Western Digital 2014 Annual Report Download - page 56

the Black-Scholes-Merton models require the input of highly subjective assumptions. We are required to use judg-
ment in estimating the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ sig-
nificantly from the original estimate, stock-based compensation expense and our results of operations could be
materially affected.
Goodwill and Other Long-Lived Assets
The fair value of assets acquired and liabilities assumed in a business acquisition are recognized at the acquisition
date, with amounts exceeding the fair values being recognized as goodwill. Goodwill is not amortized. Instead, it is
tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate
that goodwill may be impaired. We perform our annual impairment test as of the first day of our fiscal fourth quarter.
We either use qualitative factors to determine whether goodwill is more likely than not impaired or we perform a
two-step approach to quantify impairment. If we conclude from the qualitative assessment that goodwill is more
likely than not impaired, we are required to follow a two-step approach to quantify the impairment. We are required
to use judgment when applying the goodwill impairment test, including the identification of reporting units,
assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of
the fair value of each reporting unit. In addition, the estimates used to determine the fair value of each reporting unit
may change based on results of operations, macroeconomic conditions or other factors. Changes in these estimates
could materially affect our assessment of the fair value and goodwill impairment for each reporting unit.
Other intangible assets consist primarily of technology acquired in business combinations and in-process research
and development. In-process research and development is not amortized until the point at which it reaches techno-
logical feasibility. Instead, it is tested for impairment on an annual basis or more frequently whenever events or
changes in circumstances indicate that it may be impaired. 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 recoverable. If impairment is indicated, the
impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Recent Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, including the respective dates of
adoption and expected effects on our results of operations and financial condition, refer to Part II, Item 8, Note 1 of
the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated
by reference in response to this item.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Disclosure About Foreign Currency Risk
Although the majority of our transactions are in U.S. dollars, some transactions are based in various foreign cur-
rencies. We purchase short-term, foreign exchange contracts to hedge the impact of foreign currency exchange
fluctuations on certain underlying assets, revenue, liabilities and commitments for operating expenses and product
costs denominated in foreign currencies. The purpose of entering into these hedge transactions is to minimize the
impact of foreign currency fluctuations on our results of operations. The contract maturity dates do not exceed
12 months. We do not purchase foreign exchange contracts for trading purposes. See Part II, Item 8, Notes 1 and 12
in the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K.
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