Seagate 2007 Annual Report Download - page 64

Table of Contents
(1)
Included in
long term debt for fiscal year 2009, is the principal amount of $326 million related to our 2.375% Notes which is payable upon
the conversion of the 2.375% Notes, which are currently convertible as our share price was in excess of 110% of the conversion price for at
least 20 consecutive trading days during the last 30 trading days of the fourth quarter of fiscal year 2008. Unless earlier converted, the
2.375% Notes must be redeemed in August 2012.
(2)
Includes total future minimum rent expense under non-cancelable leases for both occupied and abandoned facilities (rent expense is shown
net of sublease income).
As a result of the adoption of FIN 48, we reclassified unrecognized tax benefits to long-term income taxes payable. As of June 27, 2008,
we had a liability for unrecognized tax benefits including accrual for the payment of related interest totaling $210 million, none of which is
expected to be paid within one year. We are unable to make a reasonably reliable estimate when cash settlement with a taxing authority will
occur.
Off-Balance Sheet Arrangements
(3)
Purchase obligations are defined as contractual obligations for purchase of goods or services, which are enforceable and legally binding on
us, and that specify all significant terms.
As of June 27, 2008, we did not have any material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Critical Accounting Policies
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we
report in our consolidated financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to
the portrayal of our financial condition and operating results, and require us to make our most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are highly uncertain at the time of estimation. Based on this definition, our most critical policies
include: establishment of sales program accruals, establishment of warranty accruals, accounting for income taxes, and the valuation of
intangibles and goodwill. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other key
accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventory, valuation of share-based
payments and acquisition related restructuring. We believe that these other accounting policies and accounting estimates either do not generally
require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our
reported results of operations for a given period.
Establishment of Sales Program Accruals. We establish certain distributor and OEM sales programs aimed at increasing customer
demand. For the distribution channel, these programs typically involve rebates related to a distributor’s level of sales, order size, advertising or
point of sale activity and price protection adjustments. For OEM sales, rebates are typically based on an OEM customer’s volume of purchases
from Seagate or other agreed upon rebate programs. We provide for these obligations at the time that revenue is recorded based on estimated
requirements. We estimate these contra-revenue rebates and adjustments based on various factors, including price reductions during the period
reported, estimated future price erosion, customer orders, distributor sell-through and inventory levels, program participation, customer claim
submittals and sales returns. Our estimates reflect contractual arrangements but also our judgment relating to variables such as customer claim
rates and attainment of program goals, and inventory and sell-through levels reported by our distribution customers.
While we believe we have sufficient experience and knowledge of the market and customer buying patterns to reasonably estimate such
rebates and adjustments, actual market conditions or customer behavior could differ from our expectations. As a result, actual payments under
these programs, which may spread over several months
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