Crucial 2015 Annual Report Download - page 41

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Consolidations: We have interests in joint venture entities that are VIEs. Determining whether to consolidate a VIE
requires judgment in assessing whether an entity is a VIE and if we are the entity's primary beneficiary. To determine if we are
the primary beneficiary of a VIE, we evaluate whether we have the power to direct the activities that most significantly impact
the VIE's economic performance and 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, 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. In accounting for the resolution of contingencies, considerable judgment may be necessary to
estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution, and
amounts related to future periods.
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. In recent periods, our results of operations
have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital
spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or
benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are
inherently difficult and involve numerous judgments including, among others, projecting future average selling prices and sales
volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses
of the amount of net deferred tax assets that are more likely than not to be realized.
Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor,
material and overhead costs, including product and process technology costs. Determining net realizable value of inventories
involves numerous judgments, including projecting future average selling prices, sales volumes, 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 analyses of supply and demand, seasonal factors, general economic trends,
and other information. When these analyses reflect estimated net realizable value 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 net realizable value 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 net realizable value of our memory inventory by approximately
$195 million as of September 3, 2015. Due to the volatile nature of the semiconductor memory industry, actual selling prices
and volumes often vary significantly from projected prices and volumes; 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 net realizable values. The
amount of any inventory write-down can vary significantly depending on the determination of inventory categories.
Inventories are primarily categorized as memory (including DRAM, non-volatile, and other memory) for purposes of
determining lower of average cost or net realizable value. 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, including, but 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 in
determining the groups of assets for which impairment tests are separately performed.