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Equity Method Investments | 6 Months Ended
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Mar. 01, 2012
Notes to Financial Statements [Abstract] |
Equity Method Investments | Equity Method Investments
As of |  | March 1, 2012 |  | September 1, 2011
|  | Investment Balance |  | Ownership Percentage |  | Investment Balance |  | Ownership Percentage
Inotera |  | $ | 259 |  |  | 29.7 | % |  | $ | 388 |  |  | 29.7 | %
Transform |  | 75 |  |  | 50.0 | % |  | 87 |  |  | 50.0 | %
Other |  | 1 |  |  | Various |  |  | 8 |  |  | Various |
|  | $ | 335 |  |  |  |  |  | $ | 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 |  | Six Months Ended
|  | March 1, 2012 |  | March 3, 2011 |  | March 1, 2012 |  | March 3, 2011
Inotera: |  |  |  |  |  |  |  |
Equity method loss |  | $ | (64 | ) |  | $ | (45 | ) |  | $ | (136 | ) |  | $ | (71 | )
Inotera Amortization |  | 12 |  |  | 12 |  |  | 24 |  |  | 24 |
Other |  | (4 | ) |  | (2 | ) |  | (7 | ) |  | (2 | )
|  | (56 | ) |  | (35 | ) |  | (119 | ) |  | (49 | )
Transform |  | (15 | ) |  | (9 | ) |  | (22 | ) |  | (16 | )
Other |  | (2 | ) |  | (4 | ) |  | (6 | ) |  | (9 | )
|  | $ | (73 | ) |  | $ | (48 | ) |  | $ | (147 | ) |  | $ | (74 | )
Our maximum exposure to loss from our involvement with our equity method investments that are VIEs was as follows:
As of |  | March 1, 2012
Inotera |  | $ | 354 |
Transform |  | 76 |
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. Through the second quarter of 2012, we had rights and obligations to purchase a portion of Inotera's wafer production capacity under the Inotera Supply Agreement. 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. We acquired our initial ownership interest in Inotera in the first quarter of 2009. As of March 1, 2012, 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 March 1, 2012, $50 million of Inotera Amortization remained to be recognized, of which $25 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 $737 million for its year ended December 31, 2011. Also, Inotera's current liabilities exceeded its current assets by $2.2 billion as of December 31, 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. On December 20, 2011, 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, subsequent to the end of our second quarter of 2012. Also, in March 2012, subsequent to the end of our second quarter of 2012, we contributed $170 million to Inotera, which increased our ownership percentage from 29.7% to 39.7%. Through the second quarter of 2012, we had a supply agreement with Inotera, under which Nanya was 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 equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-nanometer output when it becomes available from Inotera capital investments enabled by our $170 million equity 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 $142 million and $298 million of DRAM products in the second quarter and first six months of 2012, respectively, and $167 million and $304 million of DRAM products in the second quarter and first six months of 2011, respectively. In addition, under the Inotera Supply Agreement, we accrued a liability and recognized a loss on our purchase commitment of $19 million in the second quarter of 2012 and $40 million in the first quarter of 2012. As of March 1, 2012 and September 1, 2011, there were gains of $46 million and $65 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera. As of March 1, 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 $404 million, which exceeded our net carrying value of $213 million. The net carrying value is our investment balance of $259 million less the cumulative translation adjustments in accumulated other comprehensive income (loss) of $46 million. 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 $36 million and $73 million for the second quarter and first six months of 2012, respectively, and $33 million and $63 million for the second quarter and first six months of 2011, respectively. In addition, we received $1 million and $4 million of royalty revenue for the second quarter and first six months of 2012, respectively, and $6 million and $13 million of royalty revenue for the second quarter and first six months of 2011, respectively, from Nanya for sales of stack DRAM products manufactured by or for Nanya on process nodes of 50nm or higher. 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 March 1, 2012, we and Origin each held a 50% ownership interest in Transform. During the second quarter and first six months of 2012, we and Origin each contributed $4 million and $7 million, respectively, of cash to Transform, and for the second quarter and first six months of 2011, we and Origin each contributed $4 million and $11 million, respectively, of cash to Transform. Our results of operations for the second quarter and first six months of 2012 included $4 million and $8 million, respectively, of net sales, which approximated our cost, for transition services provided to Transform. For the second quarter and first six months of 2011, our results of operations included $6 million and $11 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. 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 their 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 second quarter and first six months of 2012, we recognized net sales of $99 million and $193 million, respectively, from products sold to Aptina. For the second quarter and first six months of 2011, we recognized net sales of $82 million and $141 million, respectively, from products sold to Aptina. Revenue on our sales to Aptina approximated costs.

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- Definition The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6382943&loc=d3e33918-111571 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=6903645&loc=d3e32787-111569 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 18 -Paragraph 20 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=6903645&loc=d3e32847-111569 + Details
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