese DRAM memory company, since the first quarter of 2009. As of May 31, 2012, we held a 39.7% ownership interest in Inotera, Nanya held a 26.1% ownership interest and the remaining ownership interest was publicly held.

In the second quarter of 2012, we loaned $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. The loan was repaid to us with accrued interest in March 2012. Also, in March 2012, we contributed $170 million to Inotera, which increased our ownership percentage from 29.7% to 39.7%.

The net carrying value of our initial and subsequent investments was less than our proportionate share of Inotera's equity at the time of those investments. These differences are being amortized as a net credit to earnings through equity in net income (loss) of equity method investees (the "Inotera Amortization"). As of May 31, 2012, $32 million of Inotera Amortization remained to be recognized, of which $12 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 prices of DRAM, Inotera incurred net losses of $155 million for its first quarter ended March 31, 2012. Also, Inotera's current liabilities exceeded its current assets by $2 billion as of March 31, 2012, 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.

We have a supply agreement with Inotera, under which Nanya is also a party, for the rights and obligations to purchase 50% of Inotera's wafer production capacity (the "Inotera Supply Agreement"). As a result of our March 2012 $170 million equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-nanometer output when it becomes available as a result of Inotera capital investments enabled by our investment. 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 $178 million and $476 million of DRAM products in the third quarter and first nine months of 2012, respectively, and $177 million and $481 million of DRAM products in the third quarter and first nine months of 2011, respectively.

As of May 31, 2012 and September 1, 2011, there were gains of $54 million and $65 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera. As of May 31, 2012, based on the closing trading price of Inotera's shares in an active market, the market value of our equity interest in Inotera was $554 million, which exceeded our net carrying value of $349 million. The net carrying value is our investment balance of $403 million less cumulative translation adjustments in accumulated other comprehensive income (loss).

Under a cost-sharing arrangement, we share DRAM development costs equally with Nanya. As a result, our research and development ("R&D") costs were reduced by $35 million and $108 million for the third quarter and first nine months of 2012, respectively, and $38 million and $101 million for the third quarter and first nine months of 2011, respectively. In addition, for sales of DRAM products manufactured by or for Nanya on process nodes of 50nm or higher, we received royalty revenue from Nanya of $4 million and $8 million for the third quarter and first nine months of 2012, respectively, and $5 million and $18 million for the third quarter and first nine months of 2011, respectively.

Transform

In the second quarter of 2010, we acquired a 50% interest in Transform, a developer, manufacturer and marketer of photovoltaic technology and solar panels, from Origin. As of May 31, 2012, we and Origin each held a 50% ownership interest in Transform. During the third quarter and first nine months of 2012, we and Origin each contributed $3 million and $10 million, respectively, of cash to Transform, and 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. For the third quarter and first nine months of 2012, we recognized net sales of $3 million and $11 million, respectively, for transition services provided to Transform. For the third quarter and first nine months of 2011, we recognized net sales of $5 million and $16 million, respectively, for transition services provided to Transform. Revenue on our sales to Transform approximated costs.

As a result of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and demand conditions, on May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As a result of the liquidation plan, we recognized a charge of $69 million, which reduced our investment balance in Transform to zero.

Other

Included in other equity method investments is our 35% equity interest in Aptina. During the second quarter of 2012, the amount of cumulative loss we recognized from our investment in Aptina reduced our investment balance to zero and we ceased recognizing our proportionate share of Aptina's losses. We will resume recognizing our proportionate share of Aptina's earnings only when our proportionate share of its earnings exceeds the amount of cumulative net losses not recognized.

We manufacture components for CMOS image sensors for Aptina under a wafer supply agreement. For the third quarter and first nine months of 2012, we recognized net sales of $99 million and $292 million, respectively, from products sold to Aptina. For the third quarter and first nine months of 2011, we recognized net sales of $104 million and $245 million, respectively, from products sold to Aptina. Revenue on our sales to Aptina approximated costs.

Also included in other equity method investments is our 50% investment in MeiYa Technology Corporation ("MeiYa"). In May 2012, we received $1 million as a return of our remaining MeiYa investment.