Western Digital 2005 Annual Report Download - page 51

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Western Digital Corporation (the ""Company'' or ""Western Digital'' or ""WD'') designs, develops, manufactures
and sells hard disk drives. A hard disk drive is a device that stores data on one or more rotating magnetic disks to allow
fast access to data. The Company's hard disk drives are used in desktop personal computers, notebook computers,
external storage devices, enterprise applications such as servers, workstations, network attached storage and storage area
networks and in consumer electronics products such as personal/digital video recorders, satellite and cable set-top boxes
and video game consoles. The Company sells its products worldwide to original equipment manufacturers (""OEMs'') for
inclusion in computer systems or subsystems, and to distributors, resellers and retailers.
Western Digital has prepared its consolidated financial 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. The Company's significant accounting policies are summarized below.
Fiscal Year
The Company has a 52 or 53-week fiscal year. The 2005 and 2003 fiscal years, which ended on July 1, 2005 and
June 27, 2003, respectively, consisted of 52 weeks each. Fiscal year 2004, which ended on July 2, 2004, was a 53-week
year.
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, gains or losses resulting from
remeasurement of these accounts from local currencies into U.S. dollars are reflected in the results of operations. These
gains and losses were immaterial to the consolidated financial statements. 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 historical 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.
Short-Term Investments
The Company's short-term investments consist primarily of auction rate securities, which are short-term investments
in bonds with original maturities greater than 90 days. The Company has classified these investments as ""available for
sale'' securities under Statement of Financial Accounting Standards No. 115 ""Accounting for Certain Investments in
Debt and Equity Securities'' (""SFAS 115''). These investments are carried at fair value.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents and short-term investments approximate fair value for all periods
presented because of the short-term maturity of these financial instruments. The carrying amount of the Company's term
loan also approximates fair value.
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' financial
condition and generally requires no collateral. The Company maintains allowances for potential credit losses, and such
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