Western Digital 2007 Annual Report Download - page 57

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 drives. A hard drive is a device that stores data on one or more rotating magnetic disks to allow fast access to
data. The Company’s hard drives are used in desktop 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 and original design manufacturers 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 (“GAAP”) 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 2007, 2006 and 2005 fiscal years, which ended on June 29, 2007,
June 30, 2006 and July 1, 2005, respectively, consisted of 52 weeks each.
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.
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 invest-
ments 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 (“SFAS”) No. 115 “Accounting for Certain
Investments in Debt and Equity Securities.” These investments are carried at fair value.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, short-term investments, accounts payable
and accrued expenses approximate fair value for all periods presented because of the short-term maturity of these assets
and liabilities.
Concentration of Credit Risk
The Company designs, develops, manufactures and markets hard drives to 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 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 its customers may be individually significant to the Company’s financial results. At June 29, 2007 and
June 30, 2006, the Company had reserves for potential credit losses of $5 million and $5 million, respectively, and net
51