Western Digital 2007 Annual Report Download - page 46

common stock at a total cost of $73 million. Subsequent to the end of 2007, we purchased 0.8 million shares for
approximately $16 million. During 2006, we repurchased 3.5 million shares of common stock at a total cost of
$54 million. Since the inception of the program and through August 16, 2007, we have repurchased 15.1 million shares
for a total cost of $204 million. Subject to any limitations that may be set forth in our proposed bridge loan facility to be
entered into with our planned acquisition of Komag, we may continue to repurchase our stock as we deem appropriate
and market conditions allow.
We believe our current cash, cash equivalents and short-term investments will be sufficient to meet our working
capital needs through the foreseeable future. Our ability to sustain our working capital position is dependent upon a
number of factors that we discuss in Item 1A of this Annual Report on Form 10-K.
Critical Accounting Policies
We have prepared the accompanying consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. The preparation of the financial statements requires the use of
judgment and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity.
We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. We
believe the following are our most critical accounting policies that affect significant areas and involve judgment and
estimates made by us. If these estimates differ significantly from actual results, the impact to the consolidated financial
statements may be material.
Revenue and Accounts Receivable
In accordance with standard industry practice, we have agreements with resellers that provide limited price
protection for inventories held by resellers at the time of published list price reductions and other incentive programs. In
accordance with current accounting standards, we recognize revenue upon delivery to OEMs, ODMs and resellers and
record a reduction to revenue for estimated price protection and other programs in effect until the resellers sell such
inventory to their customers. We base these adjustments on anticipated price decreases during the reseller holding period,
estimated amounts to be reimbursed to qualifying customers, as well as historical pricing information. If end-market
demand for hard drives declines significantly, we may have to increase sell-through incentive payments to resellers,
resulting in an increase in our allowances, which could adversely impact operating results.
We record an allowance for doubtful accounts by analyzing specific customer accounts and assessing the risk of loss
based on insolvency, disputes or other collection issues. In addition, we routinely analyze the different receivable aging
categories and establish reserves based on a combination of past due receivables and expected future losses based primarily
on our historical levels of bad debt losses. If the financial condition of a significant customer deteriorates resulting in its
inability to pay its accounts when due, or if our overall loss history changes significantly, an adjustment in our allowance
for doubtful accounts would be required, which could affect operating results.
We establish provisions against revenue and cost of revenue for estimated sales returns in the same period that the
related revenue is recognized. We base these provisions on existing product return notifications. If actual sales returns
exceed expectations, an increase in the sales return accrual would be required, which could negatively affect operating
results.
Warranty
We record an accrual for estimated warranty costs when revenue is recognized. We generally warrant our products
for a period of one to five years. Our warranty provision considers estimated product failure rates and trends, estimated
repair or replacement costs and estimated costs for customer compensatory claims related to product quality issues, if any.
We use a statistical warranty tracking model to help with our estimates and we exercise judgment in determining the
underlying estimates. Our statistical tracking model captures specific detail on hard drive reliability, such as factory test
data, historical field return rates, and costs to repair by product type. If actual product return trends, costs to repair
returned products or costs of customer compensatory claims differ significantly from our estimates, our future results of
operations could be materially affected. Our judgment is subject to a greater degree of subjectivity with respect to newly
introduced products because of limited field experience with those products upon which to base our warranty estimates.
We review our warranty accrual quarterly for products shipped in prior periods and which are still under warranty. Any
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