Notes to Consolidated Financial
Notes to Consolidated Financial
Note 11: Non-Marketable Equity Investments
Equity Method Investments
Equity method investments as of December 26, 2009 and December 27, 2008 were as follows:
|(In Millions, Except Percentages)||Carrying Value||Ownership Percentage||Carrying Value||Ownership Percentage|
|Clearwire Communications, LLC||261||7%||238||8%|
|Other equity method investments||136||239|
Summarized Financial Information of Equity Method Investees
The following is the aggregated summarized financial information of our equity method investees, which includes summary results of operations information for 2009, 2008, and 2007 and summary balance sheet information as of December 26, 2009 and December 27, 2008:
Operating income (loss)
Net income (loss)
|(In Millions)||Dec. 26,
Redeemable preferred stock
Summarized financial information for our equity method investees is presented on the basis of up to a one-quarter lag and is included for the periods in which we held an equity method ownership interest.
Micron and Intel formed IM Flash Technologies, LLC (IMFT) in January 2006 and IM Flash Singapore, LLP (IMFS) in February 2007. We established these joint ventures to manufacture NAND flash memory products for Micron and Intel. We own a 49% interest in each of these ventures. Initial production at the IMFS fabrication facility, including the purchase and installation of manufacturing equipment, remains on hold. IMFT and IMFS are each governed by a Board of Managers, with Micron 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.
These joint ventures are variable interest entities. All costs of the joint ventures will be passed on to Micron and Intel through our purchase agreements. IMFT and IMFS are dependent upon Micron and Intel for any additional cash requirements. Our known maximum exposure to loss approximated our investment balance as of December 26, 2009, which was $1.6 billion in IMFT/IMFS ($2.1 billion as of December 27, 2008). Our investment in these ventures is classified within other long-term assets. As of December 26, 2009, except for the amount due to IMFT/IMFS for product purchases and services, we did not incur any additional liabilities in connection with our interests in these joint ventures. In addition to the potential loss of our existing investment, our actual losses could be higher, as Intel and Micron are liable for other future operating costs and/or obligations of IMFT/IMFS. In addition, future cash calls could increase our investment balance and the related exposure to loss. Finally, as we are currently committed to purchasing 49% of IMFT's production output and production-related services, we may be required to purchase products at a cost in excess of realizable value.
Our portion of IMFT costs, primarily related to product purchases and start-up costs, was $735 million during 2009 ($1.1 billion during 2008 and $790 million during 2007). The amount due to IMFT for product purchases and services provided was $75 million as of December 26, 2009 and $190 million as of December 27, 2008. During 2009, $419 million was returned to Intel by IMFT, which is reflected as a return of equity method investment within investing activities on the consolidated statements of cash flows ($298 million during 2008).
Micron and Intel are considered related parties under the accounting standards for consolidating variable interest entities. As a result, the primary beneficiary is the entity that is most closely associated with the joint ventures. To make that determination, we reviewed several factors. The most important factors were consideration of the size and nature of the joint ventures' operations relative to Micron and Intel, and which party had the majority of economic exposure under the purchase agreements. Based on those factors, we have determined that we are not most closely associated with the joint ventures; therefore, we account for our interests using the equity method of accounting and do not consolidate these joint ventures.
In 2008, we divested our NOR flash memory business in exchange for a 45.1% ownership interest in Numonyx. For further discussion, see "Note 16: Divestitures." Our initial ownership interest, comprising common stock and a note receivable, was recorded at $821 million. Our investment is accounted for under the equity method of accounting, and our proportionate share of the income or loss is recognized on a one-quarter lag. During 2009, we recorded $31 million of equity method losses ($87 million in 2008) within gains (losses) on equity method investments, net. In 2008, we also recorded a $250 million impairment charge on our investment in Numonyx within gains (losses) on equity method investments, net. For further discussion, see "Note 5: Fair Value."
As of December 26, 2009, our investment balance in Numonyx was $453 million and is classified within other long-term assets ($484 million as of December 27, 2008). The carrying amount of our investment in Numonyx as of December 26, 2009 was $274 million below our share of the book value of the net assets of Numonyx. Most of this difference has been assigned to specific Numonyx long-lived assets, and our proportionate share of Numonyx income or loss will be adjusted to recognize this difference over the estimated remaining useful lives of those long-lived assets.
Additional terms of our investment in Numonyx include:
- We are leasing a facility in Israel to Numonyx for a period of up to 24 years under a fully paid, up-front operating lease. Upon completion of the divestiture, we recorded $82 million of deferred income representing the value of the prepaid operating lease. The deferred income will generally offset the related depreciation over the lease term.
- We entered into supply and service agreements that involve the manufacture and the assembly and test of NOR flash memory products for Numonyx through 2008. The fair value of these agreements was $110 million and was recorded in other accrued liabilities upon completion of the transaction. This amount was recognized during 2008, primarily as a reduction of cost of sales. Subsequently, we agreed with Numonyx to continue certain supply and service agreements, and these agreements ended at the end of 2009.
- We entered into a transition services agreement that involved providing certain services, such as information technology, supply chain, and finance support, to Numonyx. The reimbursement from Numonyx for these services offset the related cost of sales and operating expenses. Most of the services provided under the agreement ended during 2009.
- Numonyx entered into an unsecured, four-year senior credit facility of up to $550 million, comprising a $450 million term loan and a $100 million revolving loan. Intel and STMicroelectronics N.V. have each provided the lenders with a guarantee of 50% of the payment obligations of Numonyx under the senior credit facility. A demand on our guarantee can be triggered if Numonyx is unable to meet its obligations under the credit facility. Acceleration of the obligations of Numonyx under the credit facility could be triggered by a monetary default of Numonyx or, in certain circumstances, by events affecting the creditworthiness of STMicroelectronics or Intel. The maximum amount of future undiscounted payments that we could be required to make under the guarantee is $275 million plus accrued interest, expenses of the lenders, and penalties. As of December 26, 2009, the carrying amount of the liability associated with the guarantee was $79 million, unchanged from the amount initially recorded in 2008, and is included in other accrued liabilities.
- Our note receivable is subordinated to the senior credit facility and the preferential payout of Francisco Partners L.P., and will be deemed extinguished in liquidation events that generate proceeds insufficient to repay the senior credit facility and Francisco Partners' preferential payout.
Subsequent to the end of 2009, in February 2010, we signed a definitive agreement with Micron and Numonyx under which Micron agreed to acquire Numonyx in an all-stock transaction. Under the terms of the agreement, Intel, STMicroelectronics, and Francisco Partners would sell their financial interest in Numonyx for 140 million shares of Micron common stock plus, under certain circumstances, up to an additional 10 million shares of Micron common stock.
In 2008, we invested $1.0 billion in Clearwire LLC, a wholly owned subsidiary of Clearwire Corporation. In the fourth quarter of 2009, we invested an additional $50 million. Our investment in Clearwire LLC is accounted for under the equity method of accounting, and our proportionate share of the income or loss is recognized on a one-quarter lag. During 2009, we recorded $27 million of equity method losses, which was net of a gain of $37 million as a result of a dilution of our ownership interest from the additional investment. Due to the one-quarter lag, we did not record equity method adjustments related to Clearwire LLC during 2008. During 2008, we recorded a $762 million impairment charge on our investment in Clearwire LLC to write down our investment to its fair value. The impairment charge was included in gains (losses) on equity method investments, net. For further discussion, see "Note 5: Fair Value."
As of December 26, 2009, our investment balance in Clearwire LLC was $261 million and is classified within other long-term assets ($238 million as of December 27, 2008). As of December 26, 2009, the carrying value of our investment in Clearwire LLC was $323 million below our share of the book value of the net assets of Clearwire Corporation, and a substantial majority of this difference has been assigned to Clearwire Corporation spectrum assets, a majority of which have an indefinite life.
Cost Method Investments
The carrying value of our non-marketable cost method investments was $939 million as of December 26, 2009 and $1.0 billion as of December 27, 2008. In 2009, we recognized impairment charges on non-marketable cost method investments of $179 million within gains (losses) on other equity investments ($135 million in 2008 and $90 million in 2007).