Crucial 2015 Annual Report Download - page 51

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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. When net realizable value is below cost, we record a charge to cost of goods sold to write down
inventories to their estimated net realizable value in advance of when the inventories are actually sold. Inventories are
primarily categorized as memory (including DRAM, non-volatile, and other memory) for purposes of determining the lower of
average cost or net realizable value. The major characteristics considered in determining inventory categories for purposes of
determining the lower of cost or net realizable 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.
Product Warranty: We generally provide a limited warranty that our products are in compliance with our specifications
existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures of product during a
stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to,
amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that
provided under our general terms and conditions. Our warranty obligations are not significant.
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, 5 to 7 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, 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 period of time over which we carry out the activities necessary to bring the
asset to the condition of its intended use and location. Capitalized interest becomes part of the cost of the underlying assets and
amortized over the useful lives of the assets.
Research and Development: Costs related to the conceptual formulation and design of products and processes are
expensed as research and development as incurred. Determining when product development is complete requires
judgment. Development of a product is deemed complete once the product has been thoroughly reviewed and has passed tests
for performance and reliability. Subsequent to product qualification, product costs are valued in inventory. Product design and
other research and development costs for certain technologies are shared with our joint venture partners. Amounts receivable
from cost-sharing arrangements are reflected as a reduction of research and development expense. (See "Equity –
Noncontrolling Interests in Subsidiaries – IMFT" note.)
Revenue Recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement
exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. If we are unable to
reasonably estimate returns or the price is not fixed or determinable, sales made under agreements allowing rights of return or
price protection are deferred until customers have resold the product.
Stock-based Compensation: Stock-based compensation is measured at the grant date, based on the fair value of the
award, and recognized as expense under the straight-line attribution method over the requisite service period. We issue new
shares upon the exercise of stock options or conversion of share units. (See "Equity Plans" note.)
Treasury Stock: When we retire our treasury stock, any excess of the repurchase price paid over par value is allocated
between additional capital and retained earnings.
Use of Estimates: The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America requires our management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are
based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the
circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and
judgments on an ongoing basis. Actual results could differ from estimates.