Edgar Filing: MICRON TECHNOLOGY INC

MU-6.2.2011-10Q

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 2, 2011



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 o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 x 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 definitions 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 5, 2011, was 1,003,980,834.

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 2, 2011			June 3, 2010			June 2, 2011			June 3, 2010
Net sales	$	2,139		$	2,288		$	6,648		$	5,989
Cost of goods sold	1,661			1,440			5,211			4,056
Gross margin	478			848			1,437			1,933

Selling, general and administrative	151			190			437			387
Research and development	211			142			582			427
Other operating (income) expense, net	(121		)	(24		)	(388		)	(37		)
Operating income	237			540			806			1,156

Gain on acquisition of Numonyx	—			437			—			437
Interest income	6			4			21			8
Interest expense	(28		)	(44		)	(94		)	(137		)
Other non-operating income (expense), net	10			1			(104		)	56
	225			938			629			1,520

Income tax (provision) benefit	(104		)	41			(187		)	44
Equity in net income (loss) of equity method investees, net of tax	(44		)	(19		)	(118		)	(23		)
Net income	77			960			324			1,541

Net income attributable to noncontrolling interests	(2		)	(21		)	(22		)	(33		)
Net income attributable to Micron	$	75		$	939		$	302		$	1,508

Earnings per share:
Basic	$	0.07		$	1.06		$	0.31		$	1.75
Diluted	0.07			0.92			0.30			1.55

Number of shares used in per share calculations:
Basic	998.9			885.4			986.6			860.0
Diluted	1,041.7			1,049.4			1,036.9			1,019.7

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)

(Unaudited)



As of	June 2, 2011			September 2, 2010
Assets
Cash and equivalents	$	2,395		$	2,913
Receivables	1,495			1,531
Inventories	2,068			1,770
Other current assets	87			119
Total current assets	6,045			6,333
Intangible assets, net	424			323
Property, plant and equipment, net	7,103			6,601
Equity method investments	499			582
Restricted cash	13			335
Other noncurrent assets	486			519
Total assets	$	14,570		$	14,693

Liabilities and equity
Accounts payable and accrued expenses	$	1,912		$	1,509
Deferred income	412			298
Equipment purchase contracts	80			183
Current portion of long-term debt	184			712
Total current liabilities	2,588			2,702
Long-term debt	1,388			1,648
Other noncurrent liabilities	562			527
Total liabilities	4,538			4,877

Commitments and contingencies

Micron shareholders' equity:
Common stock, $0.10 par value, 3,000 shares authorized, 1,003.9 shares issued and outstanding (994.5 as of September 2, 2010)	100			99
Additional capital	8,598			8,446
Accumulated deficit	(234		)	(536		)
Accumulated other comprehensive income	119			11
Total Micron shareholders' equity	8,583			8,020
Noncontrolling interests in subsidiaries	1,449			1,796
Total equity	10,032			9,816
Total liabilities and equity	$	14,570		$	14,693

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



Nine months ended	June 2, 2011			June 3, 2010
Cash flows from operating activities
Net income	$	324		$	1,541
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense and amortization of intangible assets	1,550			1,413
Amortization of debt discount and other costs	42			61
Equity in net (income) losses of equity method investees, net of tax	118			23
Loss on extinguishment of debt	113			—
Stock-based compensation	57			73
Gain from disposition of Japan Fab	(54		)	—
Gain from Inotera stock issuance	—			(56		)
Gain from acquisition of Numonyx	—			(437		)
Change in operating assets and liabilities:
(Increase) decrease in receivables	110			(556		)
(Increase) in inventories	(345		)	(88		)
(Increase) decrease in deferred income taxes, net	101			(44		)
Increase in accounts payable and accrued expenses	40			165
(Decrease) in customer prepayments	(1		)	(143		)
Increase in deferred income	115			28
Other	(40		)	39
Net cash provided by operating activities	2,130			2,019

Cash flows from investing activities
Expenditures for property, plant and equipment	(1,682		)	(269		)
Acquisition of noncontrolling interests in TECH	(159		)	—
Additions to equity method investments	(22		)	(151		)
Decrease in restricted cash	324			10
Proceeds from sales of property, plant and equipment	124			86
Return of equity method investment	48			—
Cash acquired from acquisition of Numonyx	—			95
Other	(5		)	10
Net cash used for investing activities	(1,372		)	(219		)

Cash flows from financing activities
Repayments of debt	(1,139		)	(748		)
Payments on equipment purchase contracts	(262		)	(199		)
Distributions to noncontrolling interests	(159		)	(244		)
Proceeds from equipment sale-leaseback transactions	268			—
Cash received from noncontrolling interests	8			24
Proceeds from debt	—			200
Other	8			(5		)
Net cash used for financing activities	(1,276		)	(972		)

Net increase (decrease) in cash and equivalents	(518		)	828
Cash and equivalents at beginning of period	2,913			1,485
Cash and equivalents at end of period	$	2,395		$	2,313

Supplemental disclosures
Income taxes refunded (paid), net	$	(79	)	$	11
Interest paid, net of amounts capitalized	(54		)	(85		)
Noncash investing and financing activities:
Equipment acquisitions on contracts payable and capital leases	422			281
Exchange of convertible notes	175			—
Stock and restricted stock units issued in acquisition of Numonyx	—			1,112
Acquisition of interest in Transform	—			65

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All tabular amounts in millions except per share amounts)

(Unaudited)

Business and Basis of Presentation

Micron Technology, Inc. and its consolidated subsidiaries (hereinafter referred to collectively as "we," "our," "us" and similar terms unless the context indicates otherwise) 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, we manufacture CMOS image sensors and other semiconductor products. The accompanying consolidated financial statements 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 our Annual Report on Form 10-K for the year ended September 2, 2010. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our consolidated financial position and our consolidated results of operations and cash flows. Certain reclassifications have been made to prior period amounts to conform to current period presentation.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Our third quarter of fiscal 2011 and 2010 ended on June 2, 2011 and June 3, 2010, respectively. Our fiscal 2010 ended on September 2, 2010. All period references are our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended September 2, 2010 and in our Form 8-K filed on April 14, 2011.

In the second quarter of 2011, we reorganized our business to better align with our markets. After our reorganization, we have the following four reportable segments: DRAM Solutions Group ("DSG"), NAND Solutions Group ("NSG"), Wireless Solutions Group ("WSG") and Embedded Solutions Group ("ESG"). Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other. All Other includes our CMOS image sensor, microdisplay and solar operations. All prior period amounts have been retrospectively adjusted to reflect the reorganization in the second quarter of 2011.

Variable Interest Entities

We have interests in joint venture entities that are variable interest entities ("VIEs"). If we are the primary beneficiary of the VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgment. For further information regarding our VIEs that we account for under the equity method, see "Equity Method Investments" note. For further information regarding our consolidated VIEs, see "Consolidated Variable Interest Entities" note.

Unconsolidated Variable Interest Entities

Inotera and MeiYa – Inotera Memories, Inc. ("Inotera") and MeiYa Technology Corporation ("MeiYa") are VIEs because of the terms of their supply agreements with us and our partner, Nanya Technology Corporation ("Nanya"). We have determined that we do not have power to direct the activities of Inotera and MeiYa that most significantly impact their economic performance, primarily due to (1) limitations on our governance rights that require the consent of other parties for key operating decisions and (2) our dependence on our joint venture partner for financing and the ability to operate in Taiwan. Therefore, we account for our interests in these entities under the equity method.

Transform – Transform Solar Pty Ltd. ("Transform") is a VIE because its equity is not sufficient to permit Transform to finance its activities without additional subordinated financial support from us and our partner, Origin Energy Limited ("Origin"). We have determined that we do not have power to direct the activities of Transform that most significantly impacts its economic performance, primarily due to limitations on our governance rights that require the consent of Origin for key operating decisions. Therefore, we account for our interest in Transform under the equity method.

Consolidated Variable Interest Entities

IMFT and IMFS – IM Flash Technologies, LLC ("IMFT") and IM Flash Singapore LLP ("IMFS") are both VIEs because all of their costs are passed to us and our partner, Intel Corporation ("Intel"), through product purchase agreements and they are dependent upon us and Intel for any additional cash requirements. For both IM Flash entities (i.e., IMFT and IMFS), we determined that we have the power to direct the activities of the entities that most significantly impact their economic performance. The primary activities of the IM Flash entities are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct key activities of the entities. In addition, IMFT manufactures certain products exclusively for us using our technology. As a result of our 83% ownership interest in IMFS, we have significantly greater economic exposure than Intel. We also determined that we have the obligation to absorb losses and the right to receive benefits from the IM Flash entities that could potentially be significant to these entities. Therefore, we consolidate the IM Flash entities.

MP Mask – MP Mask Technology Center, LLC ("MP Mask") is a VIE because all of its costs are passed to us and our partner, Photronics, Inc. ("Photronics"), through product purchase agreements and it is dependent upon us and Photronics for any additional cash requirements. We determined that we have the power to direct the activities of MP Mask that most significantly impacts its economic performance, primarily due to (1) our tie-breaking voting rights over key operating decisions and (2) nearly all key MP Mask activities are driven by our supply needs. We also determined that we have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to MP Mask. Therefore, we consolidate MP Mask.

Recently Adopted Accounting Standards

In June 2009, the Financial Accounting Standards Board ("FASB") issued a new accounting standard on VIEs which (1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a VIE with an approach that is primarily qualitative, (2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE and (3) requires additional disclosures about an enterprise's involvement in a VIE. We adopted this standard as of the beginning of 2011. The initial adoption of this standard did not have a significant impact on our financial statements as of the adoption date. The impact on future periods will depend on changes in the nature and composition of our VIEs.

Recently Issued Accounting Standards

In May 2011, the FASB issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. We are required to adopt this standard in the third quarter of 2012. We do not expect this adoption to have a material impact on our financial statements.

In June 2011, the FASB issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. We are required to adopt this standard as of the beginning of 2013. The adoption of this standard will only impact the presentation of our financial statements.

Japan Fabrication Facility

On June 2, 2011, we sold our wafer fabrication facility in Japan (the "Japan Fab") to Tower Semiconductor Ltd. ("Tower"). Under the arrangement, Tower agreed to pay $40 million in cash, which was received in June subsequent to the end of our third quarter of 2011, and approximately 20 million of Tower ordinary shares. In addition, we will receive $20 million in twelve equal monthly installments beginning in the second quarter of 2012. We recorded a gain of $54 million (net of transaction costs of $3 million) in connection with the sale of the Japan Fab. In addition, we recorded a tax provision of $74 million related to the gain on the sale and to write down certain tax assets associated with the Japan Fab. The carrying values of the assets sold and liabilities transferred to Tower on the transaction date prior to the effects of the transaction were as follows:



Inventories	$	38
Property, plant and equipment	56
Other assets	3
Accounts payable and accrued expenses	(5		)
Capital lease obligations	(8		)
Other noncurrent liabilities, including $9 million unrecognized pension expense in other comprehensive income	(61		)
Net carrying value of assets sold and liabilities transferred	$	23

In connection with the sale of the Japan Fab, we entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014.

Numonyx

On May 7, 2010, we acquired Numonyx Holdings B.V. ("Numonyx"), which manufactured and sold primarily NOR Flash and NAND Flash memory products. The total fair value of the consideration paid for Numonyx was $1,112 million and consisted of 137.7 million shares of our common stock issued to the Numonyx shareholders and 4.8 million restricted stock units issued to employees of Numonyx. In connection with the acquisition, we recorded net assets of $1,549 million. Because the fair value of the net assets acquired exceeded the purchase price, we recognized a gain on the acquisition of $437 million in the third quarter of 2010. In addition, we recognized a $51 million income tax benefit in connection with the acquisition.

The following unaudited pro forma financial information presents the combined results of operations as if Numonyx had been combined with us as of the beginning of 2009. The pro forma financial information includes the accounting effects of the business combination, including adjustments to the amortization of intangible assets, depreciation of property, plant and equipment, interest expense and elimination of intercompany sales. 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 Numonyx been combined with us as of the beginning of 2009.



	Quarter ended		Nine months ended
	June 3, 2010		June 3, 2010
Net sales	$	2,781	$	7,489
Net income	987		1,538
Net income attributable to Micron	966		1,505
Earnings per share:
Basic	$	0.98	$	1.53
Diluted	0.86		1.38

The unaudited pro forma financial information for the quarter and nine months ended June 3, 2010 includes our results for the quarter and nine months ended June 3, 2010, respectively, and the results of Numonyx, including the adjustments described above, for its fiscal quarter and nine months ended March 27, 2010, respectively.

Receivables



As of	June 2, 2011		September 2, 2010
Trade receivables (net of allowance for doubtful accounts of $2 million and $4 million, respectively)	$	1,065	$	1,238
Income and other taxes	134		115
Related party receivables	74		64
Other	222		114
	$	1,495	$	1,531

As of June 2, 2011 and September 2, 2010, related party receivables included $70 million and $57 million, respectively, due from Aptina Imaging Corporation ("Aptina") primarily for sales of image sensor products under a wafer supply agreement. (See "Equity Method Investments" note.)

As of June 2, 2011 and September 2, 2010, other receivables included $31 million and $30 million, respectively, due from Intel for amounts related to NAND Flash product design and process development activities under cost-sharing agreements. As of June 2, 2011 and September 2, 2010, other receivables also included $26 million and $17 million, respectively, due from Nanya for amounts related to a DRAM product design and process development activities under a cost-sharing agreement. (See "Equity Method Investments" note and "Consolidated Variable Interest Entities" note.)

Inventories



As of	June 2, 2011		September 2, 2010
Finished goods	$	609	$	623
Work in process	1,322		1,031
Raw materials and supplies	137		116
	$	2,068	$	1,770

Intangible Assets



As of	June 2, 2011					September 2, 2010
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Product and process technology	$	581	$	(207	)	$	439	$	(181	)
Customer relationships	127		(78		)	127		(66		)
Other	23		(22		)	23		(19		)
	$	731	$	(307	)	$	589	$	(266	)

During the first nine months of 2011 and 2010, we capitalized $157 million and $27 million, respectively, for product and process technology with weighted-average useful lives of 7 years and 9 years, respectively.

Amortization expense was $19 million and $56 million for the third quarter and first nine months of 2011, respectively, and $23 million and $57 million for the third quarter and first nine months of 2010, respectively. Annual amortization expense for intangible assets is estimated to be $80 million for 2011, $84 million for 2012, $78 million for 2013, $70 million for 2014 and $51 million for 2015.

Property, Plant and Equipment



As of	June 2, 2011			September 2, 2010
Land	$	92		$	95
Buildings	4,447			4,394
Equipment	13,870			12,970
Construction in progress	136			73
Software	284			281
	18,829			17,813
Accumulated depreciation	(11,726		)	(11,212		)
	$	7,103		$	6,601

Depreciation expense was $528 million and $1,494 million for the third quarter and first nine months of 2011, respectively, and $453 million and $1,356 million for the third quarter and first nine months of 2010, respectively.

Other noncurrent assets included buildings, equipment, and other assets classified as held for sale of $37 million as of June 2, 2011 and $56 million as of September 2, 2010.

Equity Method Investments



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

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



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

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



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

The maximum exposure to loss primarily included the carrying value of our investment as well as related translation adjustments in accumulated other comprehensive income and receivables, if any. We may also incur losses in connection with our obligations under a supply agreement with Inotera (the "Inotera Supply Agreement") for rights and obligations to purchase 50% of Inotera's wafer production capacity of DRAM products.

Inotera and MeiYa DRAM joint ventures with Nanya: We have partnered with Nanya in two Taiwanese DRAM memory companies, Inotera and MeiYa. Under a licensing arrangement with Nanya, we recognized $13 million and $65 million of license revenue in net sales during the third quarter and first nine months of 2010, respectively, and had recognized a total of $207 million through the completion of the arrangement in April 2010. Under a cost-sharing arrangement beginning in April 2010, we share equally in DRAM development costs with Nanya and, as a result, our research and development costs were reduced by $38 million and $101 million for the third quarter and first nine months of 2011, respectively and $24 million in the third quarter of 2010. In addition, we received $5 million and $18 million of royalty revenue for the third quarter and first nine months of 2011, respectively, from Nanya for sales of stack DRAM products manufactured by or for Nanya on process nodes of 50nm or higher and will continue to receive royalties from Nanya associated with technology developed prior to the cost-sharing arrangement.

Inotera: In the first quarter of 2009, we acquired a 35.5% ownership interest in Inotera. As a result of Inotera's sale of common shares in a public offering, our equity ownership interest decreased from 35.5% to 29.8% and we recognized a gain of $56 million in the first quarter of 2010. In the second quarter of 2010, as part of another Inotera offering of common shares, we and Nanya each paid $138 million to purchase additional shares, slightly increasing our equity ownership interest from 29.8% to 29.9%. In the second and third quarters of 2011, our ownership interest was reduced by shares issued under Inotera's employee stock plans and as of June 2, 2011, we held a 29.7% ownership interest in Inotera, Nanya held a 29.8% ownership interest, and the balance was publicly held.

The carrying value of our initial investment was less than our proportionate share of Inotera's equity. This difference is being amortized as a credit to earnings through equity in net income (loss) of equity method investees (the "Inotera Amortization"). As of June 2, 2011, $85 million of Inotera Amortization remained to be recognized over a weighted-average period of 4 years. The $56 million gain recognized in the first quarter of 2010 on Inotera's issuance of shares included $33 million of accelerated Inotera Amortization.

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

As of June 2, 2011 and September 2, 2010, there were gains of $55 million and $7 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our investment in Inotera. As of June 2, 2011, based on the closing trading price of Inotera's shares in an active market, the market value of our equity interest in Inotera was $599 million.

MeiYa: In 2008, we acquired a 50% interest in MeiYa. In connection with our acquisition of an equity interest in Inotera, we entered into agreements with Nanya pursuant to which both parties ceased future funding of, and resource commitments to, MeiYa. Additionally, MeiYa has sold substantially all of its assets to Inotera. In the second quarter of 2011, we and Nanya each received a distribution from MeiYa of $48 million as a return of capital, representing substantially all of MeiYa's assets. As of September 2, 2010, there were losses of $(5) million in accumulated other comprehensive income (loss) for cumulative translation adjustments from MeiYa.

Transform: In 2010, we acquired a 50% interest in Transform. In exchange for the equity interest in Transform, we contributed nonmonetary assets, which consisted of manufacturing facilities, equipment, intellectual property and a fully-paid lease to a portion of our Boise, Idaho manufacturing facilities. As of June 2, 2011, we and Origin each held a 50% ownership interest in Transform. During the third quarter and first nine months of 2011, we and Origin each contributed $11 million and $22 million, respectively, of cash to Transform, and in the second and third quarters of 2010, we and Origin each contributed $5 million and $8 million, respectively, of cash to Transform. Our results of operations for the third quarter and first nine months of 2011 included $5 million and $16 million, respectively, of net sales, which approximates our cost, for transition services provided to Transform. Our results of operations for the first nine months of 2010 included $9 million of net sales, which approximates our cost, for these transition services.

Aptina: In 2009, we sold a 65% interest in Aptina, previously a wholly-owned subsidiary. A portion of the 65% interest we sold is in the form of convertible preferred shares that have a liquidation preference over the common shares. As a result, we recognize our share of Aptina's earnings or losses based on our common stock ownership percentage, which was 64% as of June 2, 2011.

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

Accounts Payable and Accrued Expenses



As of	June 2, 2011		September 2, 2010
Accounts payable	$	1,238	$	799
Salaries, wages and benefits	271		346
Related party payables	188		194
Income and other taxes	33		51
Other	182		119
	$	1,912	$	1,509

Related party payables included amounts primarily due to Inotera under the Inotera Supply Agreement of $186 million and $105 million as of June 2, 2011 and September 2, 2010, respectively, for the purchase of DRAM products. Related party payables as of September 2, 2010 also included $86 million for amounts due for the purchase of memory products under a supply agreement with the Hynix JV, a subsidiary of Hynix Semiconductor Inc. in which we previously held an equity interest in connection with our acquisition of Numonyx.

As of June 2, 2011 and September 2, 2010, other accounts payable and accrued expenses included $23 million and $16 million, respectively, for amounts due to Intel for NAND Flash product design and process development and licensing fees pursuant to cost-sharing agreements. (See "Consolidated Variable Interest Entities" note.)

Debt



As of	June 2, 2011			September 2, 2010
Convertible senior notes, stated interest rate of 1.875%, effective interest rate of 7.9%, net of discount of $145 million and $242 million, respectively, due June 2014	$	804		$	1,058
Capital lease obligations, weighted-average effective interest rate of 6.2% and 7.2%, respectively, due in monthly installments through February 2023	496			527
TECH credit facility, effective interest rate of 3.9% net of discount of $2 million as of September 2, 2010	—			348
Convertible senior notes, interest rate of 4.25%, due October 2013	139			230
Convertible senior notes, stated interest rate of 1.875%, effective interest rate of 7.0%, net of discount of $42 million, due June 2027	133			—
Mai-Liao Power note, effective interest rate of 12.1%, net of discount of $4 million as of September 2, 2010	—			196
Other notes	—			1
	1,572			2,360
Less current portion	(184		)	(712		)
	$	1,388		$	1,648

In the third quarter of 2011, we paid the remaining $250 million outstanding principal balance of the TECH credit facility, plus accrued interest, that was due in periodic payments through May 2012. In connection therewith, $60 million of cash that was previously restricted was released to us. (See "TECH Semiconductor Singapore Pte. Ltd." note.)

In the third quarter of 2011, we received $173 million in proceeds from sales-leaseback transactions and as a result recorded capital lease obligations aggregating $163 million at a weighted-average effective interest rate of 5.4%, payable in periodic installments through May 2016. In the first nine months of 2011, we received $268 million in proceeds from sales-leaseback transactions and as a result recorded capital lease obligations aggregating $246 million at a weighted-average effective interest rate of 5.4%, payable in periodic installments through May 2016.

Debt Restructure: On November 3, 2010, we completed the following series of debt restructure transactions in connection with separate privately negotiated agreements entered into on October 28, 2010 with certain holders of our convertible notes:


•	Exchanged $175 million in aggregate principal amount of our 1.875% Convertible Senior Notes due 2014 (the "2014 Notes") for $175 million in aggregate principal amount of new 1.875% Convertible Senior Notes due 2027 (the "2027 Notes") (the "Exchange Transaction").


•	Repurchased $176 million in aggregate principal amount of our 2014 Notes for $171 million in cash (the "Partial Repurchase of 2014 Notes").


•	Repurchased $91 million in aggregate principal amount of our 4.25% Convertible Senior Notes due 2013 (the "2013 Notes") for $166 million in cash (the "Partial Repurchase of 2013 Notes").

Exchange Transaction: In the Exchange Transaction, $175 million in aggregate principal amount of our 2014 Notes was extinguished. The liability and equity components of the 2014 Notes were stated separately pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion. Accordingly, the extinguishment resulted in the derecognition of $144 million in debt for the principal of the 2014 Notes (net of $31 million of debt discount) and $13 million of additional capital. We recognized a loss of $15 million on the exchange based on the estimated $157 million fair value of the debt component of the 2014 Notes exchanged and their $142 million carrying value (net of unamortized issuance costs).

The liability and equity components of the 2027 Notes issued in the Exchange Transaction were also stated separately pursuant to the accounting standards. As of the issuance date of the 2027 Notes, we recorded $130 million as debt, $40 million as additional capital and $2 million for deferred debt issuance costs (included in other noncurrent assets). The amount recorded as debt is based on the fair value of the debt component as a standalone instrument, and was determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparable to ours at the time of issuance. The $45 million difference between the debt recorded at inception and its principal amount will be accreted to principal through interest expense to the 2027 Notes' estimated maturity in June 2017. The fair value of the 2027 Notes was based on the trading price on the exchange date (Level 1). The fair value of the debt components of the 2014 Notes and the 2027 Notes were estimated using an interest rate for nonconvertible debt, with terms similar to the debt components of the notes on a stand-alone basis, issued by entities with credit ratings comparable to ours at the exchange date (Level 2).

The 2027 Notes have an initial conversion rate of 91.7431 shares of common stock per $1,000 principal amount (approximately $10.90 per share), subject to adjustment upon certain events specified in the indenture, and are convertible, subject to the conditions specified below, into (1) cash up to the aggregate principal amount of 2027 Notes, and (2) shares of our common stock or cash, at our election, for the remainder, if any, of our conversion obligation. As a result of these settlement terms upon conversion, only the amounts payable in excess of the principal amounts of the 2027 Notes are considered in diluted earnings per share under the treasury stock method.

The 2027 Notes may be converted by their holders on or after March 1, 2027 until June 1, 2027. Prior to March 1, 2027, the 2027 Notes may be converted by their holders under any of the following circumstances: (1) during any calendar quarter beginning after December 31, 2010 (and only during such calendar quarter) if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the conversion price (approximately $14.17 per share); (2) the 2027 Notes have been called for redemption; (3) specified distributions to holders of our common stock are made, or specified corporate events occur; (4) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2027 Notes for each trading day of that period is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2027 Notes; or (5) upon our election to terminate the conversion right of the 2027 Notes.

If the 2027 Notes are converted by their holders in connection with a make-whole change in control (as defined in the indenture), we may, under certain circumstances, be required to pay a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of (1) a change in control; (2) a termination of trading; or (3) the election of the holders on June 1, 2017, we may be required to repurchase all or a portion of the 2027 Notes at a repurchase price equal to 100% of the principal amount, plus accrued interest. We may elect to redeem all or any portion of the 2027 Notes on or after June 1, 2014, at a redemption price equal to 100% of the principal amount, plus accrued interest.

We may elect to terminate the conversion right of the 2027 Notes if the daily volume weighted average price of our common stock is greater than or equal to 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period. If we terminate the conversion right prior to June 1, 2014 and any 2027 Notes are converted in connection with the termination, we will pay a make-whole premium equal to the accrued interest as of the conversion date plus the interest that would have been paid through May 31, 2014. Subject to the terms of the indenture, we may, at our election, deliver shares of common stock in lieu of cash with respect to this make-whole payment.

Partial Repurchase of the 2014 Notes: Because the liability and equity components of the 2014 Notes were stated separately, the repurchase of $176 million aggregate principal amount resulted in the derecognition of $144 million in debt (net of $32 million of debt discount) and $13 million of additional capital. We recognized a loss of $17 million (including transaction fees) on the repurchase based on the estimated $158 million fair value of the debt components of the 2014 Notes repurchased. The fair value of the debt component of the 2014 Notes was estimated using an interest rate for nonconvertible debt, with terms similar to the debt component of the 2014 Notes on a stand-alone basis, issued by entities with credit ratings comparable to ours at the exchange date (Level 2).

Partial repurchase of the 2013 Notes: We recognized a loss of $79 million (including transaction fees) in the repurchase of the 2013 Notes.

Debt Guarantee: Concurrent with the Numonyx acquisition, we entered into agreements with STMicroelectronics N.V. and DBS Bank Ltd. ("DBS") that required us to guarantee a then outstanding loan, made by DBS to Hynix-Numonyx Semiconductor Ltd. (the "Hynix JV"). The outstanding balance of the Hynix JV loan was $250 million as of the acquisition date and was due in periodic installments from calendar 2014 through 2016. Under the agreements, we deposited $250 million, accounted for as restricted cash, into a pledged account at DBS to collateralize the guarantee of the loan. In the third quarter of 2011, the Hynix JV paid the $250 million outstanding principal balance of the loan before the scheduled due dates, and accordingly, our obligation to guarantee the debt ceased and the $250 million restricted cash collateral was released to us. Additionally, we recognized a gain of $15 million in the third quarter of 2011 in other non-operating income (expense) for the termination of our debt guarantee obligation that we recorded in connection with our acquisition of Numonyx in the third quarter of 2010.

Contingencies

We have 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. We are currently a party to other legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our business, results of operations or financial condition.

In the normal course of business, we are a party to a variety of agreements pursuant to which we 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 our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations or financial condition.

We are 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 us 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 claims damages of approximately $5.3 billion 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. Trial began on June 20, 2011 and is expected to continue for several months.

At least sixty-eight purported class action price-fixing lawsuits have been filed against us 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. In July, 2006, the Attorneys General for approximately forty U.S. states and territories filed suit in the U.S. District Court for the Northern District of California. The complaints allege, among other things, violations of the Sherman Act, Cartwright Act, and certain other states' consumer protection and antitrust laws and seek joint and several damages, trebled, as well as injunctive and other relief. 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, we 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, we agreed to pay a total of approximately $67 million in three equal installments over a two-year period.

Three putative class action lawsuits alleging price-fixing of DRAM products also have been filed against us in Quebec, Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, asserting violations of the Canadian Competition Act and other common law claims. The claims were initiated between December 2004 (British Columbia) and June 2006 (Quebec). The plaintiffs seek monetary damages, restitution, costs, and attorneys' fees. 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 us 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 us, and focuses on the period from July 1998 to June 2002.

On September 24, 2010, Oracle America Inc. ("Oracle"), successor to Sun Microsystems, a DRAM purchaser that opted-out of a direct purchaser class action suit that was settled, filed suit against us in U.S. District Court for the Northern District of California. The complaint alleges DRAM price-fixing and other violations of federal and state antitrust and unfair competition laws based on purported conduct for the period from August 1, 1998 through at least June 15, 2002. Oracle is seeking joint and several damages, trebled, as well as restitution, disgorgement, attorneys' fees, costs and injunctive relief.

We are unable to predict the outcome of these lawsuits and therefore cannot estimate the range of possible loss, except as noted in the U.S. indirect purchasers cases above. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on our 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 our products or manufacturing processes infringe their intellectual property rights. In this regard, we are engaged in litigation with Rambus relating to certain of Rambus' patents and certain of our claims and defenses. Our lawsuits with Rambus 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 August 28, 2000, we filed a complaint against Rambus in the U.S. District Court for the District of Delaware seeking declaratory and injunctive relief. The complaint alleges, among other things, various anticompetitive activities and also seeks a declaratory judgment that certain Rambus patents or that such patents are invalid and/or unenforceable. Rambus subsequently filed an answer and counterclaim in Delaware alleging, among other things, infringement of twelve Rambus patents and seeking monetary damages and injunctive relief. We subsequently added claims and defenses based on Rambus' alleged spoliation of evidence and litigation misconduct. The spoliation and litigation misconduct claims and defenses were heard in a bench trial before Judge Robinson in October 2007. On January 9, 2009, Judge Robinson entered an opinion in our favor holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for further analysis of the appropriate remedy. Subsequently, the Northern District of California Court stayed a trial of the patent phase of the Northern District of California case pending the Federal Circuit issuing the mandate related to its decision on Rambus' appeal of the Delaware Court's spoliation decision or further order of the California Court.

On March 6, 2009, Panavision Imaging, LLC filed suit against us and Aptina Imaging Corporation, then a wholly-owned subsidiary ("Aptina"), in the U.S. District Court for the Central District of California. The complaint alleged that certain of our and Aptina's image sensor products infringed four Panavision Imaging U.S. patents and sought injunctive relief, damages, attorneys' fees, and costs. On February 7, 2011, the Court ruled that one of the four patents in suit was invalid. On March 10, 2011, claims relating to the remaining three patents in suit were dismissed with prejudice. Panavision has filed a motion for reconsideration of the Court's decision regarding invalidity of the first patent, and we have filed a motion for summary judgment of non-infringement of such patent. On July 9, 2011, the Court reversed its earlier ruling with respect to invalidity. The motion for summary judgment of non-infringement is pending.

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

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

Securities matters: On February 24, 2006, a putative class action complaint was filed against us and certain of our 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 our 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 our stock during the period from February 24, 2001 to September 18, 2002. On August 24, 2010, we executed a settlement agreement resolving these purported class-action cases. Subject to certain conditions, including final court approval of the class settlement, we agreed to pay $6 million as our contribution to the settlement. On April 28, 2011, the Court entered final approval of the class settlement.

Commercial matters: On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against us and Micron Semiconductor B.V., our Netherlands subsidiary, in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between us and Qimonda in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order requiring us to retransfer the Inotera shares to the Qimonda estate. The complaint also seeks to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross license between us and Qimonda entered into at the same time as the share purchase agreement.

We are unable to predict the outcome of this lawsuit. The final resolution of this lawsuit could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.

Micron Shareholders' Equity and Noncontrolling Interests in Subsidiaries

Changes in the components of equity were as follows:



	Nine Months Ended June 2, 2011								Nine Months Ended June 3, 2010
	Attributable to Micron		Noncontrolling Interest			Total Equity			Attributable to Micron		Noncontrolling Interest			Total Equity
Beginning balance	$	8,020	$	1,796		$	9,816		$	4,953	$	1,986		$	6,939

Net income	302		22			324			1,508		33			1,541
Other comprehensive income	108		8			116			21		—			21
Comprehensive income	410		30			440			1,529		33			1,562

Stock issued in acquisition of Numonyx	—		—			—			1,112		—			1,112
Acquisition of noncontrolling interests in TECH	67		(226		)	(159		)	10		(10		)	—
Net distributions to noncontrolling interests	—		(151		)	(151		)	—		(222		)	(222		)
Capital and other transactions attributable to Micron	86		—			86			76		—			76
Ending balance	$	8,583	$	1,449		$	10,032		$	7,680	$	1,787		$	9,467

Derivative Financial Instruments

We are exposed to currency exchange rate risk for monetary assets and liabilities held or denominated in foreign currencies, primarily the euro, Singapore dollar, yen, Israeli shekel and Malaysian ringgit. We are also exposed to currency exchange rate risk for capital expenditures denominated in foreign currency, primarily the euro and yen. We use derivative instruments to manage our exposures to foreign currency. For exposures associated with our monetary assets and liabilities, our primary objective in entering into currency derivatives is to reduce the volatility that changes in foreign currency exchange rates have on earnings attributable to our shareholders. For exposures associated with capital expenditures, our primary objective in entering into currency derivatives is to reduce the volatility that changes in foreign currency exchange rates have on future cash flows.

Our derivatives consist primarily of currency forward contracts. The derivatives expose us to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. Our maximum exposure to loss due to credit risk that we would incur if parties to the forward contracts failed completely to perform according to the terms of the contracts was equal to our carrying value of the forward contracts as of June 2, 2011, as listed in the tables below under fair values. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple major financial institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis. We have the following currency risk management programs:

Currency derivatives without hedge accounting designation: We utilize a rolling hedge strategy with currency forward contracts that generally mature within 35 days to hedge our foreign currency exposure in monetary assets and liabilities. 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 dealers or exchange quotations (referred to as Level 2). Realized and unrealized foreign currency gains and losses on derivative instruments and the underlying monetary assets and liabilities are included in other operating income (expense). As of June 2, 2011 and September 2, 2010, total gross notional amounts and fair values for currency derivatives without hedge accounting designation were as follows:



	Notional Amount⁽¹⁾		Fair Value of
Currency	(in U.S. Dollars)		Asset⁽²⁾		(Liability)⁽³⁾
As of June 2, 2011:
Euro	$	382	$	3	$	(2	)
Singapore dollar	170		—		(1		)
Yen	134		—		(1		)
Israeli shekel	109		—		—
Malaysian ringgit	51		—		—
	$	846	$	3	$	(4	)

As of September 2, 2010:
Euro	$	260	$	—	$	(5	)
Singapore dollar	157		—		—
Yen	104		1		—
	$	521	$	1	$	(5	)


⁽¹⁾	Represents the face value of outstanding contracts


⁽²⁾	Included in other receivables


⁽³⁾	Included in other accounts payable and accrued expenses

For currency forward contracts not designated as hedging instruments, we recognized gains of $12 million and $17 million for the third quarter and first nine months of 2011, respectively, and losses of $23 million and $38 million for the third quarter and first nine months of 2010, respectively, which were included in other operating income (expense).

Currency derivatives with cash flow hedge accounting designation: We utilize currency forward contracts that generally mature within 12 months to hedge the foreign currency exposures of cash flow for some forecasted capital expenditures. Foreign currency forward contracts are valued at fair values based on market-based observable inputs including foreign exchange spot and forward rates, interest rate and credit risk spread (referred to as Level 2). For those derivatives designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives was included as a component of accumulated other comprehensive income (loss) in shareholders' equity. The amount in the accumulated other comprehensive income (loss) for those cash flow hedges are reclassified into earnings in the same line items of consolidated statements of operations and in the same periods in which the underlying transaction affects earnings. The ineffective or excluded portion of the realized and unrealized gain or loss was included in other operating income (expense). As of June 2, 2011 and September 2, 2010, total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation were as follows:



	Notional Amount⁽¹⁾		Fair Value of
Currency	(in U.S. Dollars)		Asset⁽²⁾		(Liability)⁽³⁾
As of June 2, 2011:
Euro	$	443	$	26	(2	)
Yen	104		—		—
	$	547	$	26	(2	)
As of September 2, 2010:
Euro	$	196	$	1	—
Yen	81		1		—
	$	277	$	2	—


⁽¹⁾	Represents the face value of outstanding contracts


⁽²⁾	Included in other receivables


⁽³⁾	Included in other accounts payable and accrued expenses

For the third quarter and first nine months of 2011, we recognized $19 million and $47 million, respectively, of net derivative gains in other comprehensive income from the effective portion of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other operating income (expense) were not material in the third quarter and first nine months of 2011. Amounts in accumulated other comprehensive income are amortized to manufacturing cost over the useful life of the underlying hedged equipment and reclassified to earnings when inventory is sold. In the third quarter and first nine months of 2011, de minimis amounts were reclassified from other comprehensive income (loss) to earnings and the amount of net derivative gains included in other accumulated comprehensive income (loss) expected to be reclassified into earnings within the next 12 months was $5 million as of June 2, 2011.

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 were as follows:



	June 2, 2011								September 2, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market⁽¹⁾	$	1,602	—		—		$	1,602	$	2,170	—		—		$	2,170
Certificates of deposit⁽²⁾	—		165		—		165		—		705		—		705
Marketable equity investments⁽³⁾	30		20		—		50		19		—		—		19
Assets held for sale⁽³⁾	—		—		37		37		—		—		56		56
	$	1,632	$	185	$	37	$	1,854	$	2,189	$	705	$	56	$	2,950


⁽¹⁾	Included in cashand equivalents.


⁽²⁾	Amounts as of June 2, 2011 were included in cash and equivalents. As of September 2, 2010, $371 million was included in cashand equivalents and $334 million was included in restricted cash.


⁽³⁾	Included in other noncurrent assets.

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). Marketable equity investments included 20 million ordinary Tower shares received in connection with our sale of the Japan Fab, which were valued using quoted market prices in an active market and discounted using a protective put model for our resale restriction (Level 2).

Assets held for sale primarily included semiconductor equipment and facilities. Fair value for the semiconductor equipment is based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment, and fair value of the facilities is determined based on sales of similar facilities and properties in comparable markets (Level 3). Losses recognized in the third quarter and first nine months of 2011 and 2010 due to fair value measurements using Level 3 inputs were not material.

Fair value of financial instruments: The estimated fair value and carrying value of debt instruments (carrying value excludes the equity component of the 2014 Notes and the 2027 Notes which is classified in equity) were as follows:



	June 2, 2011				September 2, 2010
	Fair Value		Carrying Value		Fair Value		Carrying Value
Convertible debt instruments	$	1,444	$	1,076	$	1,494	$	1,288
Other debt instruments	510		496		1,071		1,072

The fair value of our convertible debt instruments as of September 2, 2010 is based on quoted market prices in active markets (Level 1). As of June 2, 2011, the fair value of our convertible 2013 Notes and 2027 Notes ($276 million and $189 million, respectively) were determined based on observable inputs of quoted market prices in markets with insufficient activity to be considered active and market prices for our stock (Level 2). Valuation of the 2013 Notes and 2027 Notes were classified as Level 2 in connection with our debt repurchase and exchange transactions in the first quarter of 2011. The fair value of our 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 issued by parties with credit ratings similar to ours (Level 2). Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value.

Equity Plans

As of June 2, 2011, we had an aggregate of 158.6 million shares of common stock reserved for issuance of stock options and restricted stock awards, of which 110.6 million shares were subject to outstanding awards and 48.0 million shares were available for future awards. Awards are subject to terms and conditions as determined by our Board of Directors.

Stock options: We granted 0.2 million and 15.1 million stock options during the third quarter and first nine months of 2011, respectively, with weighted-average grant-date fair values per share of $5.14 and $4.47, respectively. We 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 fair values of option awards were estimated as of the dates 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 our stock and on historical volatility. Beginning in 2009, the expected lives of options granted were based, in part, on historical experience and on the terms and conditions of the options. Prior to 2009, the expected lives of options granted 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 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
Average expected life in years	5.03		5.08		5.07		5.11
Weighted-average expected volatility	57	%	57	%	56	%	60	%
Weighted-average risk-free interest rate	2.0	%	2.4	%	1.8	%	2.3	%

Restricted stock and restricted stock units ("Restricted Stock Awards"): As of June 2, 2011, there were 8.9 million shares of Restricted Stock Awards outstanding, of which 1.3 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. Restricted Stock Awards granted for the third quarter and first nine months of 2011 and 2010 were as follows:



	Quarter ended				Nine months ended
	June 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
Service-based awards	—		4.1		4.3		5.9
Performance-based awards	—		0.7		1.2		1.8
Weighted-average grant-date fair values per share	$	10.81	$	8.75	$	8.74	$	8.29

Restricted Stock Awards granted during the third quarter and first nine months of 2010 included 4.1 million of service-based and 0.7 million of performance-based Restricted Stock Awards as part of our acquisition of Numonyx.

Stock-based compensation expense: Total compensation costs for our equity plans were as follows:



	Quarter ended				Nine months ended
	June 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
Stock-based compensation expense by caption:
Cost of goods sold	$	5	$	5	$	15	$	18
Selling, general and administrative	9		9		29		39
Research and development	5		4		13		14
Equity in net income (losses) of equity method investees	—		2		—		2
	$	19	$	20	$	57	$	73

Stock-based compensation expense by type of award:
Stock options	$	11	$	9	$	32	$	28
Restricted stock awards	8		11		25		45
	$	19	$	20	$	57	$	73

As of June 2, 2011, $161 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 2015, resulting in a weighted-average period of 1.4 years. Stock-based compensation expense in the above presentation does not reflect any significant income tax benefits, which is consistent with our treatment of income or loss from our U.S. operations. (See "Income Taxes" note.)

Other Operating (Income) Expense, Net

Other operating (income) expense consisted of the following:



	Quarter ended						Nine months ended
	June 2, 2011			June 3, 2010			June 2, 2011			June 3, 2010
Gain from disposition of Japan Fab	$	(54	)	$	—		$	(54	)	$	—
Samsung patent cross-license agreement	(35		)	—			(275		)	—
Restructure	(12		)	(5		)	(25		)	(7		)
(Gain) loss on disposition of property, plant and equipment	(7		)	(1		)	(23		)	(10		)
(Gain) loss from changes in currency exchange rates	(1		)	1			6			20
Other	(12		)	(19		)	(17		)	(40		)
	$	(121	)	$	(24	)	$	(388	)	$	(37	)

In the first quarter of 2011, we entered into a 10-year patent cross-license agreement with Samsung Electronics Co. Ltd. ("Samsung"). For the third quarter and first nine months of 2011, other operating income included gains of $35 million and $275 million, respectively, for cash received from Samsung under the agreement. The license is a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents.

Other operating income in the third quarter of 2011 included $8 million for receipts from the U.S. government in connection with anti-dumping tariffs. 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 our operations in China. Other operating income in the first nine months of 2010 also included $11 million of receipts from the U.S. government in connection with anti-dumping tariffs.

Income Taxes

Income tax provision in the third quarter of 2011 included a net charge of $74 million, of which $27 million was related to the gain on the disposition of the Japan Fab and $47 million was to record a valuation allowance against certain remaining deferred tax assets at our Japanese subsidiary. Income tax provision in the third quarter and first nine months of 2011 included charges of $5 million and $45 million, respectively, in connection with the Samsung cross-license agreement and also included taxes on our non-U.S. operations. Income tax provision in the second quarter of 2011 included a charge to reduce net deferred tax assets by $19 million in connection with a change in tax rates.

Income taxes in the third quarter and first nine months of 2010 primarily reflected a benefit of $51 million from the reduction of a portion of the deferred tax asset valuation allowance in connection with the expected sale of our equity interest in the Hynix JV that was acquired as part of the Numonyx acquisition.

Remaining taxes in the first nine months of 2011 and 2010 primarily reflected taxes on our non-U.S. operations and U.S. alternative minimum tax. We have a valuation allowance for a substantial portion of our net deferred tax assets associated with our U.S. operations. Taxes attributable to U.S. operations in 2011 and 2010 were substantially offset by changes in the valuation allowance.

In connection with the acquisition of Numonyx in the third quarter of 2010, we accrued a $66 million liability related to uncertain tax positions on the tax years of Numonyx open to examination. We have 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 and convertible notes. 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 151.5 million and 165.6 million for the third quarter and first nine months of 2011, respectively, and 93.1 million and 94.7 million for the third quarter and first nine months of 2010, respectively.



	Quarter ended				Nine Months Ended
	June 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
Net income available to Micron shareholders – Basic	$	75	$	939	$	302	$	1,508
Net effect of assumed conversion of debt	2		24		5		70
Net income available to Micron shareholders – Diluted	$	77	$	963	$	307	$	1,578

Weighted-average common shares outstanding – Basic	998.9		885.4		986.6		860.0
Net effect of dilutive equity awards, escrow shares and assumed conversion of debt	42.8		164.0		50.3		159.7
Weighted-average common shares outstanding – Diluted	1,041.7		1,049.4		1,036.9		1,019.7

Earnings per share:
Basic	$	0.07	$	1.06	$	0.31	$	1.75
Diluted	0.07		0.92		0.30		1.55

Comprehensive Income (Loss)

The components of comprehensive income (loss) were as follows:



	Quarter Ended						Nine Months Ended
	June 2, 2011			June 3, 2010			June 2, 2011			June 3, 2010
Net income	$	77		$	960		$	324		$	1,541
Other comprehensive income (loss), net of tax:
Net gain (loss) on foreign currency translation adjustment	(6		)	8			53			19
Net unrealized gain (loss) on investments	3			(3		)	10			1
Net gain (loss) on derivatives	19			—			47			—
Pension liability adjustment	5			—			6			1
Total other comprehensive income	21			5			116			21
Comprehensive income	98			965			440			1,562
Comprehensive (income) attributable to noncontrolling interests	(5		)	(21		)	(30		)	(33		)
Comprehensive income attributable to Micron	$	93		$	944		$	410		$	1,529

Consolidated Variable Interest Entities

NAND Flash joint ventures with Intel ("IM Flash"): We have two joint ventures with Intel: IMFT, formed in 2006 and IMFS, formed in 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, the number of which adjusts depending on the parties' respective ownership interests. We and Intel initially appointed an equal number of managers to each of the boards. 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 disclosure due to the similarity of their function, operations and the way our management reviews the results of their operations. The partners' ownership percentages are based on contributions to the partnership. As of June 2, 2011, we owned 51% and Intel owned 49% of IMFT and we owned 83% and Intel owned 17% of IMFS. In June, subsequent to our third quarter of 2011, we contributed $421 million, increasing our ownership interest in IMFS to 86%.

In 2009, IM Flash substantially completed construction of a new 300mm wafer fabrication facility structure in Singapore. Shortly afterwards, we and Intel agreed to suspend tooling and the ramp of production at this facility due to industry conditions. 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 tool installations that commenced in the first quarter of 2011. The level of our future capital contributions to IM Flash will depend on the extent to which Intel participates in future IM Flash capital calls.

Although our ownership interest in IMFS changes at the time we make contributions, our share of the operating costs and supply from IMFS adjusts in proportion to changes in our ownership share generally 12 months (depending on the status of IMFS as of such date) from the date of the applicable ownership change. Accordingly, we anticipate that our share of IMFS costs and supply will increase from 53% as of June 2, 2011 to our current ownership interest in IMFS of 86% over the next twelve months. Changes in IMFS ownership interests do not affect our NAND Flash R&D cost-sharing agreement with Intel.

The following table presents IM Flash's distributions to and contributions from its shareholders:



	Quarter Ended				Nine Months Ended
	June 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
IM Flash distributions to Micron	$	62	$	75	$	166	$	254
IM Flash distributions to Intel	60		72		159		244
Micron contributions to IM Flash	409		26		1,144		51
Intel Contributions to IM Flash	—		24		—		24

IM Flash manufactures NAND Flash memory products using designs we developed with Intel. We generally share product design and other research and development ("R&D") costs equally with Intel. As a result, R&D expenses were reduced by reimbursements from Intel of $25 million and $71 million for the third quarter and first nine months of 2011, respectively, and by $24 million and $79 million for the third quarter and first nine months of 2010, 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 $218 million and $629 million for the third quarter and first nine months of 2011, respectively, and were $204 million and $569 million for the third quarter and first nine months of 2010, respectively. As of June 2, 2011 and September 2, 2010, IM Flash had receivables of $136 million and $128 million, respectively, from sales of product to Intel.

Total IM Flash assets and liabilities included in our consolidated balance sheets are as follows:



As of	June 2, 2011		September 2, 2010
Assets
Cash and equivalents	$	451	$	246
Receivables	241		154
Inventories	235		160
Other current assets	9		8
Total current assets	936		568
Property, plant and equipment, net	3,714		2,894
Other noncurrent assets	79		57
Total assets	$	4,729	$	3,519

Liabilities
Accounts payable and accrued expenses	$	459	$	140
Deferred income	125		127
Equipment purchase contracts	39		8
Current portion of long-term debt	8		7
Total current liabilities	631		282
Long-term debt	59		62
Other noncurrent liabilities	4		4
Total liabilities	$	694	$	348

Amounts exclude intercompany balances that are eliminated in our consolidated balance sheets.

Our ability to access IM Flash's cash and marketable investment securities to finance our other operations is subject to agreement by the joint venture partners. The creditors of each IM Flash entity have recourse only to the assets of each of the respective IM Flash entities and do not have recourse to any other of our assets.

MP Mask Technology Center, LLC ("MP Mask"): In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation semiconductors. At inception and through June 2, 2011, we owned 50.01% and Photronics owned 49.99% of MP Mask. In connection with the formation of the joint venture, we 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 2, 2011, deferred income and other noncurrent liabilities included an aggregate of $35 million related to this agreement. Photronics contributed $4 million and $8 million to MP Mask in the third quarter and first nine months of 2011, respectively, and we contributed $5 million and $9 million to MP Mask in the third quarter and first nine months of 2011, respectively. We purchase a substantial majority of the reticles produced by MP Mask pursuant to a supply arrangement.

Total MP Mask assets and liabilities included in our consolidated balance sheets are as follows:



As of	June 2, 2011		September 2, 2010
Current assets	$	33	$	35
Noncurrent assets (primarily property, plant and equipment)	138		85
Current liabilities	34		6

Amounts exclude intercompany balances that are eliminated in our 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 of our assets.

TECH Semiconductor Singapore Pte. Ltd.

Since 1998, we had participated in TECH Semiconductor Singapore Pte. Ltd. ("TECH"), a semiconductor memory manufacturing joint venture in Singapore with Canon Inc. ("Canon") and Hewlett-Packard Singapore (Private) Limited ("HP"). In December 2010 and January 2011, we acquired HP's and Canon's interests, respectively, in two separate transactions for an aggregate of $159 million. In connection therewith, noncontrolling interests in subsidiaries decreased by $226 million and additional capital increased by $67 million. As a result of these transactions, our ownership interest in TECH increased during the second quarter of 2011 from 87% to 100%.

In the second quarter of 2010, we purchased shares of TECH for $80 million, which increased our ownership from 85% to 87% and increased additional capital by $10 million. The effects of changes in our ownership interest in TECH on total Micron shareholders' equity are as follows:



	Quarter Ended				Nine Months Ended
	June 2, 2011		June 3, 2010		June 2, 2011		June 3, 2010
Net income attributable to Micron	$	75	$	939	$	302	$	1,508
Transfers from noncontrolling interest that increased additional capital:
Acquisition of noncontrolling interests in TECH	—		—		67		10
Change from net income attributable to Micron and transfers from noncontrolling interests	$	75	$	939	$	369	$	1,518

Segment Information

In the second quarter of 2011, we reorganized our business to better align with our markets. All prior period amounts have been retrospectively adjusted to reflect this reorganization. Factors used to identify our segments include, among others, products, technologies and customers. Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision makers. After our reorganization, we have the following four reportable segments:

DRAM Solutions Group ("DSG"): Includes DRAM products sold to the PC, consumer electronics, networking and server markets.

NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music players, and the high-density computing markets, as well as NAND Flash products sold to Intel through our consolidated IM Flash joint ventures.

Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.

Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and industrial applications, as well as NOR and NAND flash sold to consumer electronics, networking, PC and server markets.

Our other operations do not meet the quantitative thresholds of a reportable segment and are reported under All Other. All Other includes our CMOS image sensor, microdisplay and solar operations.

For 2011, certain operating expenses that are directly associated with the activities of a specific reportable segment are charged to that segment. Other indirect operating expenses are generally allocated to the reportable segments based on their respective percentage of total cost of goods sold or forecast wafer production. Prior to 2011, operating expenses are allocated to the reportable segments based on their respective percentage of total cost of goods sold, as certain historical forecast data was not available.

We do not identify or report internally our assets or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other nonoperating income or expense items or taxes to operating segments. There are no differences in the accounting policies for segment reporting and our consolidated results of operations.



	Quarter Ended					Nine months ended
	June 2, 2011		June 3, 2010			June 2, 2011		June 3, 2010
Net sales:
DSG	$	774	$	1,346		$	2,518	$	3,498
NSG	505		583			1,559		1,606
WSG	493		143			1,514		306
ESG	241		102			759		255
All Other	126		114			298		324
	$	2,139	$	2,288		$	6,648	$	5,989

Operating income (loss):
DSG	$	109	$	391		$	385	$	914
NSG	68		136			197		205
WSG	10		(14		)	76		(34		)
ESG	55		30