Western Digital 1998 Annual Report Download - page 39

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. Significant Accounting Policies
Western Digital Corporation ("Western Digital" or the "Company") has prepared its consolidated financial
statements in accordance with generally accepted accounting principles and has adopted accounting policies and
practices which are generally accepted in the industry in which it operates. Following are the Company's significant
accounting policies:
Fiscal Year
The Company's fiscal year end is a 52 or 53-week year ending on the Saturday nearest June 30. Accordingly, the
1996, 1997 and 1998 fiscal years ended on June 29, June 28, and June 27, respectively, and included 52 weeks each.
All general references to years relate to fiscal years unless otherwise noted.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation. The accounts of foreign
subsidiaries have been remeasured using the U.S. dollar as the functional currency. As such, foreign exchange gains or
losses resulting from remeasurement of these accounts are reflected in the results of operations. Monetary and
nonmonetary asset and liability accounts have been remeasured using the exchange rate in effect at each year end and
using historical rates, respectively. Income statement accounts have been remeasured using average monthly exchange
rates.
Cash Equivalents
The Company's cash equivalents represent highly liquid investments, primarily money market funds and
commercial paper, with original maturities of three months or less.
Concentration of Credit Risk
The Company designs, develops, manufactures and markets hard drives to personal computer manufacturers,
resellers and retailers throughout the world. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral. The Company maintains reserves for potential credit losses,
and such losses have historically been within management's expectations. The Company also has cash equivalent
policies that limit the amount of credit exposure to any one financial institution or investment instrument, and require
that investments be made only with financial institutions or in investment instruments evaluated as highly credit-
worthy.
Inventory Valuation
Inventories are valued at the lower of cost or net realizable value. Cost is on a first-in, first-out basis for raw
materials and is computed on a currently adjusted standard basis (which approximates first-in, first-out) for work in
process and finished goods.
Depreciation and Amortization
The cost of property and equipment is depreciated over the estimated useful lives of the respective assets.
Depreciation is computed on a straight-line basis for financial reporting purposes and on an accelerated basis for
income tax purposes. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets
or the related lease terms. Goodwill and purchased technology, which are included in other assets, are capitalized at
cost and amortized on a straight-line basis over their estimated lives of five to fifteen years.
The Company reviews identifiable intangibles, goodwill and other long-lived assets for impairment whenever
events or circumstances indicate the carrying amounts may not be recoverable. If the sum of the expected future cash