Crucial 2014 Annual Report Download - page 86

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84
Government securities consist of securities issued directly by or deemed to be guaranteed by government entities such as
U.S. and non U.S. agency securities, government bonds and treasury securities. Level 2 securities are valued using information
obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus
prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at
the measurement date. We perform supplemental analysis to validate information obtained from our pricing services. As of
August 28, 2014, no adjustments were made to such pricing information.
Fair Value Measurements on a Nonrecurring Basis
In connection with the Exchange Transactions, we determined the fair value for the debt component of the Exchanged
Notes as if it were a stand-alone instrument using an interest rate for similar nonconvertible debt issued by entities with credit
ratings comparable to ours at the time of issuance (Level 2). In connection with the debt conversions and settlements in 2014,
we determined the initial fair value of the equity component of the converted notes that was reclassified to debt using the
Black-Scholes option valuation model (Level 2). The Black-Scholes model requires the input of assumptions, including the
stock price, expected stock-price volatility, estimated option life, risk-free interest rate and dividend rate. The subsequent
measurements of our convertible notes settlement obligations were based on the value-weighted average stock price (Level 1).
Changes in fair values of the derivatives settlement obligations were included in other non-operating income (expense).
Our non-marketable securities, equity method investments, and non-financial assets such as intellectual property and
property, plant and equipment are carried at cost unless impairment is deemed to have occurred.
During 2012, the Board of Directors of Transform approved a liquidation plan. As a result, we impaired our investment in
Transform to the estimated liquidation values for its assets and liabilities measured using unobservable inputs (Level 3). The
fair values of Transform's primary assets, semiconductor equipment and a manufacturing facility, were based on quotations
obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment and sales of
similar manufacturing facilities, and properties in comparable markets, respectively. Based on our valuation of Transform's net
assets, we recognized an other-than-temporary impairment charge of $69 million in equity in net income (losses) of equity
method investees.
In connection with our restructure and asset impairment charges, the fair value of our 200mm wafer fabrication equipment
in Kiryat Gat, Israel was determined primarily based on the expected proceeds of the sale and the fair value of a supply
agreement to manufacture NOR flash memory at the facility (Level 3 fair value measurement). The fair values of our MIT
assets and our Light-emitting Diode ("LED") production assets were based on quotations obtained from equipment dealers,
which consider the remaining useful life and configuration of the equipment (Level 3 fair value measurement). (See
"Restructure and Asset Impairments" note.)
Fair Value of Financial Instruments
Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value.
The estimated fair value and carrying value of debt instruments (carrying value excludes the equity and mezzanine components
of our convertible notes, which are classified in equity) were as follows:
As of 2014 2013
Fair
Value Carrying
Value Fair
Value Carrying
Value
Convertible notes $ 5,886 $ 2,143 $ 4,167 $ 2,506
MMJ creditor installment payments and other notes 3,634 3,539 2,269 2,279
The fair values of our convertible notes were determined based on inputs that are observable in the market or that could be
derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when
available, our stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level
2). The fair value of our other debt instruments was estimated based on discounted cash flows using inputs that are observable
in the market or that could be derived from, or corroborated with, observable market data, including interest rates based on
similar debt issued by parties with credit ratings similar to ours (Level 2).