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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. Guarantees
Indemnifications to Officers and Directors
We have entered into indemnification agreement, a form of which is incorporated by reference in the exhibits of this report, with the
members of our board of directors to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts
paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in
which the directors are sued as a result of their service as members of our board of directors.
Intellectual Property Indemnification Obligations
The Company has entered into agreements with customers and suppliers that include limited intellectual property indemnification
obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain
damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual
property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be
required to pay to its customers and suppliers. Historically, the Company has not made any significant indemnification payments under such
agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification
obligations.
Product Warranty
The Company estimates probable product warranty costs at the time revenue is recognized. The Company generally warrants its products
for a period of one to five years. The Company warrants all internal desktop and notebook disc drives shipped through the distribution and
retail channels for a period of five years. The Company uses estimated repair or replacement costs and uses statistical modeling to estimate
product return rates in order to determine its warranty obligation. Changes in the Company’s product warranty liability during the fiscal years
ended June 30, 2006 and July 1, 2005 were as follows:
The Company offers extended warranties on certain of its products. Deferred revenue in relation to extended warranties has not been
material to date.
13. Related Party Transactions
Fiscal Year
Ended
June 30,
2006
Fiscal Year
Ended
July 1,
2005
(in millions)
Balance, beginning of period
$
243
$
125
Warranty accrual assumed from Maxtor
187
—
Warranties issued
156
147
Repairs and replacements
(177
)
(113
)
Changes in liability for pre
-
existing warranties, including expirations
36
84
Balance, end of period
$
445
$
243
Affiliate Transactions
Historically, the Company has provided substantial services to other affiliated companies. Upon the closing of the stock purchase
agreement by New SAC, these services continued to be provided by the Company through
100