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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company’s equipment is depreciated over periods of two to seven years. Depreciation is computed on a straight-line
basis. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related
lease terms.
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. The Company performs its annual impairment test as of the first day of its fiscal
fourth quarter. The Company either uses qualitative factors to determine whether goodwill is more likely than not
impaired or performs a two-step approach to quantify impairment. If the Company concludes from the qualitative
assessment that goodwill is more likely than not impaired, it is required to follow a two-step approach to quantify the
impairment. The Company is 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 the Company’s assessment of the fair value and
goodwill impairment for each reporting unit. The Company did not record any impairment of goodwill during 2015,
2014, or 2013.
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 instead 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.
The Company recorded impairments to certain long-lived assets in 2015, 2014 and 2013. See Notes 13 and 17 below.
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 original equipment manufacturers (“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 fac-
tors including anticipated price decreases during the reseller holding period, reseller’s sell-through and inventory lev-
els, estimated amounts to be reimbursed to qualifying customers, historical pricing information and customer claim
processing. If customer demand for the Company’s products or market conditions differ from the Company’s expect-
ations, 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. Customer sales incentive and marketing programs are recorded as a reduction of revenue.
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