Crucial 2011 Annual Report Download - page 59

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.
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