Western Digital 2008 Annual Report Download - page 60

Concentration of Credit Risk
The Company designs, develops, manufactures and markets hard drives to computer manufacturers, resellers and
retailers throughout the world. The Company performs ongoing credit evaluations of its customers’ financial condition and
generally requires no collateral. The Company maintains allowances for potential credit losses, and such losses have
historically been within management’s expectations. At any given point in time, the total amount outstanding from any one
of a number of its customers may be individually significant to the Company’s financial results. At June 27, 2008 and
June 29, 2007, the Company had reserves for potential credit losses of $8 million and $5 million, respectively, and net
accounts receivable of $1.0 billion and $697 million, respectively. The Company also has cash equivalent and investment
policies that limit the amount of credit exposure to any one financial institution or investment instrument and require that
investments be made only with financial institutions or in investment instruments evaluated as highly credit-worthy.
Inventory Valuation
The Company values inventory at the lower of cost or net realizable value. Cost is determined primarily using the
first-in, first-out method (“FIFO”) for the majority of its inventory and the weighted average method for its precious
metals inventory acquired from Komag. Weighted-average cost is calculated based upon the cost of precious metals at the
time they are received by the Company. As of June 27, 2008, 78% of the inventory was valued using the FIFO method
with the remainder valued using the weighted average method. Inventories as of June 29, 2007 were valued using the
FIFO method only. Inventory write-downs are recorded to reduce the carrying value of inventory to the lower of cost or
net realizable value by analyzing market conditions and estimates of future sales prices as compared to inventory costs and
inventory balances. The Company evaluates inventory balances for excess quantities and obsolescence on a regular basis
by analyzing estimated demand, inventory on hand, sales levels, and other information, and reduces inventory balances to
net realizable value for excess and obsolete inventory based on this analysis.
Property and Equipment
The cost of property and equipment is depreciated over the estimated useful lives of the respective assets. The
Company’s buildings are being depreciated over periods ranging from fifteen to thirty years. The majority of the
Company’s equipment is being depreciated over periods of three to seven years. Depreciation is computed on a straight-
line basis. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related
lease terms.
Goodwill and Other Intangible Assets
In accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”), the total purchase price in a business
combination is allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the
acquisition date, with amounts exceeding the fair values being recorded as goodwill. In accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill is not amortized. Instead, it is tested for impairment on
an annual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired.
The Company did not record any impairment of goodwill during 2008.
Other intangible assets consist primarily of purchased technology and customer relationships acquired in an
acquisition. Acquired intangibles are amortized on a straight-line basis over their respective estimated useful lives
included in Note 12. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”,
long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. The Company did not record any impairment of long-lived assets during 2008.
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)