background image
tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate
that goodwill may be impaired. During 2013, the Company changed the date of its annual impairment test from the
last day of May to the first day of its fiscal fourth quarter. The Company believes changing the test date to the first
day of its fiscal fourth quarter is preferable as it should allow the Company additional time to complete the impair-
ment test.
The Company first uses qualitative factors to determine whether goodwill is more likely than not impaired. If
the Company concludes from the qualitative assessment that goodwill is more likely than not impaired, it follows a
two-step approach to quantify the impairment.
The Company is required to use judgment when applying the goodwill impairment test, including the identi-
fication 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 impair-
ment for each reporting unit. The Company did not record any impairment of goodwill during 2013, 2012, or 2011.
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. 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 2013 and 2012. See Notes 15 and 16. The Company did not record any impairment to long-lived assets in
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