Western Digital 2012 Annual Report Download - page 52

Unrecognized Tax Benefits
As of June 29, 2012, the cash portion of our total recorded liability for unrecognized tax benefits was
$245 million, which included $29 million related to the Acquisition. We estimate the timing of the future payments
of these liabilities to be within the next one to five years. See Part II, Item 8, Note 9 in the Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for information regarding our total tax liability
for unrecognized tax benefits.
Stock Repurchase Program
Our Board of Directors previously authorized us to repurchase $750 million of our common stock in open mar-
ket transactions under a stock repurchase program through March 31, 2013. On May 21, 2012, the Company
announced that the Board of Directors authorized an additional $1.5 billion for the repurchase of our common stock
and the extension of our stock repurchase program until May 18, 2017. As of June 29, 2012 the entire $750 million
previously authorized for repurchase had been utilized. In addition, as of June 29, 2012 $188 million of the $1.5 bil-
lion authorized on May 21, 2012 had been utilized. Since the inception of this program in 2005, through June 29,
2012, we have repurchased 36 million shares of our common stock for a total cost of $938 million. We repurchased
16.4 million shares for a total cost of $604 million during 2012. Subsequent to June 29, 2012 through August 16,
2012, we repurchased an additional 2.1 million shares for a total cost of $91 million. We may continue to repurchase
our stock as we deem appropriate and market conditions allow. Repurchases under our stock repurchase program may
be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. We
expect stock repurchases to be funded principally by operating cash flows.
Critical Accounting Policies and Estimates
We have prepared the accompanying consolidated financial statements in accordance with U.S. GAAP. The
preparation of the financial statements requires the use of judgments 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 sig-
nificantly from actual results, the impact to the consolidated financial statements may be material.
Revenue and Accounts Receivable
In accordance with standard industry practice, we provide distributors and retailers (collectively referred to as
“resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions,
and we provide resellers and OEMs with other sales incentive programs. At the time we recognize revenue to resellers
and OEMs, we record a reduction of revenue for estimated price protection until the resellers sell such inventory to
their customers and we also record a reduction of revenue for the other programs in effect. We base these adjustments
on several factors including anticipated price decreases during the reseller holding period, resellers’ sell-through and
inventory levels, estimated amounts to be reimbursed to qualifying customers, historical pricing information and
customer claim processing. If customer demand for hard drives or market conditions differs from our expectations, our
operating results could be materially affected. We also have programs under which we reimburse qualified distrib-
utors and retailers for certain marketing expenditures, which are recorded as a reduction of revenue. These amounts
generally vary according to several factors including industry conditions, seasonal demand, competitor actions, chan-
nel mix and overall availability of product. Generally, total sales incentive and marketing programs range from 9% to
12% of gross revenues per quarter. However, for 2012, sales incentive and marketing programs were 6% of gross
revenues due to the severe supply constraints across the hard drive industry brought about by the Thailand floods.
Changes in future customer demand and market conditions may require us to adjust our incentive programs as a per-
centage of gross revenue from the current range. Adjustments to revenues due to changes in accruals for these pro-
grams related to revenues reported in prior periods have averaged 0.3% of quarterly gross revenue since the first
quarter of fiscal 2010. Customer sales incentive and marketing programs are recorded as a reduction of revenue.
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
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