Seagate 2008 Annual Report Download - page 78

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Seagate Technology ("Seagate" or the "Company") designs, manufactures, markets and sells hard disk drives. Hard disk drives, which are
commonly referred to as disk drives or hard drives, are used as the primary medium for storing electronic information in systems ranging from
desktop and notebook computers and consumer electronics devices to data centers delivering information over corporate networks and the
Internet. The Company produces a broad range of disk drive products addressing enterprise applications, where its products are primarily used in
enterprise servers, mainframes and workstations; desktop applications, where its products are used in desktop computers; mobile computing
applications, where its products are used in notebook computers; and consumer electronics applications, where its products are used in a wide
variety of digital video recorders (DVRs), gaming devices and other consumer electronic devices that require storage. The Company sells its disk
drives primarily to major original equipment manufacturers (OEMs), distributors and retailers. The Company also sells its branded storage
solutions under both the Seagate and Maxtor brands.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the Company's Consolidated Financial Statements and
accompanying notes. Actual results could differ materially from those estimates. The methods, estimates and judgments the Company uses in
applying its most critical accounting policies have a significant impact on the results the Company reports in its Consolidated Financial
Statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of the Company's
financial condition and results of operations, and require the Company to make its 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, the Company's most critical
policies include: establishment of sales program accruals, establishment of warranty accruals, valuation of deferred tax assets, as well as the
accounting for goodwill and intangible assets. These policies, as well as the estimates and judgments involved, are discussed further below. The
Company also has other key accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventory,
valuation of share-based payments (see Note 10) and acquisition related restructuring (see Note 4). The Company believes that these other
accounting policies and accounting estimates either do not generally require it 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 the Company's reported results of operations for a given period.
Establishment of Sales Program Accruals. The Company establishes 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 the Company or other agreed upon rebate programs. The Company provides for these obligations at the time that revenue is
recorded based on estimated requirements. The Company estimates 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. The Company's estimates reflect contractual arrangements but also the
Company's judgment relating to
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