Western Digital 2010 Annual Report Download - page 51

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Unrecognized Tax Benefits
As of July 2, 2010, our total cash liability representing unrecognized tax benefits was $135 million. We estimate
the timing of the future payments of these liabilities to be within the next two to five years. See Part II, Item 8, Note 9 in
the Notes to Condensed Consolidated Financial Statements included in this Annual Report on Form 10-K for
information regarding our tax liability for unrecognized tax benefits.
Stock Repurchase Program
Our Board of Directors previously authorized us to repurchase $750 million of our common stock in open market
transactions under a stock repurchase program through March 31, 2013. Since the inception of this program in 2005,
through July 2, 2010, we have repurchased 18 million shares for a total cost of $284 million. 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. We did not make any repurchases of common stock under the authorized stock repurchase
program during 2010. Subsequent to July 2, 2010 through August 13, 2010, we repurchased 1.8 million shares for a
total cost of $50 million.
Critical Accounting Policies and Estimates
We have prepared the accompanying consolidated financial statements in accordance with U.S. GAAP. The
preparation of the financial statements requires the use of judgments 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 distributors and retailers (collectively referred to as
“resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions,
and we provide resellers and OEMs with other sales incentive programs. At the time we recognize revenue to resellers and
OEMs, we record a reduction of revenue for estimated price protection until the resellers sell such inventory to their
customers and we also record a reduction of revenue for the other programs in effect. We base these adjustments on several
factors including anticipated price decreases during the reseller holding period, resellers’ 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 materially 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. These amounts generally vary according to
several factors including industry conditions, seasonal demand, competitor actions, channel mix and overall availability
of product. Since 2008, total sales incentive and marketing programs have ranged from 7% to 12% of gross revenues per
quarter. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a
percentage of gross revenue from the current range. Adjustments to revenues due to changes in accruals for these
programs related to revenues reported in prior periods have averaged 0.1% of quarterly gross revenue since the first
quarter of fiscal 2008.
We record an allowance for doubtful accounts by analyzing specific customer accounts and assessing the risk of loss
based on insolvency, disputes or other collection issues. In addition, we routinely analyze the different receivable aging
categories and establish reserves based on a combination of past due receivables and expected future losses based primarily
on our historical levels of bad debt losses. If the financial condition of a significant customer deteriorates resulting in its
inability to pay its accounts when due, or if our overall loss history changes significantly, an adjustment in our allowance
for doubtful accounts would be required, which could materially affect operating results.
We establish provisions against revenue and cost of revenue for sales returns in the same period that the related
revenue is recognized. We base these provisions on existing product return notifications. If actual sales returns exceed
expectations, an increase in the sales return accrual would be required, which could materially affect operating results.
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