Western Digital 1998 Annual Report Download - page 40

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
flows (undiscounted and without interest charges) is less than the carrying amount of an asset, an impairment loss is
recognized.
Revenue Recognition
The Company recognizes revenue at time of shipment and records a reserve for price adjustments, warranty and
estimated sales returns. In accordance with standard industry practice, the Company's agreements with its resellers
provide price protection for inventories held by the resellers at the time of published list price reductions and, under
certain circumstances, stock rotation for slow-moving items. These agreements may be terminated upon written notice
by either party. In the event of termination, the Company may be obligated to repurchase a certain portion of the
resellers' inventory.
Advertising Expense
Advertising costs are expensed as incurred. Selling, general and administrative expenses of the Company include
advertising costs of $9.5 million, $16.3 million and $17.4 million in 1996, 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This method generally provides that
deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss ("NOL")
carryforwards. The Company records a valuation allowance for certain temporary differences for which it is not
certain it will receive future tax benefits. The impact on deferred taxes of changes in tax rates and laws, if any, are
applied to the years during which temporary differences are expected to be settled and reflected in the consolidated
financial statements in the period of enactment.
Two-For-One Stock Split
On May 2, 1997, the Company declared a two-for-one stock split, effected in the form of a stock dividend on June
3, 1997 to shareholders of record on May 20, 1997. All share and per share amounts included in the consolidated
financial statements reflect retroactive recognition of the two-for-one stock split.
Per Share Information
Effective December 27, 1997, the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). This statement replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options. Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings (loss) per share amounts for all periods have been presented and restated
to conform to the SFAS No. 128 requirements (see Note 9).
Increase in Authorized Common Stock and Change in Par Value of Common Stock and Preferred Stock
On March 11, 1997, the Company's shareholders approved the amendment to the Company's Certificate of
Incorporation to increase the Company's authorized common stock and to reduce the par value of the common stock
and preferred stock from $.10 to $.01 per share. Par value information in the consolidated financial statements reflects
retroactive recognition of the change in the par value.