Crucial 2014 Annual Report Download - page 55

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Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of
three months or less that are readily convertible to known amounts of cash. Investments with maturities greater than three
months and less than one year are included in short-term investments. Investments with remaining maturities greater than one
year are included in long-term marketable investments. The carrying value of investment securities sold is determined using
the specific identification method.
Derivative and Hedging Instruments: We use derivative instruments to manage a portion of our exposure to changes in
currency exchange rates from our monetary assets and liabilities or future cash flows and to reduce the volatility that changes in
interest rates on variable-rate debt have on our earnings. Our currency derivatives have consisted of forward and option
contracts and interest rate swap contracts. We do not use derivative instruments for trading or speculative purposes. Derivative
instruments are measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the
fair value of derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative
instruments that are not designated as hedges for accounting purpose, gains or losses from changes in fair values are recognized
in other non-operating income (expense). For derivative instruments designated as cash-flow hedges, the effective portion of
the gain or loss is included as a component of other comprehensive income (loss), and the ineffective or excluded portion of the
gain or loss is included in other non-operating income (expense). The amounts 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. For the effectiveness assessment of our cash-flow hedges, changes in the time value are excluded for
forward contracts.
We seek to enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge
transactions. These master netting arrangements allow us and our counterparties to net settle amounts owed to each other.
Derivative assets and liabilities that can be net settled with each counterparty under these arrangements have been presented in
our consolidated balance sheet on a net basis.
(See "Derivative Instruments" note.)
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes depreciation, labor,
material and overhead costs, including product and process technology costs. Determining market values of inventories
involves numerous judgments, including projecting future average selling prices, sales volumes 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 primarily
categorized as memory (including DRAM, NAND Flash and NOR Flash) for purposes of determining lower of average cost or
market. The major characteristics considered in determining inventory categories for purposes of determining the lower of cost
or market value are product type and markets. We remove amounts from inventory and charge such amounts to cost of goods
sold on an average cost basis.
Product and Process Technology: Costs incurred to (1) acquire product and process technology, (2) patent technology
and (3) maintain patent technology are capitalized and amortized on a straight-line basis over periods ranging up to 12.5
years. We capitalize a portion of the costs incurred to patent technology based on historical and projected patents issued as a
percent of patents we file. Capitalized product and process technology costs are amortized over the shorter of (1) the estimated
useful life of the technology, (2) the patent term or (3) 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 is stated at cost and depreciated using the straight-line
method over estimated useful lives of generally 10 to 30 years for buildings, generally 5 to 7 years for equipment and generally
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, plant or equipment is retired or otherwise disposed, the net book value 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 capital projects. Capitalized interest is added
to the cost of the underlying assets and amortized over the useful lives of the assets.