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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
From time to time, in connection with a factoring agreement, the Company sells trade accounts receivable with-
out recourse to a third party purchaser in exchange for cash. The Company sold trade accounts receivable and received
cash proceeds of $269 million, $187 million and $148 million during 2015, 2014 and 2013, respectively. The dis-
counts on the sales of trade accounts receivables were not material and were recorded within interest and other expense
in the consolidated statements of income.
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 replacement costs, estimated repair costs which include scrap 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 esti-
mates. The statistical tracking model captures specific detail on hard drive reliability, such as factory test data, histor-
ical field return rates, and costs to repair by product type. Management’s judgment is subject to a greater degree of
subjectivity with respect to newly introduced products because of limited field experience with those products upon
which to base warranty estimates. Management reviews the warranty accrual quarterly for products shipped in prior
periods and which are still under warranty. Any changes in the estimates underlying the accrual may result in adjust-
ments that impact current period gross profit and income. Such changes are generally a result of differences between
forecasted and actual return rate experience and costs to repair. If actual product return trends, costs to repair returned
products or costs of customer compensatory claims differ significantly from estimates, future results of operations
could be materially affected.
Litigation and Other Contingencies
When the Company becomes aware of a claim or potential claim, the Company assesses the likelihood of any loss
or exposure. The Company discloses information regarding each material claim where the likelihood of a loss con-
tingency is probable or reasonably possible. If a loss contingency is probable and the amount of the loss can be reason-
ably estimated, the Company records an accrual for the loss. In such cases, there may be an exposure to potential loss
in excess of the amount accrued. Where a loss is not probable but is reasonably possible or where a loss in excess of the
amount accrued is reasonably possible, the Company discloses an estimate of the amount of the loss or range of possi-
ble losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible losses is
not material to the Company’s financial position, results of operations or cash flows. The ability to predict the ulti-
mate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such
matters could differ materially from management’s estimates. See Note 5 below.
Advertising Expense
Advertising costs are expensed as incurred. Selling, general and administrative expenses of the Company included
advertising costs of $71 million, $60 million and $61 million in 2015, 2014 and 2013, respectively.
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