Crucial 2012 Annual Report Download - page 43

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Recently Adopted Accounting Standards
In June 2011, the Financial Accounting Standards Board ("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. We adopted this standard in the fourth quarter of 2012. The adoption of this standard did
not have a material impact on our financial statements.
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 adopted this standard in the third quarter of 2012. The adoption of this
standard did not have a material impact on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of August 30, 2012, $3,087 million of our $3,262 million of debt was at fixed interest rates. As a result, the fair value
of the debt fluctuates based on changes in market interest rates. The estimated fair value of our debt was $3,622 million as of
August 30, 2012 and $2,281 million as of September 1, 2011. We estimate that, as of August 30, 2012, a 1% decrease in
market interest rates would change the fair value of our fixed-rate debt instruments by approximately $88 million. As of
August 30, 2012, $175 million of the debt had variable interest rates. The increase in interest expense caused by a 1% increase
in the rates would be approximately $2 million.
As of August 30, 2012, we held short-term debt investments of $100 million and long-term debt investments of $364
million that were subject to interest rate risk. We estimate that, as of August 30, 2012, a 0.5% increase in market interest rates
would decrease the fair value of our short-term and long-term debt instruments by approximately $3 million.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the exchange rates
of foreign currency in "Item 1A. Risk Factors." Changes in foreign currency exchange rates could materially adversely affect
our results of operations or financial condition.
The functional currency for all of our operations is the U.S. dollar. As a result of our foreign operations, we incur costs
and carry assets and liabilities that are denominated in foreign currencies. The substantial majority of our revenues are
transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases are incurred in
or exposed to other currencies, primarily the euro, the shekel, the yen and the yuan. We have established currency risk
management programs for our operating expenditures and capital purchases to hedge against fluctuations in fair value and the
volatility of future cash flows caused by changes in exchange rates. We utilize currency forward and option contracts in these
hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate
movements. We do not use derivative financial instruments for trading or speculative purposes.
To hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities, we utilize a rolling
hedge strategy with currency forward contracts that generally mature within 35 days. Based on our foreign currency exposures
from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates
versus the U.S. dollar would result in losses of approximately U.S. $8 million as of August 30, 2012 and U.S. $9 million as of
September 1, 2011. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain
capital expenditures and forecasted operating cash flows, we utilize currency forward contracts that generally mature within 12
months and currency options that generally mature from 12 to 18 months.