Crucial 2011 Annual Report Download - page 52

Financial instruments : Cash equivalents include highly liquid short-term investments with original maturities to us of three months or less,
readily convertible to known amounts of cash. Investments with original maturities greater than three months and remaining maturities less than
one year are included in short-term investments. Investments with remaining maturities greater than one year are included in other noncurrent
assets. Securities classified as available-for-sale are stated at market value. The carrying value of investment securities sold is determined using
the specific identification method.
Derivative and hedging instruments : We use derivative financial instruments, primarily forward contracts, to manage exposures to
fluctuating currency exchange rates. We do not use financial instruments for trading or speculative purposes. Derivative instruments are measured
at their fair values and recognized as either assets or liabilities.
We use forward contracts not designated as hedging instruments to hedge our balance sheet exposures to fluctuations in currency exchange
rates. The gain or loss associated with these contracts is recognized in other income (expense).
We use forward contracts designated as cash flow hedges to hedge certain forecasted capital expenditures. The effective portion of the gain
or loss on these derivatives is included as a component of other comprehensive income (loss) in shareholders' equity. The amount in accumulated
other comprehensive income (loss) for these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements
of operation and in the same periods in which the underlying transactions affect earnings. Effectiveness is measured by comparing the cumulative
change in the fair value of the hedge contract with the cumulative change in the forecasted cash flows of the hedged item. Forward points are
excluded in measuring effectiveness and spot rates are used to value both the hedge contract and the hedged item. Any ineffective or excluded
portion of the gain or loss is included in other operating income (expense).
Inventories : Inventories are stated at the lower of average cost or market value. Cost includes labor, material and overhead costs, including
product and process technology costs. Determining market values 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. When market values are below
costs, we record a charge to cost of goods sold to write down inventories to their estimated market value in advance of when the inventories are
actually sold. Inventories are categorized as memory (primarily DRAM and NAND Flash and NOR Flash), imaging and microdisplay products
for purposes of determining average cost and market value. The major characteristics considered in determining inventory categories are product
type and markets.
Product and process technology : Costs incurred to acquire product and process technology or to patent technology are capitalized and
amortized on a straight-line basis over periods ranging up to 10 years. We capitalize a portion of costs incurred based on the historical and
projected patents issued as a percent of patents we file. Capitalized product and process technology costs are amortized over the shorter of (i) the
estimated useful life of the technology, (ii) the patent term or (iii) the term of the technology agreement. Fully-
amortized assets are removed from
product and process technology and accumulated amortization.
Property, plant and equipment : Property, plant and equipment are stated at cost and depreciated using the straight-line method over
estimated useful lives of 5 to 30 years for buildings, 2 to 20 years for equipment and 3 to 5 years for software. Assets held for sale are carried at
the lower of cost or estimated fair value and are included in other noncurrent assets. When property or equipment is retired or otherwise disposed
of, the net book value of the asset is removed and we recognize any gain or loss in our results of operations.
We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost
of the underlying assets and is amortized over the useful lives of the assets. We capitalized interest costs of $12 million , $5 million and $5
million in 2011, 2010 and 2009, respectively.
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board ("FASB") issued a new accounting standard on Variable Interest Entities ("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.
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