Seagate 2015 Annual Report Download - page 62

TableofContents
newlyintroducedproductsbecauseoflimitedexperiencewiththoseproductsuponwhichtobaseourwarrantyestimates.
Theactualresultswithregardtowarrantyexpenditurescouldhaveanadverseorfavorableeffectonourresultsofoperationsiftheactualrateofunitfailure,
thecosttorepairaunit,ortheactualcostrequiredtosatisfycustomerclaimsdiffersfromthoseestimatesweusedindeterminingthewarrantyaccrual.Sincewe
typicallyoutsourceourwarrantyrepairs,ourrepaircostissubjecttoperiodicnegotiationswithvendorsandmayvaryfromourestimates.Wealsoexercise
judgmentinestimatingourabilitytosellcertainrepairedproducts.Totheextentsuchsalesfallbelowourforecast,warrantycostwillbeadverselyimpacted.
Wereviewourwarrantyaccrualquarterlyforproductsshippedinpriorperiodsandwhicharestillunderwarranty.Anychangesintheestimatesunderlying
theaccrualmayresultinadjustmentsthatimpactthecurrentperiodgrossmarginsandincome.Infiscalyears2016,2015and2014netchangesinestimatesofprior
warrantyaccrualsasapercentageofrevenuewereimmaterial.Ourtotalwarrantycostwas1.0%,1.1%and1.3%ofrevenueduringfiscalyears2016,2015and
2014,respectively,whilewarrantycostrelatedtonewshipments(exclusiveoftheimpactofre-estimatesofpre-existingliabilities)were1.1%,1.1%and1.3%
respectively,forthesameperiods.Changesinanticipatedfailureratesofspecificproductsandsignificantchangesinrepairorreplacementcostshavehistorically
beenthemajorreasonsforsignificantchangesinpriorestimates.Anyfuturechangesinfailureratesofcertainproducts,aswellaschangesinrepaircostsorthe
costofreplacementparts,mayresultinincreasedordecreasedwarrantyaccruals.
AccountingforIncomeTaxes.WeaccountforincometaxespursuanttoAccountingStandardsCodification("ASC")Topic740("ASC740"),Income
Taxes.Inapplying,ASC740,wemake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ouruncertaintax
positionsbytheInternalRevenueServiceorothertaxjurisdictions.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werecordeachperioddependprimarilyonourabilitytogeneratefuturetaxableincomeintheUnitedStates
andcertainnon-U.S.jurisdictions.Eachperiod,weevaluatetheneedforavaluationallowanceforourdeferredtaxassetsand,ifnecessary,weadjustthevaluation
allowancesothatnetdeferredtaxassetsarerecordedonlytotheextentweconcludeitismorelikelythannotthatthesedeferredtaxassetswillberealized.Ifour
outlookforfuturetaxableincomechangessignificantly,ourassessmentoftheneedforavaluationallowancemayalsochange.
AssessingGoodwillandOtherLong-livedAssetsforImpairment.WeaccountforgoodwillinaccordancewithASCTopic350,Intangibles—Goodwilland
Other.AspermittedbyASC350,weperformaqualitativeassessmentinthefourthquarterofeachyear,ormorefrequentlyifindicatorsofpotentialimpairment
exist,todetermineifanyeventsorcircumstancesexist,suchasanadversechangeinbusinessclimateoradeclineintheoverallindustrythatwouldindicatethatit
wouldmorelikelythannotreducethefairvalueofareportingunitbelowitscarryingamount.Basedonthequalitativeassessment,ifitisnotmorelikelythannot
thatthefairvalueofareportingunitislessthanitscarryingamount,thentheCompanyisnotrequiredtoperformthetwo-stepgoodwillimpairmenttest.Ifitis
determinedinthequalitativeassessmentthatthefairvalueofareportingunitismorelikelythannotbelowitscarryingamount,includinggoodwill,thenwe
performaquantitativetwo-stepimpairmenttest.Thefirststep,identifyingapotentialimpairment,comparesthefairvalueofareportingunitwithitscarrying
amount,includinggoodwill.Ifthecarryingvalueofthereportingunitexceedsitsfairvalue,thesecondstepwouldneedtobeconducted.Thesecondstep,
measuringtheimpairmentloss,comparestheimpliedfairvalueof
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