Crucial 2011 Annual Report Download - page 40

The obligations disclosed above do not include contractual obligations recorded on our balance sheet as current liabilities except for the
current portion of long-term debt. The expected timing of payment amounts of the obligations discussed above is estimated based on current
information. Timing and actual amounts paid may differ depending on the timing of receipt of goods or services, market prices, changes to
agreed-upon amounts or timing of certain events for some obligations.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the
following criteria: (1) they are noncancellable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make specified
minimum payments even if it does not take delivery of the contracted products or services ("take-or-pay"). If the obligation to purchase goods or
services is noncancellable, the entire value of the contract was included in the above table. If the obligation is cancellable, but we would incur a
penalty if canceled, the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in take-or-
pay contracts are also included in the above table as they represent the portion of each contract that is a firm commitment.
Pursuant to the Inotera Supply Agreement, we have an obligation to purchase 50% of Inotera’s semiconductor memory capacity subject to
specific terms and conditions. As purchase quantities are based on qualified production output, the Inotera Supply Agreement does not contain a
fixed or minimum purchase quantity and therefore we did not include our obligations under the Inotera Supply Agreement in the contractual
obligations table above. Our obligation under the Inotera Supply Agreement also fluctuates due to pricing which is based on manufacturing costs
and revenues associated with the resale of DRAM products. We purchased $641 million of DRAM products from Inotera in 2011 under the
Inotera Supply Agreement.
Off-Balance Sheet Arrangements
Concurrent with the offering of the 2031 Notes on July 26, 2011, we entered into capped call transactions (the "2011 Capped Calls") that have
an initial strike price of approximately $9.50 per share, subject to certain adjustments, which was set to the initial conversion price of the 2031
Notes. The 2011 Capped Calls are in four equal tranches, have cap prices of $11.40, $12.16, $12.67 and $13.17 per share, and cover, subject to
anti-dilution adjustments similar to those contained in the 2031 Notes, an approximate combined total of 72.6 million shares of common
stock. The 2011 Capped Calls expire on various dates between July 2014 and February 2016. The 2011 Capped Calls are intended to reduce the
potential dilution upon conversion of the 2031 Notes.
Concurrent with the offering of the 4.25% Convertible Senior Notes due 2013 (the "2013 Notes") in April 2009, we paid approximately $25
million for three capped call instruments that have an initial strike price of approximately $5.08 per share (the "2009 Capped Calls"). The 2009
Capped Calls have a cap price of $6.64 per share and cover an aggregate of approximately 45.2 million shares of common stock. The 2009
Capped Calls expire in October and November of 2012. The 2009 Capped Calls are intended to reduce potential dilution upon conversion of the
2013 Notes.
Concurrent with the offering of the 2014 Notes in May 2007, we paid approximately $151 million for three Capped Call transactions (the
"2007 Capped Calls"). The 2007 Capped Calls cover an aggregate of approximately 91.3 million shares of common stock. The 2007 Capped Calls
are in three equal tranches with cap prices of $17.25, $20.13 and $23.00 per share, respectively, each with an initial strike price of approximately
$14.23 per share, subject to certain adjustments. The 2007 Capped Calls expire on various dates between November 2011 and December 2012.
The 2007 Capped Calls are intended to reduce potential dilution upon conversion of the 2014 Notes.
(See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Supplemental Balance Sheet
Information - Shareholders' Equity - Capped Call Transactions" note.)
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on
historical experience, forecasted events and various other assumptions that we believe to be reasonable under the circumstances. Estimates and
judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management
believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and requires management's
most difficult, subjective or complex judgments.
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