Seagate 2008 Annual Report Download - page 29

Table of Contents
to do so if the poor global economic conditions continue and levels of unemployment continue to increase. For example, factors that could
influence the levels of consumer spending on such retail sales of our branded solutions include volatility in fuel and other energy costs,
conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other
macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on
demand for our products and services and on our financial condition and results of operations.
In addition, such retail sales of our branded solutions traditionally experience seasonal variability in demand with higher levels of demand
in the first half of our fiscal year driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday
shopping season from fall to winter. Additionally, our ability to reach such consumers depends on our maintaining effective working
relationships with major retailers and distributors. Failure to anticipate consumer demand for our branded solutions as well as an inability to
maintain effective working relationships with retail and online distributors may adversely impact our future results of operations.
Importance of Controlling Operating Costs
—If we do not control our operating expenses, we will not be able to compete effectively in our
industry.
Our strategy involves, to a substantial degree, increasing revenue and product volume while at the same time controlling operating
expenses. If we do not control our operating expenses, our ability to compete in the marketplace may be impaired. In the past, activities to reduce
operating costs have included closures and transfers of facilities, significant personnel reductions and efforts to increase automation. The
reduction of personnel and closure of facilities may adversely affect our ability to manufacture our products in required volumes to meet
customer demand and may result in other disruptions that affect our products and customer service. In addition, the transfer of manufacturing
capacity of a product to a different facility frequently requires qualification of the new facility by some of our OEM customers. We cannot
assure you that these activities and transfers will be implemented on a cost-effective basis without delays or disruption in our production and
without adversely affecting our customer relationships and results of operations.
Impairment Charges
—We may be required to record additional impairment charges for goodwill and/or other long-lived assets.
We are required to assess goodwill annually for impairment, or on an interim basis whenever events occur or circumstances change, such as
an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. We are also required to test other long-lived assets, including acquired intangible assets and property, equipment and
leasehold improvements, for recoverability and impairment whenever there are indicators of impairment, such as an adverse change in business
climate.
In the fiscal quarter ended January 2, 2009, we determined that the negative impact of the current macroeconomic environment and the
resulting decline in the demand for our products represented an adverse change in our business climate. Those circumstances required us to
undertake an evaluation of our goodwill and long-lived assets for impairment. Based on these analyses, we recorded impairment charges of
$2.3 billion for goodwill and $3 million for other long-lived assets.
As of July 3, 2009, we have approximately $31 million of goodwill and $2.3 billion of other long-lived assets. As part of our long-term
strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our goodwill and other long-lived
assets. Further adverse changes in business conditions could materially impact our estimates of future operations and result in additional
impairment charges to these assets. If our goodwill or other long-lived assets were to become further impaired, our results of operations could be
materially and adversely affected.
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