Seagate 2014 Annual Report Download - page 61
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EstablishmentofSalesProgramAccruals.WeestablishcertaindistributorandOEMsalesprogramsaimedatincreasingcustomerdemand.ForOEMsales,
rebatesaretypicallybasedonanOEMcustomer'svolumeofpurchasesorotheragreeduponrebateprograms.Forthedistributionchannel,theseprogramstypically
involverebatesrelatedtoadistributor'slevelofsales,ordersize,advertisingorpointofsaleactivityandpriceprotectionadjustments.Weprovideforthese
obligationsatthetimethatrevenueisrecordedbasedonestimatedrequirements.Weestimatethesecontra-revenuerebatesandadjustmentsbasedonvarious
factors,includingpricereductionsduringtheperiodreported,estimatedfuturepriceerosion,customerorders,distributorsell-throughandinventorylevels,
programparticipation,customerclaimsubmittalsandsalesreturns.Ourestimatesreflectcontractualarrangementsbutalsoourjudgmentrelatingtovariablessuch
ascustomerclaimratesandattainmentofprogramgoals,andinventoryandsell-throughlevelsreportedbyourdistributioncustomers.Currently,ourdistributors'
inventoriesarewithinthehistoricalrange.
Whilewebelievewehavesufficientexperienceandknowledgeofthemarketandcustomerbuyingpatternstoreasonablyestimatesuchrebatesand
adjustments,actualmarketconditionsorcustomerbehaviorcoulddifferfromourexpectations.Asaresult,actualpaymentsundertheseprograms,whichmay
spreadoverseveralmonthsaftertherelatedsale,mayvaryfromtheamountaccrued.Accordingly,revenuesandmarginsintheperiodinwhichtheadjustment
occursmaybeaffected.
Significantactualvariationsinanyofthefactorsuponwhichwebaseourcontra-revenueestimatescouldhaveamaterialeffectonouroperatingresults.In
fiscalyear2015,salesprogramswereapproximately10%ofgrossrevenue.Forfiscalyears2014and2013,totalsalesprogramsrangedfrom7%to10%ofgross
revenues.Adjustmentstorevenuesduetounderoroveraccrualsforsalesprogramsrelatedtorevenuesreportedinpriorquarterlyperiodsaveraged0.4%of
quarterlygrossrevenueforfiscalyear2013through2014,andwereapproximately0.2%ofgrossrevenueinfiscalyear2015.Anyfutureshiftsintheindustry
supply-demandbalanceaswellasotherfactorsmayresultinamorecompetitivepricingenvironmentandmaycausesalesprogramsasapercentageofgross
revenuetoincreasefromthecurrentorhistoricallevels.Ifsuchrebatesandincentivestrendupwards,revenuesandmarginswillbereduced.
EstablishmentofWarrantyAccruals.Weestimateprobableproductwarrantycostsatthetimerevenueisrecognized.Wegenerallywarrantourproductsfor
aperiodof1to5years.Ourwarrantyprovisionconsidersestimatedproductfailureratesandtrends(includingthetimingofproductreturnsduringthewarranty
periods),andestimatedrepairorreplacementcostsrelatedtoproductqualityissues,ifany.Wealsoexercisejudgmentinestimatingourabilitytosellcertain
repairedproducts.Shouldactualexperienceinanyfutureperioddiffersignificantlyfromourestimates,ourfutureresultsofoperationscouldbemateriallyaffected.
Ourjudgmentissubjecttoagreaterdegreeofsubjectivitywithrespecttonewlyintroducedproductsbecauseoflimitedexperiencewiththoseproductsuponwhich
tobaseourwarrantyestimates.
Theactualresultswithregardtowarrantyexpenditurescouldhaveanadverseorfavorableeffectonourresultsofoperationsiftheactualrateofunitfailure,
thecosttorepairaunit,ortheactualcostrequiredtosatisfycustomerclaimsdiffersfromthoseestimatesweusedindeterminingthewarrantyaccrual.Sincewe
typicallyoutsourceourwarrantyrepairs,ourrepaircostissubjecttoperiodicnegotiationswithvendorsandmayvaryfromourestimates.Wealsoexercise
judgmentinestimatingourabilitytosellcertainrepairedproducts.Totheextentsuchsalesfallbelowourforecast,warrantycostwillbeadverselyimpacted.
Wereviewourwarrantyaccrualquarterlyforproductsshippedinpriorperiodsandwhicharestillunderwarranty.Anychangesintheestimatesunderlying
theaccrualmayresultinadjustmentsthatimpactthecurrentperiodgrossmarginsandincome.Infiscalyears2015,2014and2013netchangesinestimatesofprior
warrantyaccrualsasapercentageofrevenuewereimmaterial.Ourtotalwarrantycostwas1.1%,1.3%and1.6%ofrevenueduringfiscalyears2015,2014and
2013,respectively,whilewarrantycostrelated
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