Crucial 2011 Annual Report Download - page 41

Business Acquisitions : Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and
liabilities acquired, which involves a number of judgments, assumptions and estimates that could materially affect the amount and timing of costs
recognized. We typically obtain independent third party valuation studies to assist in determining fair values, including assistance in determining
future cash flows, appropriate discount rates and comparable market values.
Consolidations : We have interests in joint venture entities that are Variable Interest Entities ("VIEs"). Determining whether to consolidate a
VIE may require judgment in assessing (1) whether an entity is a VIE and (2) if we are the entity's primary beneficiary. To determine if we are the
primary beneficiary of a VIE, we evaluate whether we have (1) the power to direct the activities that most significantly impact the VIE's economic
performance and (2) 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 and financing and
other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of our VIEs requires significant
assumptions and judgment.
Contingencies : We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the
probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset
has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and charge operations for the estimated costs of
adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.
Income Taxes : We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax
jurisdictions around the world. These estimates involve judgment and interpretations of regulations and are inherently complex. Resolution of
income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to
evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our
performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income.
Inventories : Inventories are stated at the lower of average cost or market value and we recorded charges of $603 million in aggregate for
2009 and $282 million in aggregate for 2008 to write down the carrying value of inventories of memory products to their estimated market
values. Cost includes labor, material and overhead costs, including product and process technology costs. Determining market value of
inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete
products in work in process inventories. To project average selling prices and sales volumes, we review recent sales volumes, existing customer
orders, current contract prices, industry analysis of supply and demand, seasonal factors, general economic trends and other information. When
these analyses reflect estimated market values below our manufacturing costs, we record a charge to cost of goods sold in advance of when the
inventory is actually sold. Differences in forecasted average selling prices used in calculating lower of cost or market adjustments can result in
significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example,
a 5% variance in the estimated selling prices would have changed the estimated market value of our memory inventory by approximately $143
million at September 1, 2011. Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary
significantly from projected prices and volumes and, as a result, the timing of when product costs are charged to operations can vary significantly.
U.S. GAAP provides for products to be grouped into categories in order to compare costs to market values. The amount of any inventory
write-down can vary significantly depending on the determination of inventory categories. Our inventories have been categorized as memory,
imaging and microdisplay products. The major characteristics we consider in determining inventory categories are product type and markets.
Property, Plant and Equipment : We review the carrying value of property, plant and equipment for impairment when events and
circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected
to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment
loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future cash
flows involves numerous assumptions which require judgment by us, include, but are not limited to, future use of the assets for our operations
versus sale or disposal of the assets, future selling prices for our products and future production and sales volumes. In addition, judgment is
required by us in determining the groups of assets for which impairment tests are separately performed.
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