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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate
that goodwill may be impaired. The Company did not record any impairment of goodwill during 2012, 2011 or
2010.
Other intangible assets consist primarily of technology acquired in business combinations. Acquired intangibles
are amortized on a straight-line basis over their respective estimated useful lives. Long-lived assets are tested for
recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recover-
able. The Company recorded impairments to certain long-lived assets in 2012. See Notes 15 and 16. The Company
did not record any impairments to long-lived assets during 2011 or 2010.
Revenue and Accounts Receivable
Revenue is recognized when the title and risk of loss have passed to the customer, there is persuasive evidence of
an arrangement, delivery has occurred, or services have been rendered, the sales price is fixed or determinable and col-
lectability is reasonably assured. The Company establishes provisions against revenue and cost of revenue for estimated
sales returns in the same period that the related revenue is recognized based on existing product return notifications. If
actual sales returns exceed expectations, an increase in the sales return accrual would be required, which could materi-
ally affect operating results.
In accordance with standard industry practice, the Company provides 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 the Company provides resellers and OEMs with other sales incentive programs. At the time the
Company recognizes revenue to resellers and OEMs, a reduction of revenue is recorded for estimated price protection
until the resellers sell such inventory to their customers and the Company also records a reduction of revenue for the
other programs in effect. The Company bases 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 the Company’s expectations, the Company’s operating results
could be materially affected. The Company also has programs under which it reimburses qualified distributors and
retailers for certain marketing expenditures, which are recorded as a reduction of revenue. Sales incentive and market-
ing programs are recorded as a reduction of revenue.
The Company records 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, the Company routinely analyzes
the different receivable aging categories and establishes reserves based on a combination of past due receivables and
expected future losses based primarily on its historical levels of bad debt losses. If the financial condition of a sig-
nificant customer deteriorates resulting in its inability to pay its accounts when due, or if the Company’s overall loss
history changes significantly, an adjustment in the Company’s allowance for doubtful accounts would be required,
which could materially affect operating results.
The Company establishes provisions against revenue and cost of revenue for sales returns in the same period that
the related revenue is recognized. These provisions are based 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.
Warranty
The Company records an accrual for estimated warranty costs when revenue is recognized. The Company gen-
erally warrants its products for a period of one to five years. The warranty provision considers estimated product fail-
ure rates and trends, estimated repair or replacement costs and estimated costs for customer compensatory claims
related to product quality issues, if any. A statistical warranty tracking model is used to help prepare estimates and
assist the Company in exercising judgment in determining the underlying estimates. The statistical tracking model
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