Western Digital 2004 Annual Report Download - page 45

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of SigniÑcant Accounting Policies
Western Digital Corporation (""Western Digital'' or the ""Company'') has prepared its consolidated Ñnancial
statements in accordance with accounting principles generally accepted in the United States and has adopted accounting
policies and practices which are generally accepted in the industry in which it operates. Following are the Company's
signiÑcant accounting policies:
Fiscal Year
The Company has a 52 or 53-week Ñscal year. The 2004, 2003 and 2002 Ñscal years ended on July 2, June 27 and
June 28 respectively. The year ended July 2, 2004 consisted of 53 weeks and the years ended June 27, 2003 and
June 28, 2002 consisted of 52 weeks each. All references to years relate to Ñscal years unless otherwise noted.
Basis of Presentation
The consolidated Ñnancial statements include the accounts of the Company and its majority owned subsidiaries. All
signiÑcant 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 reÖected in the results of operations. These foreign exchange
gains and losses were immaterial to the consolidated Ñnancial statements. Monetary and nonmonetary asset and liability
accounts have been remeasured using the exchange rate in eÅect 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 disk drives to personal computer manufacturers,
resellers and retailers throughout the world. The Company performs ongoing credit evaluations of its customers' Ñnancial
condition and generally requires no collateral. The Company maintains reserves for potential credit losses, and such losses
have historically been within management's expectations. At any given point in time, the total amount outstanding from
any one of a number of our customers may be individually signiÑcant to our Ñnancial results. At July 2, 2004 and
June 27, 2003, the Company had reserves for potential credit losses of $6.1 million and $5.2 million, respectively. The
Company also has cash equivalent policies that limit the amount of credit exposure to any one Ñnancial institution or
investment instrument and require that investments be made only with Ñnancial 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 Ñrst-in, Ñrst-out basis for raw materials
and is computed on a currently adjusted standard basis (which approximates Ñrst-in, Ñrst-out) for work in process and
Ñnished goods.
Property and Equipment
The cost of property and equipment is depreciated over the estimated useful lives of the respective assets. The
majority of the Company's property and equipment is being depreciated over periods of three and Ñve years. Depreciation
is computed on a straight-line basis. Leasehold improvements are amortized over the lesser of the estimated useful lives of
the assets or the related lease terms.
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