Edgar Filing: MICRON TECHNOLOGY INC

q3-fy2010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 3, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10658

Micron Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware	75-1618004
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

8000 S. Federal Way, Boise, Idaho	83716-9632
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code	(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x	Accelerated Filer o
Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of outstanding shares of the registrant’s common stock as of July 8, 2010 was 994,171,461.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions except per share amounts)

(Unaudited)

	Quarter Ended						Nine Months Ended
	June 3, 2010			June 4, 2009			June 3, 2010			June 4, 2009


Net sales	$	2,288		$	1,106		$	5,989		$	3,501
Cost of goods sold		1,440			999			4,056			4,110
Gross margin		848			107			1,933			(609	)

Selling, general and administrative		190			80			387			272
Research and development		142			162			427			508
Restructure		(5	)		19			(7	)		58
Goodwill impairment		--			--			--			58
Other operating (income) expense, net		(19	)		92			(30	)		122
Operating income (loss)		540			(246	)		1,156			(1,627	)

Gain from acquisition of Numonyx		437			--			437			--
Interest income		4			6			8			20
Interest expense		(44	)		(49	)		(137	)		(137	)
Other non-operating income (expense), net		1			(4	)		56			(15	)
		938			(293	)		1,520			(1,759	)

Income tax (provision) benefit		41			4			44			(14	)
Equity in net income (losses) of equity method investees, net of tax		(19	)		(45	)		(23	)		(106	)
Net income (loss)		960			(334	)		1,541			(1,879	)

Net (income) loss attributable to noncontrolling interests		(21	)		33			(33	)		97
Net income (loss) attributable to Micron	$	939		$	(301	)	$	1,508		$	(1,782	)

Earnings (loss) per share:
Basic	$	1.06		$	(0.37	)	$	1.75		$	(2.27	)
Diluted		0.92			(0.37	)		1.55			(2.27	)

Number of shares used in per share calculations:
Basic		885.4			813.3			860.0			786.5
Diluted		1,049.4			813.3			1,019.7			786.5

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)

(Unaudited)

As of	June 3, 2010			September 3, 2009

Assets
Cash and equivalents	$	2,313		$	1,485
Receivables		1,568			798
Inventories		1,747			987
Other current assets		96			74
Total current assets		5,724			3,344
Intangible assets, net		341			344
Property, plant and equipment, net		6,635			7,089
Equity method investments		1,010			315
Other noncurrent assets		667			367
Total assets	$	14,377		$	11,459

Liabilities and equity
Accounts payable and accrued expenses	$	1,492		$	1,037
Deferred income		244			209
Equipment purchase contracts		223			222
Current portion of long-term debt		652			424
Total current liabilities		2,611			1,892
Long-term debt		1,717			2,379
Other noncurrent liabilities		582			249
Total liabilities		4,910			4,520

Commitments and contingencies

Micron shareholders’ equity:
Common stock, $0.10 par value, authorized 3,000 million shares, issued and outstanding 993.9 million and 848.7 million shares, respectively		99			85
Additional capital		8,441			7,257
Accumulated deficit		(877	)		(2,385	)
Accumulated other comprehensive income (loss)		17			(4	)
Total Micron shareholders’ equity		7,680			4,953
Noncontrolling interests in subsidiaries		1,787			1,986
Total equity		9,467			6,939
Total liabilities and equity	$	14,377		$	11,459

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

Nine months ended	June 3, 2010			June 4, 2009

Cash flows from operating activities
Net income (loss)	$	1,541		$	(1,879	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,474			1,683
Stock-based compensation		73			34
Equity in net losses of equity method investees		23			106
Provision to write down inventories to estimated market values		16			603
Gain from acquisition of Numonyx		(437	)		--
Gain from Inotera stock issuance		(56	)		--
Noncash restructure charges (credits)		(14	)		157
(Gain) loss from disposition of property, plant and equipment, net		(10	)		55
Goodwill impairment		--			58
Loss on write-down of Aptina imaging assets		--			53
Change in operating assets and liabilities:
(Increase) decrease in receivables		(556	)		224
Increase in inventories		(88	)		(311	)
Increase (decrease) in accounts payable and accrued expenses		165			(6	)
Decrease in customer prepayments		(143	)		(44	)
Increase in deferred income		28			71
Other		3			45
Net cash provided by operating activities		2,019			849

Cash flows from investing activities
Expenditures for property, plant and equipment		(269	)		(439	)
Acquisitions of equity method investments		(151	)		(408	)
Cash acquired from acquisition of Numonyx		95			--
Proceeds from sales of property, plant and equipment		86			13
(Increase) decrease in restricted cash		10			(57	)
Proceeds from maturities of available-for-sale securities		--			130
Other		10			80
Net cash used for investing activities		(219	)		(681	)

Cash flows from financing activities
Repayments of debt		(748	)		(373	)
Distributions to noncontrolling interests		(244	)		(592	)
Payments on equipment purchase contracts		(199	)		(127	)
Proceeds from debt		200			716
Cash received from noncontrolling interests		24			24
Proceeds from issuance of common stock, net of costs		7			276
Other		(12	)		(29	)
Net cash used for financing activities		(972	)		(105	)

Net increase in cash and equivalents		828			63
Cash and equivalents at beginning of period		1,485			1,243
Cash and equivalents at end of period	$	2,313		$	1,306

Supplemental disclosures
Income taxes refunded (paid), net	$	11		$	(14	)
Interest paid, net of amounts capitalized		(85	)		(87	)
Noncash investing and financing activities:
Stock and restricted stock units issued in acquisition of Numonyx		1,112			--
Equipment acquisitions on contracts payable and capital leases		281			305
Acquisition of interest in Transform		65			--

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in millions except per share amounts)

(Unaudited)

Business and Significant Accounting Policies

Basis of presentation: Micron Technology, Inc. and its consolidated subsidiaries (hereinafter referred to collectively as the “Company”) is a global manufacturer and marketer of semiconductor devices, principally DRAM, NAND Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embedded and mobile products. In addition, the Company manufactures CMOS image sensors and other semiconductor products. The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended September 3, 2009, except for changes resulting from the adoption of new accounting standards for convertible debt and noncontrolling interests. Prior year amounts and balances have been retrospectively adjusted to reflect the adoption of these new accounting standards. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows. (See “Adjustments for Retrospective Application of New Accounting Standards” note.)

In the third quarter of 2010, the Company added a new reportable segment as a result of the acquisition of Numonyx and has two reportable segments, Memory and Numonyx. The Company included the former Numonyx business as a reportable segment since its acquisition on May 7, 2010. The primary products of the Memory segment are DRAM and NAND Flash memory and the primary products of the Numonyx segment are NOR Flash, NAND Flash, DRAM and Phase Change non-volatile memory.

The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. The Company’s fiscal 2010 contains 52 weeks and the third quarter and first nine months of fiscal 2010, which ended on June 3, 2010, contained 13 weeks and 39 weeks, respectively. The Company’s fiscal 2009, which ended on September 3, 2009, contained 53 weeks and the third quarter and first nine months of fiscal 2009 contained 13 weeks and 40 weeks, respectively. All period references are to the Company’s fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended September 3, 2009 and in the Company’s report on Form 8-K filed on March 4, 2010.

Recently adopted accounting standards: In May 2008, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. This standard requires that issuers of these types of convertible debt instruments separately account for the liability and equity components of such instruments in a manner such that interest cost is recognized at the entity’s nonconvertible debt borrowing rate in subsequent periods. The Company adopted this standard as of the beginning of 2010 and retrospectively accounted for its $1.3 billion 1.875% convertible senior notes under the provisions of this guidance from the May 2007 issuance date of the notes. As a result, prior financial statement amounts were recast. (See “Adjustments for Retrospective Application of New Accounting Standards” note.)

In December 2007, the FASB issued a new accounting standard on noncontrolling interests in consolidated financial statements. This standard requires that (1) noncontrolling interests be reported as a separate component of equity, (2) net income attributable to the parent and to the noncontrolling interest be separately identified in the statement of operations, (3) changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions and (4) any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. The Company adopted this standard as of the beginning of 2010. As a result, prior financial statement amounts were recast. (See “Adjustments for Retrospective Application of New Accounting Standards” note.)

In December 2007, the FASB issued a new accounting standard on business combinations, which establishes the principles and requirements for how an acquirer (1) recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, (2) recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose. The Company adopted this standard effective as of the beginning of 2010. The initial adoption did not have a significant impact on the Company’s financial statements. The acquisition of Numonyx was accounted for under the provisions of this new standard.

In September 2006, the FASB issued a new accounting standard on fair value measurements and disclosures, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The Company adopted this standard effective as of the beginning of 2009 for financial assets and financial liabilities. The Company adopted this standard effective as of the beginning of 2010 for all other assets and liabilities. The adoptions did not have a significant impact on the Company’s financial statements.

Recently issued accounting standards: In June 2009, the FASB issued a new accounting standard on variable interest entities which (1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, (2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and (3) requires additional disclosures about an enterprise’s involvement in variable interest entities. The Company is required to adopt this standard as of the beginning of 2011. The Company is evaluating the impact the adoption of this standard will have on its financial statements.

Numonyx Holdings B.V.

On May 7, 2010, the Company completed its acquisition of Numonyx Holdings B.V. (“Numonyx”), which manufactures and sells NOR Flash, NAND Flash, DRAM and Phase Change non-volatile memory technologies and products. The Company acquired Numonyx to further strengthen the Company’s portfolio of memory products, increase manufacturing and revenue scale, access Numonyx’s customer base and provide opportunities to increase multi-chip offerings in the embedded and mobile markets. In connection therewith, the Company issued 137.7 million shares of the Company’s common stock in exchange for all of the outstanding Numonyx capital stock and issued 4.8 million restricted stock units to employees of Numonyx in exchange for all of their outstanding restricted stock units. The total fair value of the consideration the Company paid for Numonyx was $1,112 million and consisted of $1,091 million for the shares issued to the Numonyx shareholders and $21 million for the restricted stock units issued to employees of Numonyx. The fair value of the consideration was determined based on the trading price of the Company’s common shares on the acquisition date discounted for the resale restrictions on the shares. Of the shares issued to the Numonyx shareholders, 21.0 million were placed in escrow as partial security for the Numonyx shareholders’ indemnity obligations resulting from the acquisition. The shares in escrow may be sold after November 6, 2010, but the proceeds from any sale remain in escrow until May 7, 2011, at which time the escrow assets are payable to the Numonyx shareholders, net of any indemnification claims from the Company. Included in the selling, general and administrative expenses in the results of operations for the third quarter and first nine months of 2010 are transaction costs of $12 million and $19 million, respectively, incurred in connection with this acquisition.

The Company provisionally determined the assets and liabilities of Numonyx based on fair values as of May 7, 2010 utilizing an in-exchange model. Because the purchase price was less than the fair value of net assets of Numonyx, the Company recognized a preliminary gain on the acquisition of $437 million. The Company believes the gain realized in acquisition accounting was the result of a number of factors, including the following: significant losses recognized by Numonyx during the recent downturn in the semiconductor memory industry; substantial volatility in Numonyx’s primary markets; market perceptions that future opportunities for Numonyx products in certain markets are limited; the liquidity afforded to the sellers as a result of the limited opportunities to realize the value of their investment in Numonyx; and potential gains to the sellers through their investment in the Company’s equity from synergies between Numonyx and the Company. The consideration and provisional valuation of assets acquired and liabilities assumed were as follows:

Consideration:
Fair value of common stock issued	$	1,091
Fair value of restricted stock units issued		21
	$	1,112

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and equivalents	$	95
Receivables		256
Inventories		689
Other current assets		28
Intangible assets		29
Property, plant and equipment		344
Equity method investment		414
Other noncurrent assets		307

Accounts payable and accrued expenses		(310	)
Other current liabilities		(5	)
Other noncurrent liabilities		(298	)
Total net assets acquired		1,549
Gain on acquisition		(437	)
	$	1,112

Other noncurrent liabilities in the table above include contingent liabilities of $66 million for uncertain tax positions (a significant portion for which the Company has recorded an indemnification asset in other noncurrent assets in the table above) and $15 million for the Company’s obligation, subject to certain conditions, to guarantee certain debt of Hynix-Numonyx Semiconductor Ltd., an acquired equity method investment. These amounts were estimated based on the present value of probability-weighted cash flows. The Company’s results of operations for the third quarter and first nine months of 2010 include $80 million of net sales and $21 million of operating losses from the Numonyx operations after the May 7, 2010 acquisition date. (See “Equity Method Investments – Hynix JV” note.)

The following unaudited pro forma financial information presents the combined results of operations of the Company and Numonyx as if the companies were combined as of the beginning of 2009. The pro forma financial information includes the accounting affects of the business combination, including the adjustment of amortization of intangible assets, depreciation of property, plant and equipment, interest expense and elimination of intercompany sales, as if the companies were actually combined as of the beginning of 2009. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the companies been combined as of the beginning of 2009.

	Quarter ended					Nine months ended
	June 3, 2010		June 4, 2009			June 3, 2010		June 4, 2009

Net sales	$	2,781	$	1,447		$	7,489	$	4,873
Net income (loss)		987		(402	)		1,538		(2,045	)
Net income (loss) attributable to Micron		966		(368	)		1,505		(1,948	)
Earnings (loss) per share:
Basic	$	0.98	$	(0.40	)	$	1.53	$	(2.16	)
Diluted		0.86		(0.40	)		1.38		(2.16	)

The unaudited pro forma financial information for the three and nine month periods ended June 3, 2010 includes the results of the Company for the periods ended June 3, 2010 and the results of Numonyx, including the adjustments described above, for the three and nine month periods ended March 27, 2010. The three and nine month periods ended June 4, 2009 includes the results of the Company for the periods ended June 4, 2009 and the results of Numonyx, including the adjustments described above, for the three and nine month periods ended March 28, 2009.

Supplemental Balance Sheet Information

Receivables	June 3, 2010		September 3, 2009

Trade receivables (net of allowance for doubtful accounts of $5 million and $5 million, respectively)	$	1,237	$	591
Income and other taxes receivable		117		49
Related party receivables		65		70
Other		149		88
	$	1,568	$	798

As of June 3, 2010, related party receivables included $60 million due from Aptina Imaging Corporation (“Aptina”) under a wafer supply agreement for image sensor products, $3 million due from Inotera Memories, Inc. (“Inotera”) for reimbursement of expenses incurred under a technology transfer and cost sharing agreement and $2 million due from Transform Solar Pty Limited for transition services and photovoltaic product development activities. As of September 3, 2009, related party receivables included $69 million due from Aptina under a wafer supply agreement for image sensor products and $1 million due from Inotera for reimbursement of expenses incurred under a technology transfer agreement.

As of June 3, 2010 and September 3, 2009, other receivables included $30 million and $29 million, respectively, due from Intel Corporation (“Intel”) for amounts related to NAND Flash product design and process development activities.

Inventories	June 3, 2010		September 3, 2009

Finished goods	$	475	$	233
Work in process		1,161		649
Raw materials and supplies		111		105
	$	1,747	$	987

The Company’s results of operations for the second and first quarters of 2009 included charges of $234 million and $369 million, respectively, to write down the carrying value of work in process and finished goods inventories of memory products (both DRAM and NAND Flash) to their estimated market values.

Intangible Assets

	June 3, 2010					September 3, 2009
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization

Product and process technology	$	420	$	(171	)	$	439	$	(181	)
Customer relationships		127		(62	)		127		(50	)
Other		51		(24	)		28		(19	)
	$	598	$	(257	)	$	594	$	(250	)

During the first nine months of 2010 and 2009, the Company capitalized $27 million and $82 million, respectively, for product and process technology with weighted-average useful lives of 9 years. In addition, in connection with the acquisition of Numonyx, the Company recorded other intangible assets of $29 million related to a supply agreement, which is being amortized through the expected remaining term of the agreement of August 2010. (See “Numonyx Holdings B.V.” note.)

Amortization expense for intangible assets was $23 million and $57 million for the third quarter and first nine months of 2010, respectively, and $18 million and $58 million for the third quarter and first nine months of 2009, respectively. Annual amortization expense for intangible assets is estimated to be $96 million for 2010, $65 million for 2011, $57 million for 2012, $53 million for 2013 and $45 million for 2014.

Property, Plant and Equipment	June 3, 2010			September 3, 2009

Land	$	95		$	96
Buildings		4,391			4,473
Equipment		12,630			11,834
Construction in progress		62			47
Software		269			268
		17,447			16,718
Accumulated depreciation		(10,812	)		(9,629	)
	$	6,635		$	7,089

Depreciation expense was $453 million and $1,356 million for the third quarter and first nine months of 2010, respectively, and $488 million and $1,572 million for the third quarter and first nine months of 2009, respectively.

The Company, through its IM Flash joint venture, has an unequipped wafer fabrication facility in Singapore that was completed in the first quarter of 2009 but had been idle through the first quarter of 2010. The Company has been recording depreciation expense for the facility since its completion and its net book value was $605 million as of June 3, 2010. In the second quarter of 2010, IM Flash began moving forward with start-up activities at the Singapore wafer fabrication facility, including placing purchase orders and preparing the facility for tool installations expected to commence in 2011.

As of June 3, 2010 and September 3, 2009, other noncurrent assets included $137 million and $81 million, respectively, for buildings, equipment and related assets classified as held for sale. Assets held for sale as of June 3, 2010 include a facility in Catania, Italy acquired in connection with the Numonyx acquisition. In July 2010, the Company transferred title to the Catania facility to STMicroelectronics N.V. in exchange for consideration of $78 million.

Goodwill

In the second quarter of 2009, the Company’s imaging operations (the primary component of All Other segment) experienced a severe decline in sales, margins and profitability due to a significant decline in demand as a result of the downturn in global economic conditions. The drop in market demand resulted in significant declines in average selling prices and unit sales. Due to these market and economic conditions, the Company’s imaging operations and its competitors experienced significant declines in market value. Accordingly, in the second quarter of 2009, the Company performed an assessment of its imaging operations segment goodwill for impairment. Based on this assessment, the Company wrote off all of the $58 million of goodwill associated with its imaging operations as of March 5, 2009.

Equity Method Investments

	June 3, 2010					September 3, 2009
	Carrying Value		Ownership Percentage			Carrying Value		Ownership Percentage

Inotera	$	442		29.9	%	$	229		29.8	%
MeiYa		45		50.0	%		42		50.0	%
Hynix JV		417		20.7	%		--		--
Transform		74		50.0	%		--		--
Aptina		32		35.0	%		44		35.0	%
	$	1,010				$	315

The Company has partnered with Nanya Technology Corporation (“Nanya”) in two Taiwan DRAM memory companies, Inotera Memories, Inc. (“Inotera”) and MeiYa Technology Corporation (“MeiYa”), which are accounted for by the Company as equity method investments. In connection with the Numonyx acquisition on May 7, 2010, the Company acquired an equity method investment in Hynix-Numonyx Semiconductor Ltd. (the “Hynix JV”), a manufacturer of semiconductor memory products. Additionally, the Company has equity method investments in Aptina Imaging Corporation (“Aptina”), a CMOS imaging company, and in Transform Solar Pty Limited (“Transform”), a joint venture to develop and manufacture photovoltaic products.

DRAM joint ventures with Nanya: The Company has a partnering arrangement with Nanya pursuant to which the Company and Nanya jointly develop process technology and designs to manufacture stack DRAM products. In addition, the Company has deployed and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya. The Company recognized $13 million and $65 million of license revenue from this arrangement during the third quarter and first nine months of 2010, respectively, and recognized $25 million and $79 million during the third quarter and first nine months of 2009, respectively. The Company has recognized $207 million of cumulative license revenue from this arrangement from May 2008 through April 2010. Under a cost sharing arrangement effective in April, 2010, the Company and Nanya began sharing equally in DRAM development costs and the Company’s research and development costs were reduced by $24 million in the third quarter of 2010 due to this cost sharing agreement. In addition, in the third quarter of 2010, the Company received $2 million of royalties 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 previously developed technology.

The Company has concluded that both Inotera and MeiYa are variable interest entities because of the Inotera and MeiYa supply agreements with the Company and Nanya. Nanya and the Company are considered related parties under the accounting standards for consolidating variable interest entities. The Company reviewed several factors to determine whether it is the primary beneficiary of Inotera and MeiYa, including the size and nature of the entities’ operations relative to Nanya and the Company, the nature of day-to-day operations and certain other factors. Based on those factors, the Company determined that Nanya is more closely associated with, and therefore the primary beneficiary of, Inotera and MeiYa. The Company accounts for its interests using the equity method of accounting and does not consolidate these entities. The Company recognizes its share of earnings or losses from these entities on a two-month lag.

Inotera: In the first quarter of 2009, the Company acquired a 35.5% ownership interest in Inotera, a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”). On August 3, 2009, Inotera sold 640 million common shares in a public offering at a price equal to 16.02 New Taiwan dollars per common share (approximately $0.49 U.S. dollars on August 3, 2009). As a result of the share issuance, the Company’s equity interest in Inotera decreased from 35.5% to 29.8% and the Company recognized a gain of $56 million in the first quarter of 2010. On February 6, 2010, as part of another offering of 640 million common shares, the Company and Nanya each paid $138 million to purchase approximately 196 million shares each, slightly increasing the Company’s equity interest in Inotera from 29.8% to 29.9%. As of June 3, 2010, the ownership of Inotera was held 30.0% by Nanya, 29.9% by the Company and the balance was publicly held.

The Company’s carrying value of its initial investment in Inotera is less than its proportionate share of Inotera’s equity. This difference is being amortized as a credit to earnings in the Company’s statement of operations through equity in net income (losses) of equity method investees (the “Inotera Amortization”). The Company’s results of operations for the third quarter and first nine months of 2010 include $14 million and $38 million, respectively, of Inotera Amortization and its results of operations for the third quarter and first nine months of 2009 include $15 million and $23 million, respectively, of Inotera Amortization. During the third quarter of 2009, the Company received $50 million from Inotera pursuant to the terms of a technology transfer agreement and, in connection therewith, recognized $3 million and $13 million of revenue in the third quarter and first nine months of 2010, respectively. The $56 million gain recognized in the first quarter of 2010 on Inotera’s issuance of shares included $33 million of accelerated Inotera Amortization. As of June 3, 2010, $138 million of Inotera Amortization remained to be recognized over a weighted-average period of 4 years.

In connection with the Company’s initial acquisition of shares in Inotera, the Company and Nanya entered into a supply agreement with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will sell trench and stack DRAM products to the Company and Nanya. The cost to the Company of wafers purchased under the Inotera Supply Agreement is based on a margin sharing formula among the Company, Nanya and Inotera. Under such formula, all parties’ manufacturing costs related to wafers supplied by Inotera, as well as the Company’s and Nanya’s selling prices for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers from Inotera. The Company has rights and obligations to purchase up to 50% of Inotera’s wafer production capacity. In the third quarter and first nine months of 2010, the Company purchased $188 million and $543 million, respectively, of DRAM products (substantially all of which were trench technologies) from Inotera under the Inotera Supply Agreement.

During 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 the Company’s obligations under the Inotera Supply Agreement, the Company’s purchase obligation includes purchasing Inotera’s trench DRAM capacity, less any trench DRAM products sold to Qimonda pursuant to the Qimonda Supply Agreement. As a result, the Company recorded $14 million and $65 million in cost of goods sold in the third quarter and first nine months of 2009 for its obligations to Inotera as a result of Qimonda’s default.

The Company’s results of operations for the third quarter and first nine months of 2010 include losses of $4 million and $3 million, respectively, and its results of operations for the third quarter and first nine months of 2009 include losses of $43 million and $99 million, respectively, from its equity interest in Inotera.

The Company recorded gains (losses) to other comprehensive income (loss) for translation adjustments on its investment in Inotera of $7 million and $17 million for the third quarter and first nine months of 2010, respectively, and $(19) million and $(18) million for the third quarter and first nine months of 2009, respectively. As of June 3, 2010, there was a gain of $14 million in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheet for cumulative translation adjustments on the Company’s equity interest in Inotera. Based on the closing trading price of Inotera’s shares in an active market on June 3, 2010, the market value of the Company’s equity interest in Inotera was $819 million.

As of June 3, 2010, the Company’s maximum exposure to loss on its equity interest in Inotera equaled the $428 million recorded in the consolidated balance sheet for its investment in Inotera (which includes the $14 million gain in accumulated other comprehensive income (loss)). The Company may also incur losses in connection with its obligations under the Inotera Supply Agreement to purchase up to 50% of Inotera’s wafer production under a long-term pricing arrangement.

MeiYa: The Company and Nanya formed MeiYa in the fourth quarter of 2008. In connection with the acquisition of its equity interest in Inotera, the Company entered into a series of agreements with Nanya pursuant to which both parties ceased future funding of, and resource commitments to, MeiYa. In addition, MeiYa has sold substantially all of its assets to Inotera. As of June 3, 2010, the ownership of MeiYa was held 50% by Nanya and 50% by the Company. The Company’s results of operations for the third quarter and first nine months of 2010 include gains of $1 million and its results of operations for the third quarter and first nine months of 2009 include losses of $2 million and $7 million, respectively, from its equity interest in MeiYa. The Company recorded gains (losses) to other comprehensive income (loss) for translation adjustments on its investment in MeiYa of $1 million and $2 million for the third quarter and first nine months of 2010, respectively, and $(3) million and $(8) million for the third quarter and first nine months of 2009, respectively. As of June 3, 2010, there was $(4) million in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheet for cumulative translation adjustments on the Company’s equity interest in MeiYa.

As of June 3, 2010, the Company’s maximum exposure to loss on its MeiYa equity interest equaled the $49 million recorded in the Company’s consolidated balance sheet for its investment in MeiYa (which includes the $(4) million loss in accumulated other comprehensive income (loss)).

Hynix JV: In connection with the Company’s acquisition of Numonyx, the Company acquired a 20.7% noncontrolling interest in Hynix-Numonyx Semiconductor Ltd. (the “Hynix JV”), a joint venture with Hynix Semiconductor, Inc. (“Hynix”) and Hynix Semiconductor (WUXI) Limited. The Hynix JV was formed pursuant to a joint venture agreement originally entered into between STMicroelectronics N.V. (“ST”) and Hynix prior to the formation of Numonyx (as amended and restated, the “JV Agreement”). (See “Numonyx Holdings B.V.” note.)

Under the terms of the JV Agreement, the change in control of Numonyx due to its acquisition by the Company gave rise to certain rights of the parties to the JV Agreement to buy or sell or cause the other party to buy or sell their equity interests in the Hynix JV, including the right of Hynix to purchase all of the Company’s equity interest in the Hynix JV (the “Hynix Call Option”). Pursuant to the JV Agreement, the exercise price of the Hynix Call Option is an amount equal to the positive difference between the book value of the Hynix JV’s total assets and the book value of the Hynix JV’s total liabilities, multiplied by the Company’s percentage ownership in the Hynix JV, estimated to be approximately $425 million. On May 28, 2010, Hynix gave notice to the Company of its exercise of the Hynix Call Option to acquire the Company’s 20.7% interest in the Hynix JV, subject to regulatory approval. The consummation of the equity transfer is expected to take place prior to the end of the first quarter of fiscal 2011.

Hynix JV Supply Agreement: Pursuant to the terms of a supply agreement with the Hynix JV, the Company purchased $29 million of memory products from the Hynix JV in the third quarter of 2010. The Hynix JV is permitted to terminate the supply agreement upon exercise of the Hynix Call Option and the consummation of the equity transfer. On May 28, 2010, the Hynix JV delivered notice to the Company of its intent to terminate the JV supply agreement concurrent with the consummation of the equity transfer. A significant portion of Numonyx’s net sales is dependent upon sales of products supplied to it by the Hynix JV pursuant to the JV supply agreement. The Company and the Hynix JV are currently in discussions to enter into a new supply agreement. If the parties are unable to reach agreement and the JV supply agreement is terminated, the Hynix JV will have no further supply obligations to the Company.

DBS Loan Arrangements: Concurrent with the completion of the Company’s acquisition of Numonyx, the Company and ST entered into a framework agreement (the “Framework Agreement”) that provides that the Company is required to take certain actions in connection with an outstanding $250 million loan (the “Loan”), due in periodic installments from 2014 through 2016, made by DBS Bank Ltd. (“DBS”) to the Hynix JV. In particular, the Company has agreed that, subject to certain conditions, within two business days after receipt of the proceeds from the equity transfer, it will deposit $250 million of such proceeds into a pledged account at DBS. The funds deposited into such account will collateralize the Company’s obligations under a guarantee of the Loan, which guarantee is to be entered into by the Company concurrent with such deposit. The amount on deposit in the DBS account will be accounted for as restricted cash in other noncurrent assets in the accompanying consolidated balance sheet. The amount on deposit and the Company’s guarantee decrease as payments are made by the Hynix JV against the Loan. As of June 3, 2010, other noncurrent liabilities included $15 million for the fair value of the Company’s obligations under the Framework Agreement.

Transform: On December 18, 2009, the Company acquired a 50% interest in Transform, a subsidiary of Origin Energy Limited (“Origin”), which is a public company in Australia. In exchange for its equity interest in Transform, the Company contributed nonmonetary assets from its Memory segment with a fair value of $65 million, consisting of manufacturing facilities, equipment, intellectual property and a fully-paid lease to a portion of its Boise, Idaho manufacturing facilities. The carrying value of the nonmonetary assets was approximately equal to the fair value of the Company’s equity interest in Transform and no gain or loss was recognized on the contribution. As of June 3, 2010, the ownership of Transform was held 50% by the Company and 50% by Origin. During the second quarter and third quarter of 2010, the Company and Origin each contributed $5 million and $8 million, respectively, of cash to Transform. The Company recognizes its share of earnings or losses from Transform on a two-month lag.

The Company’ carrying value of its equity interest in Transform exceeds its proportionate share of Transform’s equity. This difference is being amortized as a charge to earnings in the Company’s statement of operations through equity in net income (losses) of equity method investees (the “Transform Amortization”). As of June 3, 2010, $28 million of Transform Amortization remained to be recognized over a weighted-average period of 7 years.

The Company’s results of operations for the third quarter of 2010 include losses of $6 million from its equity interest in Transform. The Company’s results of operations for the first nine months of 2010 include $9 million of net sales, which approximates its cost, for transition services provided to Transform.

As of June 3, 2010, other noncurrent assets included $34 million for the manufacturing facilities leased to Transform and liabilities included $34 million for deferred rent revenue on the fully-paid lease. Additionally, as of June 3, 2010, other noncurrent assets and liabilities included $6 million for the value of certain equipment and intangible assets, which the Company was obligated to contribute to Transform.

The Company has concluded that Transform is a variable interest entity because the Company’s equity investment at risk is not sufficient to permit Transform to finance its activities without additional subordinated financial support from its investors. Origin and the Company are considered related parties under the accounting standards for consolidating variable interest entities. The Company reviewed several factors to determine whether it is the primary beneficiary of Transform, including the relationships and significance of Transform’s activities and operations relative to Origin and the Company and certain other factors. Based on those factors, the Company determined that Origin is more closely associated with, and therefore the primary beneficiary of, Transform. The Company accounts for its interest using the equity method of accounting and does not consolidate the entity.

As of June 3, 2010, the Company’s maximum exposure loss on its equity interest in Transform equaled $74 million.

Aptina: In the fourth quarter of 2009, the Company sold a 65% interest in Aptina, previously a wholly-owned subsidiary, to Acquisition L.P. (owned primarily by Riverwood Capital LLC and TPG Partners VI, L.P.). A portion of the 65% interest held by Acquisition L.P. is in the form of convertible preferred shares that have a liquidation preference over the common shares. As a result, as of June 3, 2010, the Company’s remaining interest represented 64% of Aptina’s common stock, and Acquisition L.P. held 36% of Aptina’s common stock. The Company recognizes its share of earnings or losses from Aptina on a two-month lag. The Company’s results of operations for the third quarter and first nine months of 2010 include losses of $11 million and $16 million, respectively, for its equity interest in Aptina.

The Company manufactures imaging products for Aptina under a wafer supply agreement. In the third quarter and first nine months of 2010, the Company recognized 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.

Accounts Payable and Accrued Expenses	June 3, 2010		September 3, 2009

Accounts payable	$	844	$	526
Salaries, wages and benefits		278		147
Related party payables		203		83
Income and other taxes		54		32
Customer advances		7		150
Other		106		99
	$	1,492	$	1,037

Related party payables consisted of amounts primarily due to Inotera under the Inotera Supply Agreement, consisting of $136 million and $51 million as of June 3, 2010 and September 3, 2009, respectively, for the purchase of DRAM products and $32 million as of September 3, 2009 for underutilized capacity. Related party payables as of June 3, 2010 also included $65 million for amounts due for the purchase of memory products related to the Hynix JV supply agreement. (See “Equity Method Investments” note.)

As of September 3, 2009, customer advances included $142 million to provide certain NAND Flash memory products to Apple Computer, Inc. (“Apple”) through December 31, 2010 pursuant to a prepaid NAND Flash supply agreement. As of June 3, 2010 and September 3, 2009, other accounts payable and accrued expenses included $11 million and $24 million, respectively, for amounts due to Intel for NAND Flash product design and process development and licensing fees pursuant to a product designs development agreement.

Debt	June 3, 2010			September 3, 2009

Convertible senior notes, stated interest rate of 1.875%, effective interest rate of 7.9%, net of discount of $255 million and $295 million, respectively, due June 2014	$	1,045		$	1,005
Capital lease obligations, weighted-average imputed interest rates of 6.7%, due in monthly installments through February 2023		503			559
TECH credit facility, effective interest rate of 4.0% and 3.6% , respectively, net of discount of $2 million and $2 million, respectively, due in periodic installments through May 2012		398			548
Convertible senior notes, interest rate of 4.25%, due October 2013		230			230
EDB note, denominated in Singapore dollars, interest rate of 5.4%		--			208
Mai-Liao Power note, stated interest rate of 2.5% and 2.4%, respectively, effective interest rate of 12.1%, net of discount of $7 million and $18 million, respectively, due November 2010		193			182
Convertible subordinated notes, interest rate of 5.6%, due April 2010		--			70
Other notes		--			1
		2,369			2,803
Less current portion		(652	)		(424	)
	$	1,717		$	2,379

In the first quarter of 2010, the Company adopted a new accounting standard for certain convertible debt. The new standard was applicable to the Company’s 1.875% convertible senior notes with an aggregate principal amount of $1.3 billion issued in May 2007 (the “Convertible Notes”) and required the liability and equity components of the Convertible Notes to be accounted for separately. (See “Adjustments for Retrospective Application of New Accounting Standards” note.)

In the third quarter of 2010, the Company recorded $13 million in capital lease obligations with a weighted-average imputed interest rate of 9.6%, payable in periodic installments through May 2013. As of June 3, 2010, $34 million of the Company’s total capital lease obligations contained covenants that require minimum levels of tangible net worth, cash and investments. On May 13, 2010, the Company modified a loan agreement with a lender and, as a result, $21 million of previously restricted cash became available to the Company. The Company was in compliance with its covenants related to capital lease obligations as of June 3, 2010.

The TECH credit facility is collateralized by substantially all of the assets of TECH (approximately $1,700 million as of June 3, 2010) and contains covenants that, among other requirements, establish certain liquidity, debt service coverage and leverage ratios, and restrict TECH’s ability to incur indebtedness, create liens and acquire or dispose of assets. In the first quarter of 2010, the covenants were modified and as of June 3, 2010, TECH was in compliance with the covenants. The Company has guaranteed 100% of the outstanding amount of the TECH credit facility. Under the terms of the credit facility, TECH had $60 million in restricted cash as of June 3, 2010.

On June 1, 2010, the Company repaid the outstanding balance of $213 million to the Singapore Economic Development Board that was due February 2012.

In the first quarter of 2010, the Company’s note payable to Nan Ya Plastics was replaced with a note payable to Mai-Liao Power Corporation, an affiliate of Nan Ya Plastics. Nan Ya Plastics and Mai-Liao Power Corporation are subsidiaries of Formosa Plastics Corporation. The note to Mai-Liao Power Corporation has the same terms and remaining maturity as the previous note to Nan Ya Plastics. The Company’s note to Mai-Liao Power Corporation is collateralized by a first-priority security interest in certain of the Inotera shares owned by the Company aggregating a maximum market value of $250 million. Based on Inotera’s share price as of June 3, 2010 and the number of shares underlying the collateral, the carrying value of the collateral was $135 million. (See “Equity Method Investments – DRAM joint ventures with Nanya – Inotera” note.)

On April 1, 2010, the Company repaid the $70 million outstanding principal balance and accrued interest on the 5.6% convertible subordinated notes. The conversion option of these notes expired unexercised.

Contingencies

The Company has accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. The Company is currently a party to other legal actions arising out of the normal course of business, none of which is expected to have a material adverse effect on the Company’s business, results of operations or financial condition.

In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these types of agreements have not had a material adverse effect on the Company’s business, results of operations or financial condition.

The Company is involved in the following antitrust, patent and securities matters.

Antitrust matters: On May 5, 2004, Rambus, Inc. (“Rambus”) filed a complaint in the Superior Court of the State of California (San Francisco County) against the Company and other DRAM suppliers alleging that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM (“RDRAM”) by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus’ complaint alleges various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus alleges that it is entitled to actual damages of more than a billion dollars and seeks joint and several liability, treble damages, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys’ fees and costs. A trial date has not been scheduled.

At least sixty-eight purported class action price-fixing lawsuits have been filed against the Company and other DRAM suppliers in various federal and state courts in the United States and in Puerto Rico on behalf of indirect purchasers alleging price-fixing in violation of federal and state antitrust laws, violations of state unfair competition law, and/or unjust enrichment relating to the sale and pricing of DRAM products during the period from April 1999 through at least June 2002. The complaints seek joint and several damages, trebled, in addition to restitution, costs and attorneys’ fees. A number of these cases have been removed to federal court and transferred to the U.S. District Court for the Northern District of California for consolidated pre-trial proceedings. On January 29, 2008, the Northern District of California court granted in part and denied in part the Company’s motion to dismiss plaintiffs’ second amended consolidated complaint. Plaintiffs subsequently filed a motion seeking certification for interlocutory appeal of the decision. On February 27, 2008, plaintiffs filed a third amended complaint. On June 26, 2008, the United States Court of Appeals for the Ninth Circuit agreed to consider plaintiffs’ interlocutory appeal. In addition, various states, through their Attorneys General, have filed suit against the Company and other DRAM manufacturers. On July 14, 2006, and on September 8, 2006 in an amended complaint, the following Attorneys General filed suit in the U.S. District Court for the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the Commonwealth of the Northern Mariana Islands. Thereafter, three states, Ohio, New Hampshire, and Texas, voluntarily dismissed their claims. The remaining states filed a third amended complaint on October 1, 2007. Alaska, Delaware, Kentucky, and Vermont subsequently voluntarily dismissed their claims. The amended complaint alleges, among other things, violations of the Sherman Act, Cartwright Act, and certain other states’ consumer protection and antitrust laws and seeks joint and several damages, trebled, as well as injunctive and other relief. Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court for the Southern District of New York. That case was subsequently transferred to the U.S. District Court for the Northern District of California for pre-trial purposes. The State of New York filed an amended complaint on October 1, 2007. On October 3, 2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law. On June 23, 2010, the Company executed a settlement agreement resolving these purported class-action indirect purchaser cases and the pending cases of the Attorneys General relating to alleged DRAM price-fixing in the United States. Subject to certain conditions, including final court approval of the class settlements, the Company agreed to pay a total of approximately $67 million in three equal installments over a two-year period.

Three purported class action DRAM lawsuits also have been filed against the Company in Quebec, Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, alleging violations of the Canadian Competition Act. The substantive allegations in these cases are similar to those asserted in the DRAM antitrust cases filed in the United States. Plaintiffs’ motion for class certification was denied in the British Columbia and Quebec cases in May and June 2008, respectively. Plaintiffs subsequently filed an appeal of each of those decisions. On November 12, 2009, the British Columbia Court of Appeal reversed the denial of class certification and remanded the case for further proceedings. The appeal of the Quebec case is still pending.

In February and March 2007, All American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims Liquidation Trust each filed suit against the Company and other DRAM suppliers in the U.S. District Court for the Northern District of California after opting-out of a direct purchaser class action suit that was settled. The complaints allege, among other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek joint and several damages, trebled, as well as restitution, attorneys’ fees, costs and injunctive relief.

On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice (“SDE”) announced that it had initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. The SDE’s Notice of Investigation names various DRAM manufacturers and certain executives, including the Company, and focuses on the period from July 1998 to June 2002. The Company has not yet been served with the investigation.

Three purported class action lawsuits alleging price-fixing of SRAM products have been filed in Canada, asserting violations of the Canadian Competition Act. These cases assert claims on behalf of a purported class of individuals and entities that purchased SRAM products directly or indirectly from various SRAM suppliers.

In addition, three purported class action lawsuits alleging price-fixing of Flash products have been filed in Canada, asserting violations of the Canadian Competition Act. These cases assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly and indirectly from various Flash memory suppliers.

The Company is unable to predict the outcome of these lawsuits and therefore cannot estimate the range of possible loss. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

Patent matters: As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may in the future assert, that the Company’s products or manufacturing processes infringe their intellectual property rights. In this regard, the Company is engaged in litigation with Rambus relating to certain of Rambus’ patents and certain of the Company’s claims and defenses. Lawsuits between Rambus and the Company are pending in the U.S. District Court for the District of Delaware, U.S. District Court for the Northern District of California, Germany, France, and Italy. On January 9, 2009, the Delaware Court entered an opinion in favor of the Company holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against the Company. Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit. That appeal is pending. In the U.S. District Court for the Northern District of California, trial on a patent phase of the case has been stayed pending resolution of Rambus’ appeal of the Delaware spoliation decision or further order of the California Court.

On March 6, 2009, Panavision Imaging, LLC filed suit against the Company and Aptina Imaging Corporation, then a wholly-owned subsidiary of the Company (“Aptina”), in the U.S. District Court for the Central District of California. The complaint alleges that certain of the Company and Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and seeks injunctive relief, damages, attorneys’ fees, and costs.

On December 11, 2009, Ring Technology Enterprises of Texas LLC (“Ring”) filed suit against the Company in the U.S. District Court for the Eastern District of Texas alleging that certain of the Company’s memory products infringe one Ring Technology U.S. patent. On June 26, 2010, the Company executed a settlement agreement with Ring resolving the dispute.

Among other things, the above lawsuits pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM, RLDRAM and image sensor products, which account for a significant portion of net sales.

The Company is unable to predict the outcome of assertions of infringement made against the Company and therefore cannot estimate the range of possible loss. A court determination that the Company’s products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require the Company to make material changes to its products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on the Company’s business, results of operations or financial condition.

Securities matters: On February 24, 2006, a putative class action complaint was filed against the Company and certain of its officers in the U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same Court. The cases purport to be brought on behalf of a class of purchasers of the Company’s stock during the period February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses. On December 19, 2007, the Court issued an order certifying the class but reducing the class period to purchasers of the Company’s stock during the period from February 24, 2001 to September 18, 2002.

The Company is unable to predict the outcome of these cases and therefore cannot estimate the range of possible loss. A court determination in any of these actions against the Company could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

Adjustments for Retrospective Application of New Accounting Standards

Effective as of the beginning of 2010, the Company adopted new accounting standards for noncontrolling interests and certain convertible debt instruments. These new accounting standards required retrospective application and the Company’s financial statements contained herein have been adjusted to reflect the impact of adopting these new accounting standards. The impact of the retrospective adoption is summarized below.

Noncontrolling interests in subsidiaries: Under the new standard, noncontrolling interests in subsidiaries is (1) reported as a separate component of equity in the consolidated balance sheets and (2) included in net income in the consolidated statement of operations.

Convertible debt instruments: The new standard applies to convertible debt instruments that may be fully or partially settled in cash upon conversion and is applicable to the Company’s 1.875% convertible senior notes with an aggregate principal amount of $1.3 billion issued in May 2007 (the “Convertible Notes”). The standard requires the liability and equity components of convertible notes to be accounted for separately, whereby the liability component recognized at the issuance of convertible notes equals the estimated fair value of a similar liability without a conversion option and the remainder of the proceeds received at issuance is allocated to equity. In subsequent periods, the liability component recognized at issuance is amortized or accreted to the principal amount through interest expense. The adoption of the new standard for the May 2007 Convertible Notes resulted in a $402 million decrease in debt, a $394 million increase in additional capital and an $8 million decrease in deferred debt issuance costs (included in other noncurrent assets). Information related to the equity and debt components of the Convertible Notes is as follows:

As of	June 3, 2010			September 3, 2009

Principal amount of the Convertible Notes	$	1,300		$	1,300
Unamortized discount		(255	)		(295	)
Carrying amount of the Convertible Notes	$	1,045		$	1,005

Carrying amount of the equity component	$	394		$	394

The unamortized discount as of June 3, 2010 will be recognized as interest expense over approximately 4 years through the June 2014 maturity date of the Convertible Notes.

Information related to interest rates and expenses is as follows:

	Quarter Ended						Nine Months Ended
	June 3, 2010			June 4, 2009			June 3, 2010			June 4, 2009

Effective interest rate		7.9	%		7.9	%		7.9	%		7.9	%
Interest expense:
Contractual interest coupon	$	6		$	6		$	18		$	19
Amortization of discount and issuance costs		14			13			41			39

Effect of adjustments for retrospective application of new accounting standards on financial statements: The following tables set forth the financial statement line items affected by the retrospective application of the new accounting standards for noncontrolling interests and certain convertible debt as of and for the periods indicated:

	Consolidated Statement of Operations
	As Previously Reported			Effects of Adoption						As Retrospectively Adjusted
	As Previously Reported			Noncontrolling Interests			Convertible Debt			As Retrospectively Adjusted

Quarter ended June 4, 2009:
Other operating (income) expense, net	$	92		$	--		$	--		$	92
Interest expense		(37	)		--			(12	)		(49	)
Other non-operating income (expense), net		(3	)		--			(1	)		(4	)
Income tax (provision) benefit		2			--			2			4
Net loss		(290	)		(33	)		(11	)		(334	)
Net loss attributable to Micron		--			(290	)		(11	)		(301	)
Net loss per share:
Basic and diluted	$	(0.36	)	$	--		$	(0.01	)	$	(0.37	)

Nine months ended June 4, 2009:
Other operating (income) expense, net	$	121		$	--		$	1		$	122
Interest expense		(102	)		--			(35	)		(137	)
Income tax (provision) benefit		(15	)		--			1			(14	)
Net loss		(1,747	)		(97	)		(35	)		(1,879	)
Net loss attributable to Micron		--			(1,747	)		(35	)		(1,782	)
Net loss per share:
Basic and diluted	$	(2.22	)	$	--		$	(0.05	)	$	(2.27	)

	Consolidated Balance Sheet
	As Previously Reported			Effects of Adoption					As Retrospectively Adjusted
As of September 3, 2009	As Previously Reported			Noncontrolling Interests		Convertible Debt			As Retrospectively Adjusted

Assets
Property, plant and equipment, net	$	7,081		$	--	$	8		$	7,089
Other noncurrent assets		371			--		(4	)		367
Total assets		11,455			--		4			11,459

Liabilities and equity
Long-term debt	$	2,674		$	--	$	(295	)	$	2,379
Total liabilities		4,815			--		(295	)		4,520

Micron shareholders’ equity:
Additional capital	$	6,863		$	--	$	394		$	7,257
Accumulated deficit		(2,291	)		--		(94	)		(2,385	)
Accumulated other comprehensive (loss)		(3	)		--		(1	)		(4	)
Total Micron shareholders’ equity		--			4,654		299			4,953
Total equity		4,654			1,986		299			6,939
Total liabilities and equity		11,455			--		4			11,459

	Consolidated Statement of Cash Flows
	As Previously Reported			Effects of Adoption						As Retrospectively Adjusted
	As Previously Reported			Noncontrolling Interests			Convertible Debt			As Retrospectively Adjusted

Nine Months Ended June 4, 2009:
Cash flows from operating activities:
Net loss	$	(1,747	)	$	(97	)	$	(35	)	$	(1,879	)
Depreciation and amortization		1,648			--			35			1,683
Noncontrolling interests in net income (loss)		(97	)		97			--			--

Derivative Financial Instruments

The Company is exposed to currency exchange rate risk for monetary assets and liabilities held or denominated in foreign currencies, primarily the Singapore dollar, euro and yen. The Company uses derivative instruments to manage exposures to foreign currency. The Company’s primary objective in entering into these derivatives is to reduce the volatility of earnings associated with changes in foreign currency. The Company’s derivatives consist primarily of forward contracts that are designed to reduce the impact that changes in foreign exchange rates have on earnings attributable to Micron shareholders. The Company utilizes a rolling hedge strategy with currency forward contracts that generally mature within 35 days. The currency forward contracts are not designated for hedge accounting. At the end of each reporting period, monetary assets and liabilities held or denominated in foreign currencies are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market. Foreign currency forward contracts are valued at fair values based on bid prices of dealer or exchange quotations (referred to as Level 2). Realized and unrealized foreign currency gains and losses on derivative instruments and the underlying monetary assets are included in other operating income (expense).

The derivatives expose the Company to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading risk across multiple major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

Total gross notional amounts and fair values for derivative currency forward contracts outstanding as of June 3, 2010, presented by currency, were as follows:

Currency	Notional Amount Outstanding (in U.S. Dollars)		Balance Sheet Line Item	Fair Value of Asset (Liability)

Euro	$	251	Accounts payable and accrued expenses	$	(9	)
Singapore dollar		154	Accounts payable and accrued expenses		(1	)
Yen		60	Receivables		1
Other		8	Accounts payable and accrued expenses		--
	$	473		$	(9	)

For the third quarter and first nine months of 2010, the Company recognized losses of $23 million and $38 million, respectively, included in other operating income (expense), on currency forward contracts.

Fair Value Measurements

Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

Fair value measurements on a recurring basis: Assets measured at fair value on a recurring basis as of June 3, 2010 and September 3, 2009 were as follows:

	As of June 3, 2010								As of September 3, 2009
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Money market(1)	$	1,710	$	--	$	--	$	1,710	$	1,184	$	--	$	--	$	1,184
Certificates of deposit(2)		--		379		--		379		--		217		--		217
Marketable equity investments(3)		17		--		--		17		15		--		--		15
Assets held for sale(3)(4)		--		--		137		137		--		--		--		--
	$	1,727	$	379	$	137	$	2,243	$	1,199	$	217	$	--	$	1,416

(1)Included in cash and equivalents.
(2)$297 million and $82 million included in cash and equivalents and other noncurrent assets, respectively, as of June 3, 2010 and $187 million and $30 million, respectively, as of September 3, 2009.
(3)Included in other noncurrent assets.
(4) The Company adopted the accounting standard for fair value measurements of nonfinancial assets and nonfinancial liabilities as of the beginning of 2010.

Certificates of deposit assets are valued using observable inputs in active markets for similar assets or alternative pricing sources and models utilizing observable market inputs (Level 2).

Assets held for sale are primarily comprised of semiconductor equipment and are valued based on inputs obtained from equipment dealers that require assumptions including the remaining useful life and configuration of the equipment (Level 3). Losses recognized in the third quarter and first nine months of 2010 due to fair value measurements using Level 3 inputs were de minimis.

Fair value of financial instruments: As of June 3, 2010, the estimated aggregate fair value of the Company’s convertible debt instruments was $1,624 million compared to their aggregate carrying value of $1,275 million (the carrying value excludes the equity component of the Convertible Notes which is classified in equity). As of September 3, 2009, the estimated aggregate fair value of the Company’s convertible debt instruments was $1,410 million compared to their aggregate carrying value of $1,305 million (the carrying value excludes the equity component of the Convertible Notes which is classified in equity). The fair value of the Company’s convertible debt instruments is based on quoted market prices in active markets (Level 1). As of June 3, 2010 and September 3, 2009, the aggregate fair value of the Company’s other debt instruments was $1,087 million and $1,458 million, respectively, as compared to their aggregate carrying value of $1,094 million and $1,498 million, respectively. The fair value of the Company’s other debt instruments was estimated based on discounted cash flows using inputs that are observable in the market or that could be derived from or corroborated with observable market data, including interest rates based on yield curves of similar debt issues from parties with similar credit ratings as the Company (Level 2). Amounts reported as cash and equivalents, short-term investments, receivables, other current assets, and accounts payable and accrued expenses approximate their fair values.

Fair value measurements on a nonrecurring basis: In connection with the implementation of the new accounting standard for certain convertible debt instruments in the first quarter of 2010, the Company determined the $898 million fair value for the liability component of its Convertible Notes as of their May 2007 issuance date using a market interest rate for similar nonconvertible debt issued at that time by entities with credit ratings comparable to those of the Company (Level 2). (See “Adjustments for Retrospective Application of New Accounting Standards” note.)

Equity Plans

As of June 3, 2010, the Company had an aggregate of 190.5 million shares of its common stock reserved for issuance of stock options and restricted stock awards, of which 132.9 million shares were subject to outstanding awards and 57.6 million shares were available for future grants. Awards are subject to terms and conditions as determined by the Company’s Board of Directors.

Stock options: The Company granted 0.1 million and 15.8 million stock options during the third quarter and first nine months of 2010, respectively, with weighted-average grant-date fair values per share of $5.17 and $4.13, respectively. The Company granted 0.3 million and 21.1 million stock options during the third quarter and first nine months of 2009, respectively, with weighted-average grant-date fair values per share of $2.70 and $1.67, respectively.

The fair values of option awards were estimated as of the date of grant using the Black-Scholes option valuation model. The Black-Scholes model requires the input of assumptions, including the expected stock price volatility and estimated option life. The expected volatilities utilized were based on implied volatilities from traded options on the Company’s stock and on historical volatility. The expected lives of options granted subsequent to 2008 were based, in part, on historical experience and on the terms and conditions of the options. The expected lives of options granted prior to 2009 were based on the simplified method provided by the Securities and Exchange Commission. The risk-free interest rates utilized were based on the U.S. Treasury yield in effect at the time of the grant. No dividends were assumed in estimated option values. Assumptions used in the Black-Scholes model are presented below:

	Quarter ended						Nine months ended
	June 3, 2010			June 4, 2009			June 3, 2010			June 4, 2009

Average expected life in years		5.08			5.02			5.11			4.91
Weighted-average expected volatility		57	%		71	%		60	%		73	%
Weighted-average risk-free interest rate		2.4	%		1.9	%		2.3	%		1.9	%

Restricted stock and restricted stock units (“Restricted Stock Awards”): As of June 3, 2010, there were 14.1 million shares of Restricted Stock Awards outstanding, of which 4.9 million were performance-based Restricted Stock Awards. For service-based Restricted Stock Awards, restrictions generally lapse either in one-fourth or one-third increments during each year of employment after the grant date. For performance-based Restricted Stock Awards, vesting is contingent upon meeting certain performance goals.

The Company granted 5.9 million and 1.8 million shares of service-based and performance-based Restricted Stock Awards, respectively, during the first nine months of 2010, including 4.1 million of service-based and 0.7 million of performance-based Restricted Stock Awards as part of the Company’s acquisition of Numonyx. During the first nine months of 2009, the Company granted 1.9 million and 1.7 million shares of service-based and performance-based Restricted Stock Awards, respectively. The weighted-average grant-date fair values per share were $8.75 and $8.29 for Restricted Stock Awards granted during the third quarter and first nine months of 2010, respectively, and was $4.40 for Restricted Stock Awards granted during the first nine months of 2009.

Stock-based compensation expense: Total compensation costs for the Company’s equity plans were as follows:

	Quarter ended				Nine months ended
	June 3, 2010		June 4, 2009		June 3, 2010		June 4, 2009

Stock-based compensation expense by caption:
Cost of goods sold	$	5	$	4	$	18	$	12
Selling, general and administrative		9		4		39		12
Research and development		4		4		14		10
Equity in net income (losses) of equity method investees		2		--		2		--
	$	20	$	12	$	73	$	34

Stock-based compensation expense by type of award:
Stock options	$	9	$	7	$	28	$	22
Restricted stock		11		5		45		12
	$	20	$	12	$	73	$	34

During the first quarter of 2010, the Company determined that certain performance-based restricted stock that previously had not been expensed met the probability threshold for expense recognition due to improved operating results. As of June 3, 2010, $127 million of total unrecognized compensation costs, net of estimated forfeitures, related to non-vested awards was expected to be recognized through the third quarter of 2014, resulting in a weighted-average period of 1.24 years. Stock-based compensation expense in the above presentation does not reflect any significant income tax benefits, which is consistent with the Company’s treatment of income or loss from its U.S. operations. (See “Income Taxes” note.)

Restructure

In response to a severe downturn in the semiconductor memory industry and global economic conditions, the Company initiated a restructure plan in 2009 primarily within the Company’s Memory segment. In the first quarter of 2009, IM Flash, a joint venture between the Company and Intel, terminated its agreement with the Company to obtain NAND Flash memory supply from the Company’s Boise facility. Also, the Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication facility in the first quarter of 2009. In addition, the Company phased out all remaining 200mm DRAM wafer manufacturing operations in Boise, Idaho in the second half of 2009. The following table summarizes restructure charges (credits) resulting from the restructure activities:

	Quarter ended					Nine months ended
	June 3, 2010			June 4, 2009		June 3, 2010			June 4, 2009

(Gain) loss from disposition of equipment	$	(4	)	$	7	$	(9	)	$	150
Severance and other termination benefits		--			11		1			50
Gain from termination of NAND Flash supply agreement		--			--		--			(144	)
Other		(1	)		1		1			2
	$	(5	)	$	19	$	(7	)	$	58

During the third quarter and first nine months of 2010, the Company made cash payments of $1 million and $7 million, respectively, for severance and related termination benefits and costs to decommission production facilities. As of June 3, 2010, all amounts related to the restructure plan initiated in 2009 had been paid and as of September 3, 2009, $5 million of restructure costs, primarily related to severance and other termination benefits, were unpaid. The Company does not expect to incur any additional material restructure charges related to the plan initiated in 2009.

Other Operating (Income) Expense, Net

Other operating (income) expense consisted of the following:

	Quarter ended					Nine months ended
	June 3, 2010			June 4, 2009		June 3, 2010			June 4, 2009

(Gain) loss on disposition of property, plant and equipment	$	(1	)	$	12	$	(10	)	$	55
(Gain) loss from changes in currency exchange rates		1			28		20			25
Other		(19	)		52		(40	)		42
	$	(19	)	$	92	$	(30	)	$	122

Other operating income in the third quarter and first nine months of 2010 includes $16 million and $24 million, respectively, of grant income related to the Company’s operations in China. Other operating income in the first nine months of 2010 also includes $11 million of receipts from the U.S. government in connection with anti-dumping tariffs which is reflected in other in the table above. Other operating expense for the third quarter of 2009 includes a loss of $53 million to write down the carrying value of certain long-lived assets in connection with the Company’s sale of a majority interest in its Aptina imaging solutions business.

Income Taxes

Income taxes in the third quarter of 2010 include a benefit of $51 million from reduction of a portion of the deferred tax asset valuation allowance in connection with the expected sale of the Company's equity interest in the Hynix JV that was acquired as part of the Numonyx acquisition. Except for this benefit, taxes in 2010 and 2009 primarily reflect taxes on the Company’s non-U.S. operations and U.S. alternative minimum tax. The Company has a valuation allowance for a substantial portion of its net deferred tax asset associated with its U.S. operations. Taxes attributable to U.S. operations in 2010 and 2009 were substantially offset by changes in the valuation allowance.

In connection with the acquisition of Numonyx, the Company accrued a $66 million liability related to uncertain tax positions on the tax years of Numonyx open to examination. The Company has recorded an indemnification asset for a significant portion of these unrecognized income tax benefits related to uncertain tax positions.

Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of common shares and stock rights outstanding. Diluted earnings per share is computed based on the weighted-average number of common shares and stock rights outstanding plus the dilutive effects of stock options, convertible notes and restricted shares. Potential common shares that would increase earnings per share amounts or decrease loss per share amounts are antidilutive and are therefore excluded from diluted earnings per share calculations. Antidilutive potential common shares that could dilute basic earnings per share in the future were 93.1 million and 94.7 million for the third quarter and first nine months of 2010, respectively, and were 271.2 million for the third quarter and first nine months of 2009.

During the third quarter of 2010, in connection with the acquisition of Numonyx, the Company issued 137.7 million shares of common stock and issued 4.8 million restricted stock units. Of the restricted stock units issued, 1.6 million were vested as of the time of issuance on May 7, 2010. In connection with the Numonyx acquisition, as of June 3, 2010, there were 21.0 million shares of stock in escrow as partial security for Numonyx shareholders’ indemnity obligations. The shares held in escrow were included in diluted earnings per share but were excluded from basic earnings per share. (See “Numonyx Holdings B.V.” note.)

	Quarter ended					Nine months ended
	June 3, 2010		June 4, 2009			June 3, 2010		June 4, 2009

Net income (loss) available to Micron’s shareholders – Basic	$	939	$	(301	)	$	1,508	$	(1,782	)
Net effect of assumed conversion of debt		24		--			70		--
Net income (loss) available to Micron’s shareholders – Diluted	$	963	$	(301	)	$	1,578	$	(1,782	)

Weighted-average common shares outstanding – Basic		885.4		813.3			860.0		786.5
Net effect of dilutive equity awards, escrow shares and assumed conversion of debt		164.0		--			159.7		--
Weighted-average common shares outstanding – Diluted		1,049.4		813.3			1,019.7		786.5

Earnings (loss) per share:
Basic	$	1.06	$	(0.37	)	$	1.75	$	(2.27	)
Diluted		0.92		(0.37	)		1.55		(2.27	)

Comprehensive Income (Loss)

The components of comprehensive income (loss) and comprehensive income (loss) attributable to Micron were as follows:

	Quarter Ended						Nine Months Ended
	June 3, 2010			June 4, 2009			June 3, 2010			June 4, 2009

Net income (loss)	$	960		$	(334	)	$	1,541		$	(1,879	)
Other comprehensive income (loss), net of tax:
Accumulated translation adjustment		8			(22	)		19			(26	)
Unrealized gain on investment		(3	)		3			1			7
Other		--			--			1			1
Total other comprehensive income (loss)		5			(19	)		21			(18	)
Comprehensive income (loss)		965			(353	)		1,562			(1,897	)
Comprehensive (income) loss attributable to noncontrolling interests		(21	)		33			(33	)		97
Comprehensive income (loss) attributable to Micron	$	944		$	(320	)	$	1,529		$	(1,800	)

Consolidated Variable Interest Entities

NAND Flash joint ventures with Intel (“IM Flash”): The Company has formed two joint ventures with Intel (IM Flash Technologies, LLC formed January 2006 and IM Flash Singapore, LLP formed February 2007) to manufacture NAND Flash memory products for the exclusive benefit of the partners. IMFT and IMFS are each governed by a Board of Managers, with the Company and Intel initially appointing an equal number of managers to each of the boards. The number of managers appointed by each party adjusts depending on the parties’ ownership interests. These ventures will operate until 2016 but are subject to prior termination under certain terms and conditions. IMFT and IMFS are aggregated as IM Flash in the following disclosures due to the similarity of their ownership structure, function, operations and the way the Company’s management reviews the results of their operations. The partner’s ownership percentages are based on contributions to the partnership. As of June 3, 2010, the Company owned approximately 51% and Intel owned approximately 49% of IM Flash.

IM Flash is a variable interest entity because all costs of IM Flash are passed to the Company and Intel through product purchase agreements and IM Flash is dependent upon the Company and Intel for any additional cash requirements. The Company and Intel are considered related parties under the accounting standards for consolidating variable interest entities due to restrictions on transfers of ownership interests. As a result, the primary beneficiary of IM Flash is the entity that is most closely associated with IM Flash. The Company considered several factors to determine whether it or Intel is more closely associated with IM Flash, including the size and nature of IM Flash’s operations relative to the Company and Intel and which entity had the majority of economic exposure under the purchase agreements. Based on those factors, the Company determined that it is more closely associated with IM Flash and is therefore the primary beneficiary. Accordingly, the financial results of IM Flash are included in the Company’s consolidated financial statements and all amounts pertaining to Intel’s interests in IM Flash are reported as noncontrolling interests in subsidiaries.

IM Flash manufactures NAND Flash memory products using designs developed by the Company and Intel. Product design and other research and development (“R&D”) costs for NAND Flash are generally shared equally between the Company and Intel. As a result of reimbursements received from Intel under a NAND Flash R&D cost-sharing arrangement, the Company’s R&D expenses were reduced by $24 million and $79 million for the third quarter and first nine months of 2010, respectively, and by $26 million and $83 million for the third quarter and first nine months of 2009, respectively.

IM Flash sells products to the joint venture partners generally in proportion to their ownership interests at long-term negotiated prices approximating cost. IM Flash sales to Intel were $204 million and $569 million for the third quarter and first nine months of 2010, respectively, and were $195 million and $728 million for the third quarter and first nine months of 2009, respectively. As of June 3, 2010 and September 3, 2009, IM Flash had receivables from Intel primarily for sales of NAND Flash products of $117 million and $95 million, respectively. In addition, as of June 3, 2010 and September 3, 2009, the Company had receivables from Intel of $30 million and $29 million, respectively, related to NAND Flash product design and process development activities. As of June 3, 2010 and September 3, 2009, IM Flash had payables to Intel of $2 million and $3 million, respectively, for various services.

In the first quarter of 2009, IM Flash substantially completed construction of a new 300mm wafer fabrication facility structure in Singapore and the Company and Intel agreed to suspend tooling and the ramp of production at this facility through the first quarter of 2010. In the second quarter of 2010, IM Flash began moving forward with start-up activities in the Singapore wafer fabrication facility, including placing purchase orders and preparing the facility for tool installations that will commence in 2011. The level of the Company’s future capital contributions to IM Flash will depend on the extent to which Intel participates with the Company in future IM Flash capital calls.

The following table presents IM Flash’s distributions to, and contributions from, shareholders:

	Quarter Ended				Nine Months Ended
	June 3, 2010		June 4, 2009		June 3, 2010		June 4, 2009

IM Flash distributions to the Company	$	75	$	124	$	254	$	606
IM Flash distributions to Intel		72		119		244		582

Company contributions to IM Flash	$	26	$	--	$	51	$	25
Intel contributions to IM Flash		24		--		24		24

Total IM Flash assets and liabilities included in the Company’s consolidated balance sheets are as follows:

As of	June 3, 2010		September 3, 2009

Assets
Cash and equivalents	$	206	$	114
Receivables		132		111
Inventories		146		161
Other current assets		5		8
Total current assets		489		394
Property, plant and equipment, net		2,957		3,377
Other noncurrent assets		52		63
Total assets	$	3,498	$	3,834

Liabilities
Accounts payable and accrued expenses	$	151	$	93
Deferred income		133		137
Equipment purchase contracts		11		1
Current portion of long-term debt		7		6
Total current liabilities		302		237
Long-term debt		63		66
Other noncurrent liabilities		4		4
Total liabilities	$	369	$	307

Amounts exclude intercompany balances that are eliminated in the Company’s consolidated balance sheets.

The Company’s ability to access IM Flash’s cash and marketable investment securities to finance the Company’s other operations is subject to agreement by the joint venture partners. The creditors of IM Flash have recourse only to the assets of IM Flash and do not have recourse to any other assets of the Company.

MP Mask Technology Center, LLC (“MP Mask”): In 2006, the Company formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce photomasks for leading-edge and advanced next generation semiconductors. At inception and through June 3, 2010, the Company owned 50.01% and Photronics owned 49.99% of MP Mask. The Company purchases a substantial majority of the reticles produced by MP Mask pursuant to a supply agreement. In connection with the formation of the joint venture, the Company received $72 million in 2006 in exchange for entering into a license agreement with Photronics, which is being recognized over the term of the 10-year agreement. As of June 3, 2010, deferred income and other noncurrent liabilities included an aggregate of $43 million related to this agreement. MP Mask made distributions to both the Company and Photronics of $5 million and $10 million each in the third quarter and first nine months of 2009.

MP Mask is a variable interest entity because all costs of MP Mask are passed on to the Company and Photronics through product purchase agreements and MP Mask is dependent upon the Company and Photronics for any additional cash requirements. The Company and Photronics are also considered related parties under the accounting standards for consolidating variable interest entities due to restrictions on transfers of ownership interests. As a result, the primary beneficiary of MP Mask is the entity that is more closely associated with MP Mask. The Company considered several factors to determine whether it or Photronics is more closely associated with the joint venture. The most important factor was the nature of the joint venture’s operations relative to the Company and Photronics. Based on those factors, the Company determined that it is more closely associated with the joint venture and is therefore the primary beneficiary. Accordingly, the financial results of MP Mask are included in the Company’s consolidated financial statements and all amounts pertaining to Photonics’ interest in MP Mask are reported as noncontrolling interests in subsidiaries.

Total MP Mask assets and liabilities included in the Company’s consolidated balance sheets are as follows:

As of	June 3, 2010		September 3, 2009

Current assets	$	36	$	25
Noncurrent assets (primarily property, plant and equipment)		82		97
Current liabilities		4		8

Amounts exclude intercompany balances that are eliminated in the Company’s consolidated balance sheets.

The creditors of MP Mask have recourse only to the assets of MP Mask and do not have recourse to any other assets of the Company.

Since the third quarter of 2009, the Company has leased to Photronics a facility to produce photomasks. In the third quarter and first nine months of 2010, the Company received $2 million and $5 million, respectively, in lease payments from Photronics.

TECH Semiconductor Singapore Pte. Ltd.

Since 1998, the Company has participated in TECH Semiconductor Singapore Pte. Ltd. (“TECH”), a semiconductor memory manufacturing joint venture in Singapore among the Company, Canon Inc. (“Canon”) and Hewlett-Packard Company (“HP”). The financial results of TECH are included in the Company’s consolidated financial statements and all amounts pertaining to the equity interests of Canon and HP are reported as noncontrolling interests in subsidiaries. On January 27, 2010, the Company purchased shares of TECH for $80 million, which increased the Company’s ownership from approximately 85% to approximately 87% and increased additional capital of Micron shareholders by $10 million. As of June 3, 2010, the Company held an approximate 87% interest in TECH.

The shareholders’ agreement for TECH expires in April 2011. In September 2009, TECH received a notice from HP that it does not intend to extend the TECH joint venture beyond April 2011. The Company is in discussions with HP and Canon to reach a resolution of the matter. The parties’ inability to reach a resolution of this matter prior to April 2011 could result in the dissolution of TECH.

TECH’s cash and marketable investment securities ($278 million as of June 3, 2010) are not anticipated to be available to pay dividends to the Company or finance its other operations. As of June 3, 2010, TECH had $398 million outstanding under a credit facility which is collateralized by substantially all of the assets of TECH (carrying value of approximately $1,700 million as of June 3, 2010) and contains covenants that, among other requirements, establish certain liquidity, debt service coverage and leverage ratios, and restrict TECH’s ability to incur indebtedness, create liens and acquire or dispose of assets. In the first quarter of 2010, the covenants were modified and as of June 3, 2010, TECH was in compliance with the covenants. The Company has guaranteed 100% of the outstanding amount of the TECH credit facility. (See “Debt” note.)

Segment Information

In 2009, the Company’s two reportable segments were Memory and Imaging. In the first quarter of 2010, Imaging no longer met the quantitative thresholds of a reportable segment and management does not expect that Imaging will meet the quantitative thresholds in future years. As a result, Imaging is no longer considered a reportable segment and is included in the All Other nonreportable segments. Prior period amounts have been recast to reflect Imaging in All Other. Operating results of All Other primarily reflect activity of Imaging and also include activity of microdisplay, solar and other operations. Segment information reported below is consistent with how it is reviewed and evaluated by the Company’s chief operating decision makers and is based on the nature of the Company’s operations and products offered to customers. The Company does not identify or report depreciation and amortization, capital expenditures or assets by segment.

	Quarter ended				Nine months ended
	June 3, 2010		June 4, 2009		June 3, 2010		June 4, 2009

Net sales:
Memory
External	$	2,097	$	979	$	5,592	$	3,111
Intersegment		6		--