Western Digital 2009 Annual Report Download - page 51

competitive. These arrangements are not included under “Purchase obligations” in the table above. Please see Item 1A of
this Annual Report on Form 10-K for a discussion of risks related to these commitments.
Foreign Exchange Contracts
We purchase 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 our current forward
exchange contract commitments.
Indemnifications
In the ordinary course of business, we 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, products or services to be provided by us, or from intellectual property
infringement claims made by third parties. In addition, we have entered into indemnification agreements with our
directors and certain of our officers that will require us, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which
may cover certain liabilities arising from our obligation to indemnify our 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, we have not
incurred material costs as a result of obligations under these agreements.
Stock Repurchase Program
Our Board of Directors previously authorized us to repurchase $750 million of our common stock in open market
transactions under a program through March 31, 2013. Since the inception of this stock repurchase program in 2005,
through July 3, 2009, we have repurchased 18 million shares for a total cost of $284 million (including commissions).
We expect stock repurchases to be funded principally by operating cash flows. We may continue to repurchase our stock
as we deem appropriate and market conditions allow.
Critical Accounting Policies and Estimates
We have prepared the accompanying consolidated financial statements in conformity with accounting principles
generally accepted in the U.S. (“U.S. GAAP”). The preparation of the financial statements requires the use of judgment
and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity. We have
adopted accounting policies and practices that are generally accepted in the industry in which we operate. We believe the
following are our most critical accounting policies that affect significant areas and involve judgment and estimates made
by us. 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, we provide resellers with limited price protection for inventories held
by resellers at the time of published list price reductions and other sales incentive programs. In accordance with current
accounting standards, we recognize revenue upon delivery to OEMs, ODMs and resellers and record a reduction of
revenue for estimated price protection and other programs in effect until the resellers sell such inventory to their
customers. We base these adjustments on several factors including anticipated price decreases during the reseller holding
period, reseller’s sell-through and inventory levels, estimated amounts to be reimbursed to qualifying customers,
historical pricing information and customer claim processing. If customer demand for hard drives or market conditions
differ from our expectations, our operating results could be affected. We also have programs under which we reimburse
qualified distributors and retailers for certain marketing expenditures which are recorded as a reduction of revenue. We
apply the provisions of Emerging Issues Task Force No. 01-9, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products)” and such sales incentive and marketing programs are recorded
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