Seagate 2008 Annual Report Download - page 79

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Summary of Significant Accounting Policies (Continued)
variables such as customer claim rates and attainment of program goals, and inventory and sell-through levels reported by the Company's
distribution customers. During periods in which the Company's distributors' inventories of its products are at higher than historical levels or in
periods of supply and demand imbalance, the Company's sales programs estimates are subject to a greater degree of subjectivity and the potential
for actual results to vary is accordingly higher. Significant actual variations in any of the factors upon which the Company bases its contra-
revenue estimates could have a material effect on the Company's operating results.
Establishment of Warranty Accruals. 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's warranty provision considers estimated product failure
rates and trends (including the timing of product returns during the warranty periods), estimated repair or replacement costs and estimated costs
for customer compensatory claims related to product quality issues, if any. The Company uses a statistical model to help with its estimates and
the Company exercises considerable judgment in determining the underlying estimates. Should actual experience in any future period differ
significantly from its estimates, or should the rate of future product technological advancements fail to keep pace with the past, the Company's
future results of operations could be materially affected. The Company's judgment is subject to a greater degree of subjectivity with respect to
newly introduced products because of limited experience with those products upon which to base its warranty estimates. The Company
continually introduces new products.
The actual results with regard to warranty expenditures could have a material adverse effect on the Company's results of operations if the
actual rate of unit failure, the cost to repair a unit, or the actual cost required to satisfy customer compensatory claims are greater than that which
the Company has used in estimating the warranty accrual. The Company also exercises judgment in estimating its ability to sell certain repaired
disk drives. To the extent such sales fall below the Company's forecast, warranty cost will be adversely impacted.
Income Taxes. The Company accounts for income taxes pursuant to Financial Accounting Standards Board (FASB) Statement (SFAS)
No. 109,
Accounting for Income Taxes (SFAS No. 109) and related pronouncements. In applying SFAS No. 109, the Company makes certain
estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the
calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences
in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as tax liabilities associated with uncertain
tax positions. The calculation of tax liabilities involves uncertainties in the application of complex tax rules and the potential for future
adjustment of the Company's uncertain tax positions by the Internal Revenue Service or other tax jurisdiction. If estimates of these tax liabilities
are greater or less than actual results, an additional tax benefit or provision will result. The deferred tax assets the Company records each period
depend primarily on the Company's ability to generate future taxable income in the United States and certain foreign jurisdictions. Each period,
the Company evaluates the need for a valuation allowance for its deferred tax assets and, if necessary, adjusts the valuation allowance so that net
deferred tax assets are recorded only to the extent the Company concludes it is more likely than not that these deferred tax assets will be realized.
If the Company's outlook for future taxable income changes significantly, the Company's assessment of the need for a valuation allowance may
also change.
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