Crucial 2015 Annual Report Download - page 77

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75
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 equity
components of our convertible notes) were as follows:
As of 2015 2014
Fair
Value Carrying
Value Fair
Value Carrying
Value
Notes and MMJ creditor installment payments $ 5,020 $ 5,077 $ 3,634 $ 3,483
Convertible notes 2,508 1,472 5,886 2,117
The fair values of our convertible notes were determined based on inputs that were 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 were
observable in the market or that could be derived from, or corroborated with, observable market data, including the trading
price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours
(Level 2).
In connection with our restructure and asset impairment charges in 2014 and 2013, the fair value of our 200mm wafer
fabrication equipment in Kiryat Gat, Israel was determined primarily based on the expected proceeds from the sale and the fair
value of a supply agreement to manufacture NOR flash memory at the facility (Level 3). 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). (See "Restructure and Asset Impairments"
note.)
Derivative Instruments
We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our
monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note
settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in
cash. We do not use derivative instruments for speculative purpose.
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives: We use derivative instruments to manage a portion of our exposure to changes in currency
exchange rates from our monetary assets and liabilities. Our primary objective for entering into currency derivatives is to
reduce the volatility that changes in currency exchange rates have on our earnings.
To hedge our exposures to monetary assets and liabilities, we generally utilize a rolling hedge strategy with currency
forward contracts that mature within 35 days. At the end of each reporting period, monetary assets and liabilities denominated
in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are
marked-to-market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or
exchange quotations (Level 2 fair value measurements). In connection with the currency exchange rate risk associated with the
MMJ Acquisition in July 2013, we entered into currency exchange transactions (the "MMJ Acquisition Hedges"). The MMJ
Acquisition Hedges were not designated for hedge accounting and were remeasured at fair value each period. We recorded
losses from the MMJ Acquisition Hedges of $228 million in 2013. To mitigate the risk of the yen strengthening against the
U.S. dollar on the MMJ creditor installment payments due in December 2014 and December 2015, we entered into forward
contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarter of
2015, we paid $33 million to settle the 20 billion yen forward contracts.
Realized and unrealized gains and losses on currency derivatives without hedge accounting designation as well as the
change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-
operating income (expense), net.