Western Digital 2005 Annual Report Download - page 29

Forward Exchange Contracts
The Company purchases short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations
on certain underlying assets, liabilities and commitments for operating expenses and product costs denominated in foreign
currencies. See Part II, Item 7A, under the heading ""Disclosure About Foreign Currency Risk,'' for the Company's
current forward exchange contract commitments.
Indemnifications
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to
customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited
to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property
infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with
its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors or officers. The Company maintains director and officer
insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and officers in certain
circumstances.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the
limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, the Company has
not incurred material costs as a result of obligations under these agreements.
Stock Repurchase Program
WD announced a stock repurchase program on May 5, 2004. Under the program, the Company may purchase on
the open market up to $100 million of its common stock depending on market conditions and other corporate
considerations. Stock repurchases are expected to be funded principally by operating cash flow. During 2005, WD
repurchased 4.8 million shares of common stock at a total cost of $45 million. In addition, between July 2, 2005 and
September 9, 2005 the Company repurchased 0.4 million shares of common stock at a cost of $6 million. Since the
inception of the program and through September 9, 2005, the Company has repurchased 7.1 million shares for a total
cost of $67 million (including commissions). WD may continue to repurchase its stock as it deems appropriate and
market conditions allow.
Western Digital believes its current cash, cash equivalents and short-term investments will be sufficient to meet its
working capital needs through the foreseeable future. There can be no assurance that the Senior Credit Facility will
continue to be available to the Company. Also, WD's ability to sustain its working capital position is dependent upon a
number of factors that are discussed below under the heading ""Risk Factors That May Affect Future Results.'' The
Company currently anticipates that it will continue to utilize its liquidity and cash flows to improve the efficiency and
capability of its existing hard disk drive and head manufacturing operations.
Critical Accounting Policies
The Company has prepared the accompanying consolidated financial statements in conformity with accounting
principles generally accepted in the United States. The preparation of the financial statements requires the use of
judgment and estimates that affect the reported amounts of revenues, expenses, assets and liabilities. The Company has
adopted accounting policies and practices that are generally accepted in the industry in which it operates. The Company
believes the following are its most critical accounting policies that affect significant areas and involve management's
judgment and estimates. If these estimates differ significantly from actual results, the impact to the consolidated financial
statements may be material.
Revenue and Accounts Receivable
In accordance with standard industry practice, Western Digital has agreements with resellers that provide limited
price protection for inventories held by resellers at the time of published list price reductions and other incentive
programs. In accordance with current accounting standards, the Company recognizes revenue upon shipment or delivery
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