Crucial 2015 Annual Report Download - page 52

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50
Variable Interest Entities
We have interests in entities that are VIEs. If we are the primary beneficiary of a VIE, we are required to consolidate it.
To determine if we are the primary beneficiary, 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 assessments of whether we are the primary beneficiary of our VIEs require significant
assumptions and judgments.
Unconsolidated VIEs
Inotera: Inotera is a VIE because of the terms of its supply agreement with us. We have determined that we do not have
the power to direct the activities of Inotera that most significantly impact its economic performance, primarily due to
limitations on our governance rights that require the consent of other parties for key operating decisions and due to Inotera's
dependence on Nanya for financing and the ability of Inotera to operate in Taiwan. Therefore, we do not consolidate Inotera
and we account for our interest under the equity method. (See "Equity Method Investments – Inotera" note.)
EQUVO: EQUVO HK Limited ("EQUVO") is a special purpose entity created to facilitate an equipment sale-leaseback
financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities have an
equity interest in EQUVO. EQUVO is a VIE because its equity is not sufficient to permit it to finance its activities without
additional support from the financing entities and because the third-party equity holder lacks characteristics of a controlling
financial interest. By design, the arrangement with EQUVO is merely a financing vehicle and we do not bear any significant
risks from variable interests with EQUVO. Therefore, we have determined that we do not have the power to direct the
activities of EQUVO that most significantly impact its economic performance and we do not consolidate EQUVO.
SC Hiroshima Energy Corporation: SC Hiroshima Energy Corporation ("SCHE") is an entity created to construct and
operate a cogeneration, electrical power plant to support our wafer manufacturing facility in Hiroshima, Japan. SCHE is a VIE
due to the nature of its tolling agreements with us and our purchase and call options for SCHE's assets. We do not have an
equity ownership interest in SCHE. We do not control the operation and maintenance of the plant, which we have determined
are the activities of SCHE that most significantly impact its economic performance. Therefore, we do not consolidate SCHE.
Consolidated VIEs
IMFT: IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase
agreements and because IMFT is dependent upon us or Intel for additional cash requirements. The primary activities of IMFT
are driven by the constant introduction of product and process technology. Because we perform a significant majority of the
technology development, we have the power to direct its key activities. In addition, IMFT manufactures certain products
exclusively for us using our technology. We consolidate IMFT because we have the power to direct the activities of IMFT that
most significantly impact its economic performance and because we have the obligation to absorb losses and the right to
receive benefits from IMFT that could potentially be significant to it.
MP Mask: MP Mask is a VIE because substantially all of its costs are passed to us and its other member, Photronics,
through product purchase agreements and MP Mask is dependent upon us or Photronics for any additional cash
requirements. We have tie-breaking voting rights over key operating decisions and nearly all key MP Mask activities are driven
by our supply needs. We consolidate MP Mask because we have the power to direct the activities of MP Mask that most
significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive
benefits from MP Mask that could potentially be significant to it.
(See "Equity – Noncontrolling Interests in Subsidiaries" note.)