Crucial 2015 Annual Report Download - page 42

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40
Research and Development: Costs related to the conceptual formulation and design of products and processes are
expensed as R&D as incurred. Determining when product development is complete requires judgment by us. We deem
development of a product complete once the product has been thoroughly reviewed and tested for performance and
reliability. Subsequent to product qualification, product costs are valued in inventory.
Stock-based Compensation: Stock-based compensation is estimated at the grant date based on the fair value of the award
and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-
based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved. We
utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating stock price volatility, expected option life, and forfeiture rates. We develop these
estimates based on historical data and market information which can change significantly over time. A small change in the
estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation
model to value employee stock awards. We estimate stock price volatility based on an average of its historical volatility and
the implied volatility derived from traded options on our stock.
Recently Adopted Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently
Adopted Accounting Standards."
Recently Issued Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently
Issued Accounting Standards."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. Substantially all of our
indebtedness is at fixed interest rates. As a result, the fair value of our debt fluctuates based on changes in market interest rates.
We estimate that, as of September 3, 2015 and August 28, 2014, a hypothetical decrease in market interest rates of 1% would
increase the fair value of our notes payable by approximately $366 million and $250 million, respectively. The increase in
interest expense caused by a 1% increase in the interest rates of our variable-rate debt would not be significant.
As of September 3, 2015 and August 24, 2014, we held debt securities of $3.83 billion and $1.65 billion, respectively, that
were subject to interest rate risk. We estimate that a 0.5% increase in market interest rates would decrease the fair value of
these instruments by approximately $13 million as of September 3, 2015 and $6 million as of August 28, 2014.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the currency
exchange rates in "Part I – Item 1A. Risk Factors." Changes in currency exchange rates could materially adversely affect our
results of operations or financial condition.