Western Digital 2006 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2006 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

All other contracts are designated as fair value hedges. These contracts are not designated as hedging instruments
under U.S. GAAP, and therefore, the change in the instrument’s fair value is recognized currently in earnings and is
reported as a component of non-operating income. Changes in fair value on these contracts were not material to the
consolidated financial statements for all years presented.
Use of Estimates
Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities
in conformity with generally accepted accounting principles. These estimates and assumptions have been applied using
methodologies, which are consistent throughout the periods presented. However, actual results could differ from these
estimates.
New Accounting Standards
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.” FIN No. 48
clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. FIN No. 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The
interpretation applies to all tax positions related to income taxes subject to SFAS No. 109. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the statements of
financial position prior to the adoption of FIN No. 48 and the amounts reported after adoption should be accounted for as
a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The Company is currently
evaluating the impact the adoption of FIN No. 48 could have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently evaluating the impact the adoption of SFAS No. 157 could
have on its consolidated financial statements.
Reclassifications
Advances to suppliers were greater than 5% of total current assets during 2006 and, as such, have been separately
classified on the consolidated balance sheet as of June 30, 2006. Prior period amounts on the consolidated balance sheet
have been reclassified to conform to the current period presentation as follows (in millions):
2005
Current
Classification
Previous
Classification
Advances to suppliers .................. $12.5 $ —
Prepaid expenses and other .............. 14.5 27.0
Note 2. Adjustment to Previously Issued Financial Statements
The Company has adjusted its consolidated financial statements for the years ended July 1, 2005 and July 2, 2004,
to record additional non-cash stock-based compensation expense, and related tax accruals, resulting from stock options
granted during fiscal years 1998 to 2003 that were incorrectly accounted for under U.S. GAAP. The decision to adjust the
financial statements was based on the facts obtained from an independent investigation into the Company’s stock option
accounting that was conducted under the direction of a special committee (“Special Committee”) of its Board of Directors
(“Board”). The Board created the Special Committee, which was composed solely of independent directors, to conduct a
voluntary, company-initiated review of matters related to past stock option grants, including the timing of such grants
and associated documentation.
55
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)