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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[FEE REQUIRED]
For the fiscal year ended June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 1-8703
WESTERN DIGITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2647125
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8105 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92718
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 932-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $.10 Par Value New York Stock Exchange
9% Convertible Subordinated Debentures due 2014 New York Stock Exchange
Rights to Purchase Series A Junior Participating New York Stock Exchange
Preferred Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /
As of September 1, 1994, the aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $658.6 million.
As of September 1, 1994, the number of outstanding shares of Common Stock, par
value $.10 per share, of the Registrant was 45,253,954.
Information required by Part III is incorporated by reference to portions of the
Registrant's Proxy Statement for the 1994 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission within 120 days after
the close of the 1994 fiscal year.
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PART I
ITEM 1. BUSINESS
GENERAL
Western Digital Corporation (the "Company" or "Western Digital") designs,
manufactures and sells small form factor Winchester disk drives for the mid-to
high-end personal computer ("PC") market. The Company is one of the five largest
independent manufacturers of these drives. The Company's principal drive
products are 3.5-inch form factor disk drives with storage capacities from 210
megabytes ("MBs") to 1 gigabyte ("GB") including the Caviar AC31000, a 1 GB
drive, which began initial volume shipments in June 1994.
The disk drive market is highly cyclical and is characterized by significant
price erosion over the life of a product, periodic rapid price declines due to
industry over-capacity or other competitive factors, technological changes,
changing market requirements and requirements for significant expenditures for
product development. The Company's disk drive strategy in response to these
conditions is to achieve time-to-market leadership with new product
introductions while minimizing its fixed cost structure and maximizing the
utilization of its assets. The Company implements this strategy, in part, by
capitalizing on its expertise in control and communication electronics to
deliver greater storage capacity per disk from components widely available in
the commercial market, such as disks and heads, and to provide a high degree of
commonality of component parts among its disk drive products.
The Company also designs, manufactures and sells an array of microcomputer
products ("MCP") consisting of integrated circuits ("ICs") and board products
which perform or enhance graphics and input/output ("I/O") functions in PCs and
other computer systems. The Company's MCP strategy is to bring to market
superior graphical user interface and I/O control products through its
applications knowledge and integrated circuit design capability.
The Company sells its products through its worldwide direct sales force
primarily to PC manufacturers, and, to a lesser extent, resellers and
distributors. The Company's direct sales organization is structured so that each
customer is served by a single sales team which markets the Company's entire
product line. The Company's OEM (original equipment manufacturer) customers
include AST Research, AT&T, Dell Computer, Gateway 2000, IBM, NEC,
Siemens-Nixdorf, Toshiba and Zenith Data Systems.
In December 1993, the Company sold its Irvine, California silicon wafer
fabrication facility and certain other tangible assets to the Semiconductor
Products Sector of Motorola, Inc. ("Motorola") for approximately $111.0 million
plus certain other considerations, including the assumption by Motorola of
equipment leases and certain other liabilities associated with the facility.
Approximately $95.0 million of the proceeds from the sale were used to reduce
bank indebtedness. Concurrent with the sale, the Company entered into a supply
contract with Motorola under which Motorola will supply silicon wafers to
Western Digital for at least two years. The Company has entered into various
other silicon wafer supply agreements since the sale of the facility and
anticipates that it will enter into additional supply arrangements with other
companies in the future. During the fourth quarter of fiscal 1994, the Company
initiated plans to convert its wholly-owned facility in Malaysia from an IC
assembly and test facility to a disk drive manufacturing facility. The
conversion of the facility is expected to be complete and operational by the
second quarter of fiscal 1995. The Company has obtained independent contractors
to supply finished ICs that were previously supplied by the Company's Malaysia
facility. However, a disruption in the supply of wafers or finished ICs for any
reason could have a material adverse impact on the Company -- see
"Manufacturing".
The Company's principal executive offices are located at 8105 Irvine Center
Drive, Irvine, California 92718, and its telephone number is (714) 932-5000.
Unless otherwise indicated, references herein to specific years correspond to
the Company's fiscal years ending June 30.
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MARKETS
The Company sells its disk drive products primarily to manufacturers of mid-to
high-performance desktop and notebook PCs and to selected resellers and
distributors. The market for the Company's products is characterized by short
product life cycles and a continuing demand for increasingly cost-effective,
high-performance products. In addition, the disk drive market has in recent
years experienced periods of extraordinary competitive price discounting which
produced significant operating losses for a number of competitors in this
market, including Western Digital.
The rapid increase in PC performance and storage requirements and the need for
PC manufacturers to differentiate their products have increased the demand for
higher capacity products. At the same time, intense price competition among PC
manufacturers requires that disk drive suppliers also meet aggressive cost
targets in order to become high-volume suppliers. The market for PC disk drives
is segmented by type of computer (sub-notebook, notebook, desktop), form factor
(1.8-inch, 2.5-inch, 3.5-inch) and storage capacity (currently 80 MBs to 1 GB).
The segment of the PC market currently generating the largest requirements for
disk drives is the mid-to high-performance desktop segment which uses 3.5-inch
drives ranging in capacity from 170 MBs to 1 GB. In addition, the Company
anticipates that the market for notebook and sub-notebook PCs will accelerate as
technological advancements increase their functionality and as user acceptance
expands.
The Company sells its MCP products to manufacturers of high-performance PCs and
high-performance disk drives. This market is characterized by rapid new product
introduction and an increasing demand for higher performance, lower cost ICs.
The Company also sells its graphics and sound add-in boards in the retail market
to PC end-users under its Paradise brand name.
PRODUCTS
The following table sets forth the Company's consolidated revenues by major
product area for each of the periods indicated (in millions):
Year ended June 30,
---------------------------------------------------------------------
% of % of % of
1994 Revenues 1993 Revenues 1992 Revenues
- - --------------------------------------------------------------------------------------------------
Storage products:
Disk drives $1,380 90% $1,047 85% $ 668 71%
Storage controller boards 9 1
Microcomputer products 160 10 178 15 213 23
------ ---- ------ ---- ------ ----
Revenues from current
products 1,540 100 1,225 100 890 95
LAN products(1) 48 5
------ ---- ------ ---- ------ ----
Revenues, net $1,540 100% $1,225 100% $ 938 100%
------ ---- ------ ---- ------ ----
------ ---- ------ ---- ------ ----
- - --------------------------------------------------------------------------------
(1) In October 1991, the Company sold its Local Area Network ("LAN") business.
See Note 1 to the consolidated financial statements.
In general, the unit price for a given product in all of the Company's markets
decreases over time as increases in industry supply and cost reductions occur.
Cost reductions are primarily achieved as volume efficiencies are realized,
component cost reductions are achieved, experience is gained in manufacturing
the product and design enhancements are made. Competitive pressures and customer
expectations result in these cost improvements being passed along as reductions
in selling prices. At times, the rate of general price decline is accelerated
when some competitors lower prices to absorb excess capacity, liquidate excess
inventories and/or to gain market share. The disk drive industry has experienced
all of these effects on pricing in the periods covered in the above table.
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DISK DRIVE PRODUCTS
TECHNOLOGY. Winchester disk drives are used to record, store and retrieve
digital data. They are faster than floppy disk, tape and optical disk drives and
cost less than semiconductor memory. To date, substantially all of the Company's
disk drives use the Enhanced IDE (integrated drive electronics) interface.
Commonly quoted measures of disk drive performance are storage capacity, average
seek time (the average time to move the heads from one track to another), data
transfer rate (the rate at which data are transferred between the drive and the
host computer) and spindle rotational speed.
PRODUCT OFFERINGS. The Company's current line of disk drive products consists of
the Caviar family of low profile drives which includes 1-inch high, 3.5-inch
form factor models for desktop applications and 2.5-inch form factor models for
portable computer applications. Each of these drives features CacheFlow, the
Company's proprietary adaptive disk caching system which significantly enhances
the drive's read/write performance as measured by the rate at which it can
deliver data to or receive it from the computer. An additional common feature is
the Company's proprietary drive control and communication electronic circuitry
called Architecture II, which spans the Company's entire 3.5-inch Caviar product
line. Architecture II features Enhanced IDE technology, which provides the
desktop marketplace the key attributes of the SCSI (small computer systems
interface) interface while retaining the focus on ease-of-use, compatibility and
overall lower cost of connection advantages, all of which are the traditional
strengths of IDE. The Company believes that the commonality of control and
communication electronics featured in all of the Caviar disk drives facilitates
customer qualification of successive product models, reduces risk of inventory
obsolescence and allows the Company to place larger orders for components
resulting in reduced component cost.
The following table summarizes certain design and performance characteristics
and specifications of the Company's current disk drive products:
Formatted Average Number Number
Date Capacity Access Time of of
Product First Shipped (Megabytes) (Milliseconds) Disks Heads Interface
- - ---------------------------------------------------------------------------------------------------------
3.5-inch Form
Factor:
Caviar AC2340 September 1992 341 <13 2 4 AT IDE*
Caviar AC2250 November 1992 256 <13 2 3 AT IDE*
Caviar AC2420 March 1993 425 <13 2 4 AT IDE*
Caviar AC1210 June 1993 213 <13 1 2 AT IDE*
Caviar AC1270 September 1993 270 <11 1 2 AT IDE*
Caviar AC2540 September 1993 540 <11 2 4 AT IDE*
Caviar AC2700 June 1994 730 <10 2 4 AT IDE*
Caviar AC31000 June 1994 1080 <10 3 6 AT IDE*
2.5-inch Form
Factor:
Caviar Lite AL2170 April 1993 171 <16 2 4 AT IDE
Caviar Lite AL2200 January 1994 200 <16 2 4 AT IDE
- - ---------------------------------------------------------------------------------------------------------
* Features Enhanced IDE (EIDE) technology, improving the performance of the
standard IDE interface.
DISK DRIVE PRODUCTS FOR DESKTOP PCS
The Caviar AC2340 was the industry's first 3.5-inch, two-platter 340 MB drive
and is targeted at high-performance 486-based machines. Customers for the Caviar
AC2340 include AST Research, AT&T, Dell Computer, Gateway 2000, IBM, NEC and
Zenith Data Systems.
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The Caviar AC2250 has the same storage density per platter as the AC2340 but
utilizes only three drive heads instead of four. This drive is targeted at
high-performance 486-based machines. Customers for the AC2250 include AST
Research, AT&T, Dell Computer, Gateway 2000 and IBM.
The Caviar AC2420 was the industry's first 3.5-inch, two-platter 420 MB drive
and is targeted at high-performance 486-based machines. Customers for the Caviar
AC2420 include AT&T, Fountain Technologies and Zenith Data Systems.
The Caviar AC1210 was the industry's first 3.5-inch, single-platter 210 MB
drive. This drive is targeted at high-performance 486-based machines. Customers
for the AC1210 include AST Research, AT&T, Gateway 2000, IBM and Zenith Data
Systems.
The Caviar AC1270 was the industry's first single-platter 270 MB drive and is
targeted at high-performance 486-based machines. Customers for the AC1270
include AST Research, AT&T, Dell Computer, Gateway 2000 and NEC.
The Caviar AC2540 was the industry's first 3.5-inch, two-platter 540 MB drive
and is targeted at high-end Pentium and Power PC-based machines and
high-performance 486-based machines. Customers for the AC2540 include AST
Research, AT&T, Dell Computer, Gateway 2000 and NEC.
The Caviar AC2700 was the industry's first 3.5-inch, two-platter 700 MB drive
and is targeted at high-end Pentium and Power PC-based machines and
high-performance 486-based machines. Customers of the AC2700 include AST
Research and Packard Bell.
The Caviar AC31000 was the industry's first 3.5-inch, three-platter Enhanced IDE
drive in a 1 GB capacity. This drive is targeted at high-end Pentium and Power
PC-based machines and high-performance 486-based machines. Customers for the
AC31000 include Dell Computer, Gateway 2000, NEC-Japan and Siemens-Nixdorf.
DISK DRIVE PRODUCTS FOR PORTABLE PCS
The Caviar Lite AL2170, a 2.5-inch, 15mm high drive, was designed to address the
requirements of the growing notebook market which demands an increased capacity,
low power, low profile storage solution. IBM is a customer for the Caviar Lite
AL2170.
The Caviar Lite AL2200, a 2.5-inch, 15mm high drive, was also designed to
address the requirements of the growing notebook market. Customers for the
AL2200 include AST Research, AT&T and IBM.
MICROCOMPUTER PRODUCTS
GRAPHICS PRODUCTS. The Company supplies a family of RocketCHIP brand name
graphics ICs and Paradise brand name add-in cards to the desktop and portable PC
markets. Graphics ICs and Paradise add-in cards provide enhanced video graphics
array ("Super VGA") functionality. These products allow major enhancements in
display resolution and color depth quality and incorporate a Windows
acceleration feature, which provides faster display of icons and other graphics
features in the Windows operating system without the need for new PC hardware.
In November 1993, the Company introduced RocketCHIP WD24A, the industry's first
single-chip Super VGA LCD video graphics controller to offer hardware Windows
acceleration features and true 32-bit VESA VL-Bus interface to portable PC
environments. This device provides a fully integrated solution including RAMDAC
and programmable dual-frequency clock generator. As with all of its VGA IC's,
the Company's portable graphics display products emphasize hardware capability
with all VGA software and hardware standards and with all previous graphics
standards.
In February 1994, the Company began volume shipments of the Paradise 16-DSP
(digital signal processor) sound card, which is the Company's first
multimedia-related product from Paradise. The Paradise 16-DSP
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sound card provides high-performance, programmable digital signal processing and
also supports future revolutionary functions such as DSP-based voice recognition
and DSP-based sound effects.
I/O PRODUCTS. The Company supplies control electronics to certain manufacturers
of high-performance, high-capacity disk drives and other storage peripherals
utilizing the SCSI bus interface. These manufacturers of SCSI disk, tape and
optical drives utilize the Company's storage control chipsets for their logic
and control electronics.
SALES AND DISTRIBUTION
The Company sells its products primarily to PC manufacturers, and, to a lesser
extent, resellers and distributors through its worldwide direct sales force. The
Company's direct sales organization is structured so that each customer is
served by a single sales team. Each sales team is responsible for marketing the
Company's entire product line and providing timely feedback to engineering
regarding customers' new product requirements. This promotes early
identification of and response to the customer's full range of product needs.
Later, in the production stage, the team focus enables the Company to provide
timely product delivery and effective service. Many of the Company's OEM
customers purchase both disk drives and MCP products from the Company. These
customers include AST Research, AT&T, Dell Computer, Gateway 2000, IBM, NEC,
Siemens-Nixdorf, Toshiba and Zenith Data Systems. While Western Digital believes
its relationships with key customers are very good, the concentration of sales
to a relatively small number of major customers presents a business risk that
loss of one or more accounts could adversely affect the Company's operating
results. During 1994, sales to Gateway 2000 and IBM each accounted for
approximately 12% of revenues. During 1993, sales to Gateway 2000 and IBM
accounted for approximately 13% and 11% of revenues, respectively. During 1992,
sales to Gateway 2000 accounted for approximately 10% of revenues.
The Company also sells its products through its direct sales force to selected
resellers, which include major distributors, mass merchandisers and value-added
resellers. In accordance with standard industry practice, the Company's reseller
agreements provide for price protection for unsold inventories which the
resellers may have at the time of changes in published price lists and, under
certain circumstances, stock rotation for slow moving items. These agreements
may be terminated by either party upon written notice and, in the event of
termination, the Company may be obligated to repurchase such inventories.
Western Digital maintains sales offices and technical support in the United
States, Europe and Asia. The Company's international sales, which include sales
to foreign subsidiaries of U.S. companies, represented 44%, 43% and 40% of
revenues for 1994, 1993 and 1992, respectively. Sales to international customers
may be subject to certain risks not normally encountered in domestic operations
including exposure to tariffs and various trade regulations.
RESEARCH AND DEVELOPMENT
The Company devotes substantial resources to research and development in order
to develop new products and improve existing products. The Company also focuses
its engineering efforts to coordinate its product design and manufacturing
processes in order to bring its products to market in a cost-effective and
timely manner. The Company's research and development expenses totaled $112.8
million in 1994, $101.6 million in 1993 and $89.6 million in 1992.
The market for the Company's products is subject to rapid technological change
and short product life cycles. To remain competitive, the Company must
anticipate the needs of the market and successfully develop and introduce new
products in a timely fashion. Before volume shipments of the Caviar AC2200 in
March 1992, the Company was less successful than its competitors in developing
new products and bringing them to market in a timely manner. If not carefully
planned and executed, the introduction of new products may adversely affect
sales of existing products and increase risk of inventory obsolescence. In
addition, new products typically have lower initial manufacturing yields and
higher initial component costs than more mature products. No assurance can be
given that the Company will be able to successfully complete the
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design and introduction of new products, manufacture the products at acceptable
yields and costs, effectively manage product transitions or obtain significant
orders for these products.
MANUFACTURING
The Company's disk drives are assembled in its plant in Singapore. The Singapore
plant has complete responsibility for all disk drives in volume production
including manufacturing engineering, purchasing, inventory management, assembly,
test, quality assurance and shipping of finished units. The Company purchases
most of the standard mechanical components and micro controllers for its disk
drives from external suppliers, although the Company does manufacture a
substantial portion of the media for its disk drives in its Santa Clara,
California facility.
During the fourth quarter of 1994, the Company initiated plans to convert its
wholly-owned facility in Malaysia from an IC assembly and test facility to a
disk drive manufacturing facility. It is intended that the Malaysia facility
will manufacture the Company's more mature disk drive products. The conversion
of the facility is expected to be complete and operational by the second quarter
of 1995. The cost of converting the Malaysia facility to a drives manufacturing
plant is not expected to be material to the financial position of the Company.
The Company experiences fluctuations in manufacturing yields which can
materially affect the Company's operations, particularly in the start-up phase
of new products or new manufacturing processes. With the continued pressures to
shorten the time required to introduce new products, the Company must accelerate
production learning curves to shorten the time to achieve acceptable
manufacturing yields and costs. No assurance can be given that the Company's
operations will not be adversely affected by these fluctuations or that it can
shorten its new product development cycles or manufacturing learning curves
sufficiently to achieve these objectives in the future.
As a result of the sale of its wafer fabrication facility in December 1993 and
conversion of its Malaysia IC assembly and test facility to a disk drive
manufacturing plant, the Company has entered into various agreements with
multiple vendors to purchase fabricated wafers and has also obtained independent
contractors to supply finished ICs that were previously supplied by the
Company's Malaysia facility. However, a disruption in the supply of wafers or
finished ICs for any reason could have a material adverse impact on the Company.
The Company has manufacturing facilities located in Singapore, Malaysia and
Korea and is therefore subject to certain foreign manufacturing risks such as
changes in government policies, high employee turn-over, political risk,
transportation delays, tariffs, fluctuations in foreign exchange rates and
import, export, exchange and tax controls. To date, exposure to such risks has
not had a material effect on the Company's business, consolidated financial
position or results of operations.
MATERIALS AND SUPPLIES
The principal components used in the manufacture of the Company's disk drives
are read/write heads (both thin film and MIG) and related headstack assemblies,
media, micro controllers, spindle motors and mechanical parts used in the
head-disk assembly. The principal materials used in the manufacture of the
Company's semiconductor circuits are silicon wafers, chemicals and gases used in
the wafer fabrication process and plastic packages used in the assembly process.
The Company also uses standard semiconductor components such as logic, memory
and microprocessor devices obtained from other manufacturers, as well as
proprietary semiconductor circuits manufactured for the Company, and a wide
variety of other parts including connectors, cables and switches.
A number of the components used by the Company are available from a single or
limited number of outside suppliers. Some of these materials may periodically be
in short supply and the Company has, on occasion, experienced temporary delays
or increased costs in obtaining these materials. An extended shortage of
required materials and supplies could have an adverse effect upon the revenue
and earnings of the Company. In addition, the Company must allow for significant
lead times when procuring certain materials and
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supplies. The Company has more than one available source of supply for most of
its required materials. Where there is only one source of supply, the Company
believes that a second source could be obtained within a reasonable period of
time. However, no assurance can be given that the Company's results of
operations will not be adversely affected until a new source can be located.
The Company purchases substantially all of its thin film head requirements for
disk drives from Read-Rite Corporation. The Company also uses MIG heads for
certain products which are supplied by several vendors. Any significant
disruption in the supply of these components would have an adverse effect on the
Company's results of operations.
In December 1993, the Company sold its Irvine, California silicon wafer
fabrication facility -- see "General." From 1990 until the sale, the Company
manufactured silicon wafers in the Irvine facility. The Company also buys wafers
fabricated by other companies. Since the sale of the wafer fabrication facility,
the Company has obtained various outside sources to manufacture its
semiconductor wafer requirements. The Company has also obtained independent
contractors to supply finished ICs that were previously supplied by the
Company's Malaysia facility. However, a disruption in the supply of wafers or
finished ICs for any reason could have a material adverse impact on the Company.
COMPETITION
The PC industry is intensely competitive and is characterized by significant
price erosion over the life of a product, periodic rapid price declines due to
industry over-capacity or other competitive factors, technological changes,
changing market requirements, occasional shortages of materials, dependence upon
a limited number of vendors for certain components, dependence upon highly
skilled engineering and other personnel and significant expenditures for product
development. The disk drive market in particular has been subject to recurring
periods of severe price competition. Certain of the Company's competitors have
greater financial and other resources and broader product lines than the Company
with which to compete in this environment.
The Company believes that proprietary disk drive, semiconductor, and board-level
design technology, close technical relationships with key OEM customers and
vendors, diverse product lines, competitive pricing, adequate capital resources
and worldwide low cost/high volume manufacturing capabilities are key factors
for successfully competing in its market areas. The Company's principal
competitors in the disk drive industry are Conner Peripherals, Maxtor, Quantum
and Seagate Technology, and large computer manufacturers such as IBM that
manufacture drives for use in their own products and for sale to others. In
other market areas the Company competes with a variety of companies including
Adaptec, Chips and Technologies, Cirrus Logic, Intel, LSI Logic, S3
Incorporated, Tseng Labs and VLSI Technology.
The Company also competes with companies offering products based on alternative
data storage and retrieval technologies. Technological advances in magnetic,
optical, flash or other technologies, could result in the introduction of
competitive products with performance superior to and prices lower than the
Company's products, which could adversely affect the Company's results of
operations.
BACKLOG
At June 30, 1994, the Company's backlog, consisting of orders scheduled for
delivery within the next twelve months, aggregated approximately $223.1 million,
compared with a backlog at June 30, 1993 which aggregated approximately $40.0
million. Historically, a substantial portion of the Company's orders have been
for shipments within 30 to 60 days of the placement of the order. The Company's
sales are made under contracts and purchase orders which, under industry
practice, may be canceled at any time, subject to payment of certain costs, or
modified by customers to provide for delivery at a later date. Therefore,
backlog information as of the end of a particular period is not necessarily
indicative of future levels of the Company's revenue and profit.
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PATENTS AND LICENSES
Although the Company owns numerous patents and has many patent applications in
process, the Company believes that the successful manufacture and marketing of
its products generally depends more upon the experience, technical know-how and
creative ability of its personnel rather than upon ownership of patents.
The Company pays royalties under several patent licensing agreements which
require periodic payments. From time to time, the Company receives claims of
alleged patent infringement from patent holders which typically contain an offer
to grant the Company a license. It is the Company's policy to evaluate each
claim and, if appropriate, to enter into licensing arrangements. Although patent
holders commonly offer such licenses, no assurance can be given that licenses
will be offered, or that the terms of any offered license will be acceptable to
the Company. No assurance can be given that failure to obtain a license would
not adversely affect the Company's business, consolidated financial position or
results of operations -- see "Legal Proceedings".
EMPLOYEES
As of June 30, 1994, the Company employed a total of 6,593 full-time employees,
of whom 529 were engaged in engineering, 431 in sales and administration and 594
in manufacturing in the United States. The Company employed 728 employees at its
manufacturing facility in Malaysia, 4,007 at its disk drive manufacturing
facility in Singapore, 163 at its board-level subsystems facility in Korea and
141 at its international sales offices.
Many of the Company's employees are highly skilled, and the Company's continued
success depends in part upon the ability to attract and retain such employees.
In an effort to attract and retain such employees, the Company continues to
offer employee benefit programs which it believes are at least equivalent to
those offered by its competitors. Despite these programs, the Company has, along
with most of its competitors, experienced difficulty at times in hiring and
retaining certain skilled personnel. In critical areas, the Company has utilized
consultants and contract personnel to fill these needs until full-time employees
could be recruited. The Company has never experienced a work stoppage, none of
its domestic employees are represented by a labor organization and the Company
considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company's headquarters are located in a 358,000 square foot building in
Irvine, California. This building houses management, research and development,
administrative and sales personnel and is leased to the Company pursuant to an
agreement expiring in June 2000. The Company's disk drive manufacturing
facilities are located in Singapore in several buildings totaling approximately
278,000 square feet. These buildings are leased to the Company pursuant to
several agreements expiring from August 1995 through October 1996. The Company
also owns a 83,500 square foot facility in Kuala Lumpur, Malaysia which is in
the process of being converted into a disk drive manufacturing facility (see
"Manufacturing"), and owns a facility in Seoul, Korea designed for board-level
assembly of disk drive components which consists of approximately 33,800 square
feet. In addition, the Company leases office space in Mountain View and San
Jose, California for research and development activities, and in Santa Clara,
California for media processing activities.
The Company also leases office space in various other locations throughout the
world primarily for sales and technical support. The Company's present
facilities are adequate for its current needs, although the process of upgrading
its facilities to meet technological and market requirements is expected to
continue.
ITEM 3. LEGAL PROCEEDINGS
The Company was sued in September 1991, in the United States District Court for
the Central District of California by Amstrad plc, a British computer maker. The
suit alleged that disk drives furnished to Amstrad in 1988 and 1989 were
defective. Amstrad claimed damages of approximately $3.0 million for asserted
losses
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in out-of-pocket expenses, $38.0 million in lost profits and $100.0 million for
injury to Amstrad's reputation and loss of goodwill. The Company filed a
counterclaim against Amstrad. This federal action was dismissed without
prejudice and Amstrad has filed a similar complaint in Orange County, California
Superior Court, but raised the claim for damages to $186.0 million. The Company
again filed a counterclaim for $3.0 million in actual damages plus exemplary
damages in an unspecified amount and intends to vigorously defend itself against
the Amstrad claims.
The Company was sued in March 1993 in the United States District Court for the
Northern District of California by Conner Peripherals, Inc. ("Conner"). The suit
alleges that the Company infringes five Conner patents and seeks damages
(including treble damages) in an unspecified amount and injunctive relief.
Conner moved for a preliminary injunction to enjoin the Company from using three
of the patents in certain of the Company's disk drive products. The court denied
that motion. If Conner were to prevail in its claims, the Company could be
enjoined from using any of the Conner patents found to be valid and infringed
that are the subject of this action as well as held liable for past infringement
damages. The amount of such damages, if any, could be material. The Company
believes that it has meritorious defenses to all of Conner's claims and intends
to vigorously defend itself against the Conner lawsuit. The Company has also
filed a suit alleging that Conner infringes two of the Company's patents.
The Company has received a claim of alleged patent infringement from Rodime PLC
("Rodime") under one of Rodime's U.S. patents which relates to 3.5-inch disk
drives. Rodime has offered to grant the Company a royalty bearing license under
that and other Rodime patents. Based on the opinion of patent counsel, the
Company believes that the broad claims of the Rodime patent, if scrutinized in
court, will not withstand an attack on validity, and believes that the Company
has not infringed any valid claim of the Rodime patent. If Rodime were to
commence litigation against the Company on this patent, and if Rodime were to
prevail on its claim, the Company could be held liable for damages for past
infringement. The amount of such damages, if any, is uncertain but could be
material.
The Company currently has a cross-license with IBM Corporation ("IBM") which
became effective January 1, 1990. Pursuant to this agreement, the Company has
licensed IBM under certain Western Digital patents for the life of such patents,
and has obtained from IBM a patent license which expires December 31, 1994
covering certain Western Digital products. Although the license granted to
Western Digital extends to certain components within Western Digital disk
drives, disk drives as such are not expressly covered. In calendar 1993, IBM
initiated further discussion with the Company for the purpose of determining
whether the Company's disk drives are covered by specified IBM patents. The
Company is currently reviewing these patents. Based on its prior dealings with
IBM, the Company expects to work toward a supplemental agreement with IBM which
will address the disk drive issues and extend the term of the license, with the
goal of reaching agreement prior to the expiration of the term of the current
license agreement. This supplemental agreement, if finalized, may involve
payment of higher royalties to IBM than are presently paid. No assurance can be
given that such an agreement can be reached upon terms acceptable to the
Company. Failure to reach an acceptable agreement could have a material adverse
impact on the Company's business.
The Company is also subject to certain other legal proceedings and claims
arising in connection with its business. There can be no assurance that
litigation will not be commenced on one or more of these or possible other
future such claims, or that, if commenced, all such litigation would be resolved
without any material adverse effect on the Company's business, consolidated
financial position or results of operations.
It is management's opinion, however, that none of these claims will have a
material adverse effect on the Company's business, consolidated financial
position or results of operations. The costs of defending such litigation can be
substantial, regardless of outcome.
The Company was sued in July 1991 in the United States District Court for the
Central District of California in a purported class action securities lawsuit.
In June 1994, the court approved a settlement of this case whereby eligible
class members will share, on a claims made basis, up to $6.75 million, comprised
of $3.5 million in cash and the balance in shares of the Company's common stock.
The Company's insurance
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carrier has agreed to contribute up to $2.6 million in cash toward the
settlement. At June 30, 1994, the Company has provided for its estimate of
claims to be made under the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all the executive officers of the Company as of
September 1994 are listed below, followed by a brief account of their business
experience during the past five years. Officers are normally appointed annually
by the Board of Directors at a meeting of the directors immediately following
the Annual Meeting of Shareholders. There are no family relationships among
these officers nor any arrangements or understandings between any officer and
any other person pursuant to which an officer was selected. None of these
officers has been involved in any court or administrative proceeding within the
past five years adversely reflecting on his or her ability or integrity.
Name Age Position
- - -------------------------------------------------------------------------------------------------
Charles A. Haggerty 53 Chairman of the Board, President and Chief Executive
Officer
Kathryn A. Braun 43 Executive Vice President, Storage Products
Kenneth E. Hendrickson 53 Executive Vice President, Microcomputer Products
D. Scott Mercer 43 Executive Vice President, Chief Financial and
Administrative Officer
Marc H. Nussbaum 38 Senior Vice President, Engineering
Robert L. Erickson 64 Vice President, Law and Secretary
Scott T. Hughes 31 Vice President, Human Resources
David W. Schafer 42 Vice President, Worldwide Sales
Duston M. Williams 36 Vice President and Treasurer
- - -------------------------------------------------------------------------------------------------
Messrs. Erickson, Nussbaum, Schafer and Williams and Ms. Braun have been
employed by the Company for more than five years and have served in various
executive capacities with the Company before being appointed to their present
positions.
Mr. Haggerty joined the Company as President in June 1992 and has been a
director since January 1993. He assumed the additional positions of Chairman and
Chief Executive Officer on June 30, 1993. Prior to joining the Company, he spent
his 28-year business career in various positions at IBM. In 1987, he became
IBM's Vice President of worldwide operations for the AS/400. He then served as
Vice President/General Manager, low-end mass-storage products responsible for
operations in the United States, Japan and the United Kingdom. Immediately prior
to joining the Company, he held the position of Vice President of IBM's
worldwide OEM storage marketing.
Mr. Hendrickson joined the Company in March 1994. Prior to joining the Company,
he served as Vice President, Operations and Quality and member of the Board of
Directors of Overland Data Corporation, Inc. from 1993 to 1994. From 1990 to
1993, he served as President of Archive Corporation's Archive Technology
Division. During 1989, he served as President of Genicom Corporation's Printer
Products Division.
Mr. Mercer joined the Company in October 1991 and served in various executive
capacities with the Company before being appointed to his present position in
August 1993. Prior to joining the Company, he served as Senior Vice President
and Chief Financial Officer of Businessland, Inc. from 1990 to 1991. From 1983
to 1990, he served in various executive capacities with LSI Logic Corporation.
Mr. Hughes joined the Company in July 1993 as Vice President, Human Resources
before becoming an elected officer of the Company in July 1994. Prior to joining
the Company, he served as Director of Human Resources of Quantum Corporation
from 1992 to 1993. From 1990 to 1992, he served in various capacities with
Western Digital, including acting Vice President, Human Resources. From 1986 to
1990, Mr. Hughes served as a compensation benefits consultant with Hewitt
Associates.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITIES AND
RELATED SHAREHOLDER MATTERS
Western Digital's common stock is listed on the New York Stock Exchange
("NYSE"). The approximate number of holders of record of common stock of the
Company as of September 1, 1994 was 4,360.
The Company has not paid any cash dividends on its common stock and does not
intend to pay any cash dividends in the foreseeable future.
The high and low closing prices of the Company's common stock, as reported by
the NYSE, for each quarter of 1994 and 1993 are as follows:
First Second Third Fourth
- - ----------------------------------------------------------------------------------------------------
1994
High $6 1/8 $10 1/4 $20 1/8 $19 1/2
Low 3 3/4 4 7/8 8 3/4 11 7/8
1993
High $5 3/8 $ 8 5/8 $ 9 1/2 $ 6
Low 4 1/4 5 5 1/4 3 3/4
- - ----------------------------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
WESTERN DIGITAL CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share and employee data)
Year ended June 30,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------
Revenues, net $1,539,680 $1,225,231 $ 938,332 $ 986,201 $1,073,907
Gross profit 317,931 182,047 110,625 173,234 262,160
Research and development 112,827 101,593 89,566 93,107 82,111
Selling, general and
administrative 113,224 90,470 88,012 116,361 140,058
Operating income (loss) 91,880 (10,016) (66,953) (117,774) 39,991
Net income (loss) 73,136 (25,108) (72,860) (134,171) 24,165
Primary earnings (loss)
per share (1) $ 1.77 $ (.79) $ (2.49) $ (4.59) $ .82
Working capital $ 261,744 $ 111,548 $ 138,919 $ 167,319 $ 231,082
Additions to property
and equipment, net 16,282 35,565 21,311 76,913 91,959
Total assets 640,513 531,171 532,543 620,440 637,560
Total long-term
obligations 58,646 182,561 242,951 234,933 145,050
Shareholders' equity $ 288,239 $ 130,950 $ 112,257 $ 185,102 $ 322,042
Number of employees 6,593 7,322 6,906 6,740 7,607
- - -----------------------------------------------------------------------------------------------------
(1) For the year ended June 30, 1994, fully diluted earnings per share were
$1.70. For all other periods presented fully diluted earnings (loss) per
share approximated primary earnings (loss) per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Western Digital operates in an extremely competitive industry subject to short
product life cycles, dependence upon a limited number of suppliers for certain
component parts, dependence upon highly skilled engineering and other personnel
and significant expenditures for product development. The disk drive market in
particular has been subject to recurring periods of severe price competition.
During the fourth quarter of 1993, revenues and gross profits declined
significantly due to severe competitive pricing pressures across all 3.5-inch
drive capacity price points, resulting in the Company reporting a loss in the
fourth quarter of 1993 and well as for the year, and for the first quarter of
1994.
The Company's engineering strategy has been focused toward the production of
higher capacity-per-platter, cost-competitive disk drives, and as a result,
during 1994, the Company continued to introduce higher-capacity disk drives,
increase factory utilization and improve manufacturing efficiencies, which
reduced per unit manufacturing costs and also obtained lower component costs
from suppliers. These factors, along with stabilizing industry conditions,
contributed to the Company reporting net income of $73.1 million in 1994, as
compared with net losses of $25.1 million and $72.9 million for 1993 and 1992,
respectively.
During 1994, the Company significantly strengthened its balance sheet through
cash flows from operations, proceeds from the sale of the Company's wafer
fabrication facility and common stock offering and retirement of all bank debt
($143.3 million) outstanding at June 30, 1993. Cash and cash equivalents totaled
$243.5 million at the end of 1994 versus $33.8 million at the end of 1993. In
addition, during 1994, the Company entered into an $85.0 million accounts
receivable facility with certain financial institutions, consisting of a $50.0
million three-year arrangement and a $35.0 million one-year committed
arrangement. This facility is intended to serve as a source of working capital
as may be needed from time to time and replaces credit facilities secured by
substantially all of the Company's assets.
Unless otherwise indicated, references herein to specific years and quarters are
to the Company's fiscal years ending June 30 and to fiscal quarters.
RESULTS OF OPERATIONS
COMPARISON OF 1994, 1993 AND 1992
The Company reported net income for 1994 of $73.1 million compared with net
losses of $25.1 and $72.9 million for 1993 and 1992, respectively. The improved
operating results since 1992 are directly related to increased revenues and
improved gross profit margins. The Company's revenues increased 26% and 31% in
1994 and 1993, respectively, while gross profit margins improved from 11.8% in
1992 to 14.9% in 1993 and 20.6% in 1994.
Revenue for drive products totaled $1.4 billion in 1994, an increase of $333.0
million, or 32% as compared with the prior year. A 56% increase in the volume of
drive units shipped year-to-year and a shift in product mix to higher-capacity
drives contributed to this increase in revenue. The average MB per drive shipped
in 1994 increased significantly to 298 MBs per drive from 186 MBs per drive in
1993. The positive impact of these factors on revenue was partially offset by a
seven percent decline in disk drive average selling prices ("ASPs") from 1993 to
1994. If the disk drive industry is subjected to another period of severe
pricing competition such as occurred in the latter half of 1993 and first part
of 1994, revenue and gross profit may be adversely impacted in future quarters.
Revenue for MCP totaled $160.0 million in 1994, a decrease of $18.0 million, or
10% from 1993, primarily due to a decrease in graphics product revenue as a
result of decreased sales in desktop graphics. During the fourth quarter of
1994, MCP reported its first profitable quarter in more than three years. This
performance was driven by strength in the input/output product line and the
Company's strong position in portable
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graphics accelerator chips, as well as continued fixed cost reductions
associated with the Company's transition to a fabless business model.
Revenue for drive products totaled $1.0 billion in 1993, an increase of $379.0
million, or 57% as compared with 1992. Unit shipments increased 63% year-to-year
with the majority of the increase occurring in the first nine months of 1993, as
the mix of units shipped continued to shift to newer, higher-performance,
higher-capacity drives. In 1993 the average MB per drive shipped nearly doubled
to 186 MBs per drive from 98 MBs per drive in 1992. The increase in drive
shipments and shift in product mix was partially offset by a 14% year-to-year
decline in ASPs across all 3.5-inch drive capacity price points as a result of
severe competitive pricing pressures in the disk drive industry beginning in
March 1993.
MCP revenue decreased $35.0 million, or 16% from 1992 to 1993, with the majority
of the decrease occurring in the systems solutions product line. Unit shipments
of systems solutions products decreased approximately 26% from 1992 to 1993,
while the ASPs decreased 53% year over year primarily as a result of the
transition away from board level products to ICs with lower ASPs.
Disk drive gross margin for 1994 and 1993 increased approximately four and seven
percentage points, respectively to 19.1% in 1994 from 15.3% in 1993 and from
8.2% in 1992. Beginning in the latter half of 1992, disk drive sales began to
contribute to gross profits as increased demand for the Company's newer,
higher-capacity products resulted in higher sales volume and ASPs and increased
factory utilization, which reduced per unit manufacturing costs and improved
gross margins. Gross margins from disk drives continued to increase from the
second half of 1992 to the first half of 1993 as unit shipments of the Company's
higher-capacity drives increased while ASPs remained steady. Beginning in March
1993, however, gross margins declined significantly as ASPs for all 3.5-inch
drive capacity price points decreased sequentially during the last two quarters
of 1993 as a result of severe competitive pricing pressures in the disk drive
industry.
During 1994 the Company's gross margins increased sequentially through the third
quarter as a result of increases in unit shipments which reduced per unit
production costs, lower component costs and a favorable product mix which more
than offset the decline in ASPs. Gross margin in the fourth quarter was
essentially flat with the immediately preceding quarter. There can be no
assurance that the Company will be able to sustain the current gross margin
levels due to the cyclical nature of the disk drive industry and the Company's
dependence on new product introductions.
MCP gross margin increased approximately 21 percentage points to 33.7% in 1994
from 12.5% in 1993 as the Company began to realize the cost benefits of selling
its wafer fabrication facility (see Note 3 to the consolidated financial
statements) and thereby reducing manufacturing costs. Gross margin from MCP,
excluding the LAN business, decreased approximately eight percentage points to
12.5% in 1993 from 20.2% in 1992 as a result of the planned transition away from
board-level systems solutions products, which contributed to higher gross
margins in 1992 than the Company's product offerings in 1993. The decrease in
gross margins in 1993 was partially offset by the sequential increase in gross
margins experienced in the latter half of 1993 as a result of manufacturing
efficiencies which reduced per unit manufacturing costs.
Research and development expense ("R&D") in 1994 increased approximately $11.2
million, or 11% as compared with the prior year and increased approximately
$12.0 million, or 13% from 1992 to 1993. These increases were primarily
attributable to planned expenditures to support new product introductions.
During 1994 and 1993, R&D expenditures were primarily focused on the development
of new disk drive products whereas in 1992, the Company's R&D resources were
approximately equally allocated between the development of new disk drives and
MCPs, including semiconductor processes and licensing support.
Selling, general and administrative expenses ("SG&A") in 1994 increased $22.8
million, or 25% from the prior year as a result of increases in selling,
marketing, and other related expenses in support of higher revenue levels and
provisions made for the Company's pay-for-performance plans. SG&A expense
increased approximately $2.5 million, or 3% from 1992 to 1993 primarily as a
result of increased selling and marketing expenses and certain reserves for
executive severance.
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Net interest expense decreased $9.3 million in 1994 due to significant
reductions in debt outstanding. Net interest expense decreased $5.1 million in
1993 as a result of lower market interest rates and lower levels of debt
outstanding.
In 1992, the Company recorded a gain of $15.8 million from the sale of its LAN
business for a cash payment of $33.0 million. The buyer acquired specific
tangible and intangible assets, assumed certain liabilities, and received
certain licenses from Western Digital for specific LAN applications of more
broadly based Western Digital technology. Western Digital agreed not to
manufacture or distribute similar products for a period of up to six years.
The provision for income taxes in 1994 and 1992 consist primarily of taxes
associated with certain of the Company's foreign subsidiaries which had taxable
income. The Company's effective tax rate of 15% recorded in 1994 results
primarily from the earnings of certain subsidiaries which are taxed at
substantially lower tax rates as compared with United States statutory rates
(see Note 6 to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, the Company had $243.5 million in cash and cash equivalents as
compared with $33.8 million at June 30, 1993. During 1994, the Company generated
$178.8 million in cash flows from operations and $73.3 million in net proceeds
from the sale of 7,618,711 shares of common stock in February 1994. Cash flows
from operations, along with approximately $95.0 million of the proceeds from the
sale of the Company's wafer fabrication facility were used to reduce long-term
debt by $146.3 million and to fund capital expenditures of $16.3 million.
Capital expenditures were incurred primarily for increased disk drive
manufacturing and wafer testing capacity. The Company anticipates that capital
expenditures in 1995 will be approximately $60.0 million and will relate to
increased disk drive manufacturing capacity. The Company believes that its
current cash position and its anticipated future cash flow from operations are
sufficient to meet all currently planned capital expenditures and sustain
operations during the next fiscal year.
During 1994, the Company entered into an $85.0 million accounts receivable
facility with certain financial institutions. The facility consists of a $50.0
million three-year arrangement at Eurodollar or reference rates of the
participating banks and a $35.0 million one-year committed arrangement at a rate
approximating commercial paper rates. This new facility is intended to serve as
a source of working capital as may be needed from time to time and replaces
credit facilities secured by substantially all of the Company's assets.
Notwithstanding the significant improvements in financial position realized over
the past year, the ability of the Company to sustain its improved working
capital management and to continue operating profitably is dependent upon a
number of factors including competitive conditions in the marketplace, general
economic conditions, the efficiency of the Company's manufacturing operations,
procurement of fabricated wafers and finished ICs from outside suppliers and the
timely development and introduction of new products which address market needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is listed on page F-1 and is incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended June 30, 1994 and
the information from the section entitled "Executive Officers of the Registrant"
following Part I, Item 4 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended June 30, 1994.
Western Digital maintains certain employee benefit plans and programs in which
its executive officers and directors are participants. Copies of these plans and
programs are set forth or incorporated by reference as Exhibits 10.1, 10.2,
10.3, 10.10, 10.11, 10.12, 10.14, 10.21, 10.28 and 10.29 to this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended June 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended June 30, 1994.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Documents filed as a part of this Report:
(1) Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements and Schedules on page F-1 are filed
as part of this Report and incorporated herein by reference.
(2) Financial Statement Schedules
The financial statement schedules listed in the accompanying Index to
Consolidated Financial Statements and Schedules on page F-1 are filed
as part of this Report and incorporated herein by reference.
(3) Exhibits
Sequentially
Exhibit Numbered
Number Description Page
- - --------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Registrant (filed as Exhibit
3.1 to the Registrant's Current Report on Form 8-K filed January
15, 1987 (File No. 1-8703) and incorporated herein by this
reference)
3.2.1 By-laws of Registrant (incorporated by reference to Exhibit 3.2.1
to the Registrant's Current Report on Form 8-K (File No. 1-8703) as
filed with the Securities and Exchange Commission on July 18, 1994)
3.3 Certificate of Agreement of Merger(7)
3.4 Certificate of Amendment of Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-3 (File No. 33-28374) as filed
with the Securities and Exchange Commission on April 26, 1989)
4.1 Indenture, dated as of May 1, 1989, between the Registrant and U.S.
Trust Company of California, N.A., covering the Registrant's 9%
Convertible Subordinated Debentures due 2014 (incorporated by
reference to Exhibit 4 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-3 (File No. 33-28374) as filed
with the Securities and Exchange Commission on May 10, 1989)
4.2 Rights Agreement between the Registrant and First Interstate Bank,
Ltd., as Rights Agent, dated as of December 1, 1988 (incorporated
by reference to Exhibit 1 to the Registrant's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on
December 12, 1988)
4.3 Amendment No. 1 to Rights Agreement by and between the Registrant
and First Interstate Bank, Ltd. dated as of August 10, 1990
(incorporated by reference to Exhibit 1 to the Registrant's Current
Report on Form 8-K as filed with the Securities and Exchange
Commission on August 14, 1990)
4.4 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Registrant
(incorporated by reference to Exhibit A of Exhibit 1 to the
Registrant's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on December 12, 1988)
10.1 The Registrant's Employee Stock Option Plan (1) **
10.2 The Registrant's Stock Option Plan for Non-Employee
Directors (1) **
10.3 The Registrant's 1993 Employee Stock Purchase Plan(8) **
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Sequentially
Exhibit Numbered
Number Description Page
- - --------------------------------------------------------------------------------------------------
10.4 Receivables Contribution and Sale Agreement, dated as of January 7,
1994 by and between the Company, as seller, and Western Digital
Capital Corporation, as buyer(2)
10.5 Receivables Purchase Agreement, dated as of January 7, 1994, by and
among Western Digital Capital Corporation, as seller, the Company,
as servicer, the Financial Institutions listed therein, as bank
purchasers and J.P. Morgan Delaware, as administrative agent(2)
10.6 First Amendment to Receivables Purchase Agreement, dated March 23,
1994, by and between Western Digital Corporation, as seller and the
Financial Institutions listed therein as bank purchasers and
administrative agents(2)
10.7 Assignment Agreement, dated as of March 23, 1994, by and between
J.P. Morgan Delaware as Bank Purchaser and Assignor and the Bank of
California, N.A. and the Long-term Credit Bank of Japan, LTD., Los
Angeles Agency as Assignees(2)
10.8 Asset Purchase Agreement dated December 16, 1993 by and between
Motorola, Inc. and Western Digital regarding the sale and purchase
of Western Digital's wafer fabrication facilities and certain
related assets(4)
10.9 Supply Agreement dated December 16, 1993 by and between Motorola,
Inc. and Western Digital regarding the supply of wafers to Western
Digital(4)
10.10 The Western Digital Corporation Deferred Compensation Plan* **
10.11 The Western Digital Corporation Executive Bonus Plan* **
10.12 The Extended Severance Plan of the Registrant * **
10.13 Manufacturing Building lease between Wan Tien Realty Pte Ltd and
Western Digital (Singapore) Pte Ltd dated as of November 9, 1993
(incorporated by reference to Exhibit 10.17.1 to the Registrant's
Quarterly Report on Form 10-Q (File No. 1-8703) as filed with the
Securities and Exchange Commission on January 25, 1994)
10.14 The Management Incentive Compensation Plan of Registrant for fiscal
year 1995* **
10.15 Wafer and Die Purchase Contract by and between American
Microsystems, Inc. and the Company effective as of July 18,
1994(9)*
10.16 Foundry Capacity, Product Purchase, and Technology Agreement by and
between American Telephone and Telegraph Co. and the Company
effective as of August 25, 1992 (incorporated by reference to
Exhibit 10.10.3 to the Registrant's Annual Report on Form 10-K
(File No. 1-8703) as filed with the Securities and Exchange
Commission on September 28, 1992)(5)
10.17 Subleases between Wan Tien Realty Pte Ltd and Western Digital
(Singapore) Pte Ltd dated as of September 1, 1991(1)
10.18 Sublease between Wan Tien Realty Pte Ltd and Western Digital
(Singapore) Pte Ltd dated as of October 12, 1992(1)
10.19 Agreement for Purchase and Sale of Assets by and between Registrant
and Standard Microsystems Corporation effective as of September 16,
1991 and as amended by the Amendment No. 1 to Agreement for
Purchase and Sale of Assets by and between the Registrant and
Standard Microsystems Corporation effective as of September 27,
1991 (incorporated by reference to Exhibit 2 to Form 8 filed as
Amendment Number 1 to Registrant's Form 8-K dated October 16, 1991)
10.21 The Registrant's Non-Employee Director Stock-for-Fees Plan(1) **
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Sequentially
Exhibit Numbered
Number Description Page
- - --------------------------------------------------------------------------------------------------
10.22 Office Building Lease between The Irvine Company and the Registrant
dated as of January 13, 1988 (incorporated by reference to Exhibit
10.11 to Amendment No. 2 to the Registrant's Annual Report to Form
10-K (File No. 1-8703) as filed on Form 8 with the Securities and
Exchange Commission on November 18, 1988)(6)
10.26 Patent License Agreement between Western Electric Company,
Incorporated and the Registrant effective as of July 1, 1980(3)
10.27 Agreement between International Business Machines Corporation and
the Registrant dated as of January 1, 1990(3)
10.28 Letter to Mr. I.M. Booth from Mr. Roger W. Johnson dated December
3, 1992 regarding chief executive officer severance
arrangement(3) **
10.29 Form of Letter to Mr. George L. Bragg from Mr. Roger W. Johnson
dated October 22, 1992 regarding vice chairman severance
arrangement(7) **
11 Computation of Per Share Earnings (see page 20 hereof)
21 Subsidiaries of the Company (see page 21 hereof)
23 Consent of Independent Auditors (see page 22 hereof)
27 Financial Data Schedule*
- - --------------------------------------------------------------------------------------------------
* New exhibit filed with this Report.
** Compensation plan, contract or arrangement required to be filed as an
exhibit pursuant to applicable rules of the Securities and Exchange
Commission.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
(File No. 1-8703) as filed with the Securities and Exchange Commission on
September 28, 1992.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
(File No. 1-8703) as filed with the Securities and Exchange Commission on
May 9, 1994.
(3) Incorporated by reference to Registrant's Amendment No. 1 to Form S-1 (No.
33-54968) as filed with the Securities and Exchange Commission on January 5,
1993.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K
(File No. 1-8703) as filed with the Securities and Exchange Commission on
January 5, 1994.
(5) Subject to confidentiality order dated November 24, 1992.
(6) Subject to confidentiality order dated November 21, 1988.
(7) Incorporated by reference to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 (No. 33-54968) as filed with the Securities and
Exchange Commission on January 26, 1993.
(8) Incorporated by reference to Registrant's Registration Statement on Form S-8
(No. 33-51725) as filed with the Securities and Exchange Commission on
December 28, 1993.
(9) Confidental treatment requested.
(B) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WESTERN DIGITAL CORPORATION
By: SCOTT MERCER
-------------------------------
D. Scott Mercer
Executive Vice President,
Chief Financial
and Administrative Officer
Dated: September 21, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on September 21, 1994.
SIGNATURE TITLE
- - --------------------------------------------- ---------------------------------------------
CHARLES A. HAGGERTY Chairman of the Board, President and Chief
- - --------------------------------------------- Executive Officer (Principal Executive
Charles A. Haggerty Officer)
SCOTT MERCER Executive Vice President, Chief Financial and
- - --------------------------------------------- Administrative Officer (Principal Financial
D. Scott Mercer and Accounting Officer)
JAMES A. ABRAHAMSON Director
- - ---------------------------------------------
James A. Abrahamson
PETER D. BEHRENDT Director
- - ---------------------------------------------
Peter D. Behrendt
I.M. BOOTH Director
- - ---------------------------------------------
I.M. Booth
G. L. BRAGG Director
- - ---------------------------------------------
George L. Bragg
I. FEDERMAN Director
- - ---------------------------------------------
Irwin Federman
ANDRE R. HORN Director
- - ---------------------------------------------
Andre R. Horn
ANNE O. KRUEGER Director
- - ---------------------------------------------
Anne O. Krueger
THOMAS E. PARDUN Director
- - ---------------------------------------------
Thomas E. Pardun
S. B. SCHWARTZ Director
- - ---------------------------------------------
Stephen B. Schwartz
---
19
21
EXHIBIT 11
WESTERN DIGITAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
Year ended June 30,
-------------------------------------
1994 1993 1992
- - -------------------------------------------------------------------------------------------------
PRIMARY
Net income (loss) $73,136 $(25,108) $(72,860)
------- -------- ---------
------- -------- ---------
Weighted average number of common shares outstanding
during the period 39,341 31,813 29,209
Incremental common shares attributable to exercise of
outstanding options and warrants 2,022
------- -------- ---------
Total shares 41,363 31,813 29,209
------- -------- ---------
------- -------- ---------
Net income (loss) per share $ 1.77 $ (.79) $ (2.49)
------- -------- ---------
------- -------- ---------
FULLY DILUTED
Net income (loss) $73,136 $(25,108) $(72,860)
Add back: interest expense, net of income tax effect
applicable to convertible subordinated debentures 4,664
------- -------- ---------
$77,800 $(25,108) $(72,860)
------- -------- ---------
------- -------- ---------
Weighted average number of common shares outstanding
during the period 39,341 31,813 29,209
Incremental common shares attributable to exercise of
outstanding options and warrants 2,280
Incremental common shares attributable to conversion of
convertible subordinated debentures 4,059
------- -------- ---------
Total shares 45,680 31,813 29,209
------- -------- ---------
------- -------- ---------
Net income (loss) per share $ 1.70 $ (.79) $ (2.49)
------- -------- ---------
------- -------- ---------
- - -------------------------------------------------------------------------------------------------
---
20
22
EXHIBIT 21
WESTERN DIGITAL CORPORATION
SUBSIDIARIES OF THE COMPANY
Name Jurisdiction
- - ---------------------------------------------------------------------------------------------
Western Digital Ireland, Ltd. Cayman Islands
Western Digital (Malaysia) SDN BHD Malaysia
Arrington Limited Republic of Ireland
Western Digital Deutschland GmbH Federal Republic of Germany
Western Digital (France) S.a.r.l. France
Western Digital Japan Ltd. Japan
Western Digital (U.K.) Limited United Kingdom
Western Digital Canada Corporation Canada
Western Digital Korea, Ltd. Republic of Korea
Western Digital (Singapore) Pte Ltd Singapore
Western Digital Taiwan Co., Ltd. Taiwan, Republic of China
Western Digital Hong Kong Limited Hong Kong
Western Digital Netherlands B.V. The Netherlands
Western Digital (S.E. Asia) Pte Ltd Singapore
Western Digital Capital Corporation Delaware
Western Digital (I.S.) Limited Ireland
Selenar Corporation* California
Selenar GmbH* Federal Republic of Germany
Western Digital Europe* California
Western Digital Pacific Corporation* California
- - ---------------------------------------------------------------------------------------------
* represents inactive subsidiaries of the Company
---
21
23
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Western Digital Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 2-76179, 2-97365, 2-72672, 33-9853, 33-11777, 33-15771, 33-60166, 33-60168
and 33-51725) on Form S-8 of Western Digital Corporation of our report dated
July 19, 1994, relating to the consolidated balance sheets of Western Digital
Corporation as of June 30, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1994, and all related schedules,
which report appears in the June 30, 1994 Annual Report on Form 10-K of Western
Digital Corporation.
KPMG PEAT MARWICK LLP
Orange County, California
September 21, 1994
---
22
24
WESTERN DIGITAL CORPORATION
SEC FORM 10-K, ITEMS 8, 14(A) AND 14(D)
Index to Consolidated Financial Statements and Schedules
Page
- - --------------------------------------------------------------------------------------------
Consolidated Financial Statements:
Independent Auditors' Report F-2
Consolidated Statements of Operations -- Three Years Ended June 30, 1994 F-3
Consolidated Balance Sheets -- June 30, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity -- Three Years Ended June 30, 1994 F-5
Consolidated Statements of Cash Flows -- Three Years Ended June 30, 1994 F-6
Notes to Consolidated Financial Statements F-7
Supplementary Data:
Unaudited Quarterly Information F-17
Schedules:
II Consolidated Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties F-18
V Consolidated Property and Equipment F-19
VI Consolidated Accumulated Depreciation of Property and Equipment F-19
VIII Consolidated Valuation and Qualifying Accounts and Reserves F-20
X Supplementary Consolidated Income Statement Information F-20
- - --------------------------------------------------------------------------------------------
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
Separate financial statements of the Registrant have been omitted as the
Registrant is primarily an operating company and its subsidiaries are
wholly-owned and do not have minority equity interests and/or indebtedness to
any person other than the Registrant in amounts which together exceed 5% of the
total consolidated assets as shown by the most recent year-end consolidated
balance sheet.
-----
F-1
25
WESTERN DIGITAL CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Western Digital Corporation:
We have audited the consolidated financial statements of Western Digital
Corporation as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Western Digital
Corporation as of June 30, 1994 and 1993, and the results of its operations and
its cash flows for each of the years in the three-year period ended June 30,
1994, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Orange County, California
July 19, 1994
-----
F-2
26
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended June 30,
--------------------------------------------
1994 1993 1992
- - -------------------------------------------------------------------------------------------------
Revenues, net $1,539,680 $1,225,231 $ 938,332
Costs and expenses:
Cost of revenues 1,221,749 1,043,184 827,707
Research and development 112,827 101,593 89,566
Selling, general and administrative 113,224 90,470 88,012
---------- ---------- -----------
Total costs and expenses 1,447,800 1,235,247 1,005,285
---------- ---------- -----------
Operating income (loss) 91,880 (10,016) (66,953)
Net interest expense (Note 2) 5,838 15,092 20,203
Gain on sale of LAN business (Note 1) 15,784
---------- ---------- -----------
Income (loss) before income taxes 86,042 (25,108) (71,372)
Provision for income taxes (Note 6) 12,906 1,488
---------- ---------- -----------
Net income (loss) $ 73,136 $ (25,108) $ (72,860)
---------- ---------- -----------
---------- ---------- -----------
Earnings (loss) per common and common equivalent
share:
Primary $ 1.77 $ (.79) $ (2.49)
---------- ---------- -----------
---------- ---------- -----------
Fully diluted $ 1.70 $ (.79) $ (2.49)
---------- ---------- -----------
---------- ---------- -----------
Common and common equivalent shares used in
computing per share amounts:
Primary 41,363 31,813 29,209
---------- ---------- -----------
---------- ---------- -----------
Fully diluted 45,680 31,813 29,209
---------- ---------- -----------
---------- ---------- -----------
- - -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-----
F-3
27
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30,
-------------------------
1994 1993
- - -----------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $243,484 $ 33,837
Accounts receivable, less allowance for doubtful accounts of
$10,825 in 1994 and $9,340 in 1993 (Note 4) 201,512 159,478
Inventories (Notes 2 and 3) 79,575 112,516
Prepaid expenses 12,917 12,626
-------- -----------
Total current assets 537,488 318,457
Property and equipment at cost, less accumulated depreciation and
amortization (Notes 2 and 3) 73,417 181,030
Intangible and other assets, net (Note 2) 29,608 31,684
-------- -----------
Total assets $640,513 $ 531,171
-------- -----------
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $172,730 $ 128,538
Accrued expenses 103,014 54,911
Current portion of long-term debt (Notes 3 and 4) 23,460
-------- -----------
Total current liabilities 275,744 206,909
Other long-term debt, less current portion (Notes 3 and 4) 123,561
Convertible subordinated debentures (Note 4) 58,646 59,000
Deferred income taxes (Note 6) 17,884 10,751
Commitments and contingent liabilities (Note 5)
Shareholders' equity (Notes 4 and 7):
Preferred stock, $.10 par value; Authorized-5,000 shares;
Outstanding-None
Common stock, $.10 par value; Authorized-95,000 shares;
Outstanding-44,895 shares in 1994 and 35,338 shares in 1993 4,490 3,534
Additional paid-in capital 283,475 200,278
Retained earnings (accumulated deficit) 274 (72,862)
-------- -----------
Total shareholders' equity 288,239 130,950
-------- -----------
Total liabilities and shareholders' equity $640,513 $ 531,171
-------- -----------
-------- -----------
- - -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-----
F-4
28
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Retained
Common Stock Additional Earnings Total
Three years ended ------------------ Paid-in (Accumulated Shareholders'
June 30, 1994 Shares Amount Capital Deficit) Equity
- - -------------------------------------------------------------------------------------------------------
Balance at June 30, 1991 29,208 $2,921 $157,075 $ 25,106 $185,102
Exercise of stock options 4 15 15
Net loss (72,860) (72,860)
------ ------- ---------- ---------- ----------
Balance at June 30, 1992 29,212 2,921 157,090 (47,754) 112,257
Exercise of stock options 376 38 1,373 1,411
Common stock offering, net
(Note 7) 5,750 575 41,815 42,390
Net loss (25,108) (25,108)
------ ------- ---------- ---------- ----------
Balance at June 30, 1993 35,338 3,534 200,278 (72,862) 130,950
Exercise of stock options 1,838 184 7,324 7,508
Common stock offering, net
(Note 7) 7,619 762 72,531 73,293
Common stock issued upon
conversion of debentures
(Note 4) 24 2 352 354
Common stock issued in
settlement of shareholder
lawsuit (Note 5) 76 8 1,031 1,039
Income tax benefit from
stock options exercised
(Note 6) 1,959 1,959
Net income 73,136 73,136
------ ------- ---------- ---------- ----------
Balance at June 30, 1994 44,895 $4,490 $283,475 $ 274 $288,239
------ ------- ---------- ---------- ----------
------ ------- ---------- ---------- ----------
- - -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-----
F-5
29
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended June 30,
--------------------------------------
1994 1993 1992
- - ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 73,136 $(25,108) $(72,860)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 46,175 53,741 50,836
Gain on sale of LAN business (Note 1) (15,784)
Changes in current assets and liabilities net of
effects from the sale of facility (Note 3):
Accounts receivable (42,034) (6,887) 27,890
Inventories 23,793 (5,682) 67,635
Prepaid expenses (2,130) (3,573) (6,384)
Accounts payable and accrued expenses 74,149 47,236 (49,524)
Deferred income taxes 7,133 (3,210) (83)
Other assets (1,384) (640) 1,586
-------- -------- ---------
Net cash provided by operating activities 178,838 55,877 3,312
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (16,282) (35,565) (21,311)
Proceeds from sale of facility (Note 3) 110,677
Proceeds from sale of LAN business (Note 1) 33,000
-------- -------- ---------
Net cash provided by (used for) investing
activities 94,395 (35,565) 11,689
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (146,346) (64,091) (17,262)
Proceeds from stock offering, net (Note 7) 73,293 42,390
Exercise of stock options and warrants, including tax
benefit 9,467 1,411 15
-------- -------- ---------
Net cash used for financing activities (63,586) (20,290) (17,247)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents 209,647 22 (2,246)
Cash and cash equivalents at beginning of year 33,837 33,815 36,061
-------- -------- ---------
Cash and cash equivalents at end of year $243,484 $ 33,837 $ 33,815
-------- -------- ---------
-------- -------- ---------
- - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
-----
F-6
30
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Western Digital Corporation ("Western Digital" or the "Company") has prepared
its financial statements in accordance with generally accepted accounting
principles and has adopted accounting policies and practices which are generally
accepted in the industry in which it operates. Following are the Company's
significant accounting policies:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
all of its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The accounts of foreign
subsidiaries have been translated using the U.S. dollar as the functional
currency. As such, all material foreign exchange gains or losses resulting from
remeasurement of these accounts are reflected in the results of operations.
Approximately $.8 million and $1.6 million of foreign exchange losses were
included in the results of operations for 1994 and 1993, respectively. Foreign
exchange losses were not material for 1992. Monetary and non-monetary asset and
liability accounts have been translated at the exchange rate in effect at each
year end and historical rates, respectively. Operating statement accounts have
been translated at average monthly exchange rates.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents. Cash equivalents are stated at
cost which approximates market.
CONCENTRATION OF CREDIT RISK
The Company designs, manufactures and sells small form factor Winchester disk
drives and microcomputer products to personal computer manufacturers and
resellers throughout the world. The Company performs ongoing credit evaluations
of its customers' financial condition and generally requires no collateral. The
Company maintains reserves for potential credit losses and such losses have
historically been within management's expectations. The Company also has cash
equivalent investment policies that limit the amount of credit exposure to any
one financial institution and restrict placement of these investments in
financial institutions evaluated as highly credit-worthy.
INVENTORY VALUATION
Inventories are valued at the lower of cost or net realizable value. Cost is on
a first-in, first-out basis for raw materials and is computed on a currently
adjusted standard basis (which approximates first-in, first-out) for work in
process and finished goods.
DEPRECIATION AND AMORTIZATION
The cost of property and equipment is depreciated over the estimated useful
lives of the respective assets. Depreciation is computed on a straight-line
basis for financial reporting purposes and on an accelerated basis for income
tax purposes. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the assets or the related lease terms. Goodwill and
purchased technology are capitalized at cost and amortized on a straight-line
basis over their estimated lives which are fifteen and five to fifteen years,
respectively.
REVENUE RECOGNITION
The Company has agreements with its resellers to provide price protection for
inventories held by the resellers at the time of published list price reductions
and, under certain circumstances, stock rotation for slow-moving items. These
agreements may be terminated upon written notice by either party. In the event
of termination, the Company may be obligated to repurchase a certain portion of
the resellers' inventory. The
-----
F-7
31
Company recognizes revenue at time of shipment and records a reserve for price
adjustments and estimated sales returns.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 generally provides that deferred tax assets and liabilities be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss ("NOL") carryforwards. The impact on deferred taxes
of changes in tax rates and laws, if any, are applied to the years during which
temporary differences are expected to be settled and reflected in the financial
statements in the period of enactment.
PER SHARE INFORMATION
Primary earnings per share amounts are based upon the weighted average number of
shares and dilutive common stock equivalents for each period presented. Fully
diluted earnings per share additionally reflect dilutive shares assumed to be
issued upon conversion of the Company's convertible subordinated debentures.
Loss per share amounts are based upon the weighted average number of shares of
common stock outstanding during the period. Common stock equivalents are not
included in the computation because their effect would be antidilutive.
SALE OF LAN BUSINESS
In October 1991, the Company sold its Local Area Network ("LAN") business under
an asset purchase agreement for a cash payment of approximately $33.0 million.
Through this transaction the buyer acquired specific tangible and intangible
assets, assumed certain liabilities and received appropriate licenses from
Western Digital for specific LAN applications of more broadly based Western
Digital technology. Further, Western Digital agreed not to manufacture or
distribute similar products for a period of up to six years. In 1992 LAN
business revenue totaled $30.4 million and costs and expenses totaled $24.3
million. In addition, the Company sold its remaining inventory in 1992 to the
purchaser of the LAN business for approximately $18.0 million.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to the current
year presentation.
NOTE 2 -- SUPPLEMENTAL FINANCIAL STATEMENT DATA
1994 1993 1992
- - ------------------------------------------------------------------------------------------------
INTEREST INCOME AND EXPENSE
Interest expense $ 8,780 $ 15,960 $ 21,886
Interest income (2,942) (868) (1,683)
------- -------- ----------
Net interest expense $ 5,838 $ 15,092 $ 20,203
------- -------- ----------
------- -------- ----------
Cash paid for interest $ 9,035 $ 15,391 $ 21,387
------- -------- ----------
------- -------- ----------
INVENTORIES
Finished goods $27,847 $ 43,634
Work in process 32,178 44,087
Raw materials and component parts 19,550 24,795
------- --------
$79,575 $112,516
------- --------
------- --------
- - --------------------------------------------------------------------------------
-----
F-8
32
1994 1993
- - ----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and buildings $ 6,643 $ 69,362
Machinery and equipment 151,014 247,186
Furniture and fixtures 11,702 13,367
Leasehold improvements 22,980 21,668
--------- ----------
192,339 351,583
Accumulated depreciation and amortization (118,922) (170,553)
--------- ----------
Net property and equipment $ 73,417 $ 181,030
--------- ----------
--------- ----------
INTANGIBLE AND OTHER ASSETS
Purchased technology $ 24,800 $ 24,800
Goodwill 14,036 14,036
--------- ----------
38,836 38,836
Accumulated amortization (16,341) (13,746)
--------- ----------
Net intangible assets 22,495 25,090
Other assets 7,113 6,594
--------- ----------
$ 29,608 $ 31,684
--------- ----------
--------- ----------
- - --------------------------------------------------------------------------------
NOTE 3 -- SALE OF WAFER FABRICATION FACILITY
In December 1993, the Company sold its Irvine, California silicon wafer
fabrication facility and certain tangible assets to the Semiconductor Products
Sector of Motorola, Inc. ("Motorola") for approximately $111.0 million plus
certain other considerations, including the assumption by Motorola of equipment
leases and certain other liabilities associated with the facility. The gain on
the sale of the facility is not material to the financial position or results of
operations of the Company. Approximately $95.0 million of the proceeds from the
sale were used to reduce bank indebtedness (see Note 4). Concurrent with the
sale, the Company entered into a supply contract with Motorola under which
Motorola will supply silicon wafers to Western Digital until at least December
1995.
NOTE 4 -- DEBT
SENIOR DEBT
During 1993, the Company and its lenders entered into amendments to two existing
secured credit facilities which enabled Western Digital to borrow up to $143.3
million as of June 30, 1993. In 1994, the Company repaid all outstanding
indebtedness under these facilities with cash flows from operations and proceeds
of approximately $95.0 million from the sale of the Company's wafer fabrication
facility (see Note 3). Upon repayment of the indebtedness, these two credit
facilities were terminated. While these facilities were utilized by the Company,
the lenders periodically waived compliance with certain financial covenants.
During 1994, the Company entered into an $85.0 million accounts receivable
facility with certain financial institutions. The facility consists of a $50.0
million three-year arrangement at Eurodollar or reference rates of the
participating banks and a $35.0 million one-year committed arrangement at a rate
approximating commercial paper rates. This new facility is intended to serve as
a source of working capital as may be needed from time to time and replaces
credit facilities secured by substantially all of the Company's assets. The
accounts receivable facility requires the Company to maintain certain financial
ratios. As of June 30, 1994, there were no borrowings under this facility.
SUBORDINATED DEBT
The 9% debentures, due 2014, are subordinated to all senior debt, are
convertible into the Company's common stock at a conversion price of $14.45 per
share and, subject to certain conditions, are redeemable by the Company. Annual
sinking fund requirements of $3.5 million commence June 1, 1999. During 1994,
approximately $.4 million of convertible debentures were converted into 24,496
shares of the Company's
-----
F-9
33
common stock. The fair market value of outstanding debentures, based on the
quoted market price at June 30, 1994, was approximately $61.9 million.
NOTE 5 -- COMMITMENTS AND CONTINGENT LIABILITIES
PATENTS AND LICENSES
Although the Company owns numerous patents and has many patent applications in
process, the Company believes that the successful manufacture and marketing of
its products generally depends more upon the experience, technical know-how and
creative ability of its personnel rather than upon ownership of patents.
The Company pays royalties under several patent licensing agreements which
require periodic payments. From time to time, the Company receives claims of
alleged patent infringement from patent holders which typically contain an offer
to grant the Company a license.
FOREIGN EXCHANGE CONTRACTS
The Company enters into short-term, forward exchange contracts to hedge the
impact of foreign currency fluctuations on certain assets and liabilities
denominated in foreign currencies. At June 30, 1994 and 1993, the Company had
outstanding $30.5 and $14.1 million, respectively of forward exchange contracts
with commercial banks. These contracts generally have maturity dates that do not
exceed three months. The total amount of these contracts is offset by the
underlying assets and liabilities denominated in foreign currencies. The
realized and unrealized gains and losses on these contracts are included in the
results of operations in the year in which the exchange rates change, and are
not material for all periods presented. At June 30, 1994 and 1993, the carrying
value of the foreign currency contracts approximated their fair value.
OPERATING LEASES
The Company leases certain facilities and equipment under long-term,
non-cancelable operating leases which expire at various dates through 2000.
Rental expense under these leases, including month-to-month rentals, was $26.5,
$29.5 and $27.7 million in 1994, 1993, and 1992, respectively.
Future minimum rental payments under non-cancelable operating leases as of June
30, 1994 are:
1995 $22,178
1996 15,556
1997 10,314
1998 9,059
1999 8,236
Thereafter 7,355
-------
Total future minimum rental payments $72,698
-------
-------
LEGAL CLAIMS
The Company was sued in September 1991, in the United States District Court for
the Central District of California by Amstrad plc, a British computer maker. The
suit alleged that disk drives furnished to Amstrad in 1988 and 1989 were
defective. Amstrad claimed damages of approximately $3.0 million for asserted
losses in out-of-pocket expenses, $38.0 million in lost profits and $100.0
million for injury to Amstrad's reputation and loss of goodwill. The Company
filed a counterclaim against Amstrad. This federal action was dismissed without
prejudice and Amstrad has filed a similar complaint in Orange County, California
Superior Court, but raised the claim for damages to $186.0 million. The Company
again filed a counterclaim for $3.0 million in actual damages plus exemplary
damages in an unspecified amount and intends to vigorously defend itself against
the Amstrad claims.
The Company was sued in March 1993 in the United States District Court for the
Northern District of California by Conner Peripherals, Inc. ("Conner"). The suit
alleges that the Company infringes five Conner patents and seeks damages
(including treble damages) in an unspecified amount and injunctive relief.
Conner moved for a preliminary injunction to enjoin the Company from using three
of the patents in certain
-----
F-10
34
of the Company's disk drive products. The court denied that motion. If Conner
were to prevail in its claims, the Company could be enjoined from using any of
the Conner patents found to be valid and infringed that are the subject of this
action as well as held liable for past infringement damages. The amount of such
damages, if any, could be material. The Company believes that it has meritorious
defenses to all of Conner's claims and intends to vigorously defend itself
against the Conner lawsuit. The Company has also filed a suit alleging that
Conner infringes two of the Company's patents.
The Company has received a claim of alleged patent infringement from Rodime PLC
("Rodime") under one of Rodime's U.S. patents which relates to 3.5-inch disk
drives. Rodime has offered to grant the Company a royalty bearing license under
that and other Rodime patents. Based on the opinion of patent counsel, the
Company believes that the broad claims of the Rodime patent, if scrutinized in
court, will not withstand an attack on validity, and believes that the Company
has not infringed any valid claim of the Rodime patent. If Rodime were to
commence litigation against the Company on this patent, and if Rodime were to
prevail on its claim, the Company could be held liable for damages for past
infringement. The amount of such damages, if any, is uncertain but could be
material.
The Company currently has a cross-license with IBM Corporation ("IBM") which
became effective January 1, 1990. Pursuant to this agreement, the Company has
licensed IBM under certain Western Digital patents for the life of such patents,
and has obtained from IBM a patent license which expires December 31, 1994
covering certain Western Digital products. Although the license granted to
Western Digital extends to certain components within Western Digital disk
drives, disk drives as such are not expressly covered. In calendar 1993, IBM
initiated further discussion with the Company for the purpose of determining
whether the Company's disk drives are covered by specified IBM patents. The
Company is currently reviewing these patents. Based on its prior dealings with
IBM, the Company expects to work toward a supplemental agreement with IBM which
will address the disk drive issues and extend the term of the license, with the
goal of reaching agreement prior to the expiration of the term of the current
license agreement. This supplemental agreement, if finalized, may involve
payment of higher royalties to IBM than are presently paid. No assurance can be
given that such an agreement can be reached upon terms acceptable to the
Company. Failure to reach an acceptable agreement could have a material adverse
impact on the Company's business.
The Company is also subject to certain other legal proceedings and claims
arising in connection with its business. There can be no assurance that
litigation will not be commenced on one or more of these or possible other
future such claims, or that, if commenced, all such litigation would be resolved
without any material adverse effect on the Company's business, consolidated
financial position or results of operations.
It is management's opinion, however, that none of these claims will have a
material adverse effect on the Company's business, consolidated financial
position or results of operations. The costs of defending such litigation can be
substantial, regardless of outcome.
The Company was sued in July 1991 in the United States District Court for the
Central District of California in a purported class action securities lawsuit.
In June 1994, the court approved a settlement of this case whereby eligible
class members will share, on a claims made basis, up to $6.75 million, comprised
of $3.5 million in cash and the balance in shares of the Company's common stock.
The Company's insurance carrier has agreed to contribute up to $2.6 million in
cash toward the settlement. At June 30, 1994, the Company has provided for its
estimate of claims to be made under the settlement.
-----
F-11
35
NOTE 6 -- INCOME TAXES
The domestic and international components of income (loss) before income taxes
are as follows:
1994 1993 1992
- - -------------------------------------------------------------------------------------------------
United States $(25,140) $(63,753) $ (20,244)
International 111,182 38,645 (51,128)
-------- -------- ---------
Income (loss) before income taxes $ 86,042 $(25,108) $ (71,372)
-------- -------- ---------
-------- -------- ---------
- - -------------------------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
1994 1993 1992
- - -------------------------------------------------------------------------------------------------
Current
United States $ 337 $ $
International 4,313 1,671 1,333
State 620 183 128
-------- -------- ---------
5,270 1,854 1,461
-------- -------- ---------
Deferred, net
United States 4,857 (1,854)
International 820 27
-------- -------- ---------
5,677 (1,854) 27
-------- -------- ---------
Additional paid-in capital from benefit of stock
options exercised 1,959
-------- -------- ---------
Provision for income taxes $ 12,906 $ $ 1,488
-------- -------- ---------
-------- -------- ---------
Cash paid for income taxes $ 1,067 $ 1,451 $ 1,450
-------- -------- ---------
-------- -------- ---------
- - -------------------------------------------------------------------------------------------------
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities at June 30, 1994 and 1993 are as follows:
1994 1993
- - -----------------------------------------------------------------------------------------------
Deferred tax assets:
NOL carryforward $ 53,646 $ 61,955
Business credit carryforward 16,204 13,558
Reserves not currently deductible 13,952 11,307
Provision for restructuring 2,712
All other 12,839 8,466
-------- ---------
96,641 97,998
Valuation allowance (95,024) (80,256)
-------- ---------
Total deferred tax assets $ 1,617 $ 17,742
-------- ---------
-------- ---------
Deferred tax liabilities:
Start-up costs $ $ 3,860
Depreciation 995 11,528
Leases 3,458 3,130
All other 12,732 7,675
-------- ---------
Total deferred tax liabilities $ 17,185 $ 26,193
-------- ---------
-------- ---------
- - -----------------------------------------------------------------------------------------------
-----
F-12
36
The valuation allowance for deferred tax assets as of July 1, 1992 was $61.8
million. The net change in the total valuation allowance for the years ended
June 30, 1994 and 1993 was an increase of $14.8 and $18.4 million, respectively.
Reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
1994 1993 1992
- - --------------------------------------------------------------------------------------------------
U.S. Federal statutory rate 35.0% (34.0)% (34.0)%
State income taxes, net .7 .7 .2
Tax rate differential on international income (34.7) (53.5) .5
NOL with no tax benefit realized 10.2 78.9 39.4
Other 3.8 7.9 (4.0)
---- ---- ----
Effective tax rate 15.0% --% 2.1%
---- ---- ----
---- ---- ----
- - --------------------------------------------------------------------------------------------------
Certain income of selected subsidiaries is taxed at substantially lower income
tax rates as compared with local statutory rates. The lower rates reduced income
taxes and increased net earnings by approximately $27.4 million ($.60 per share,
fully diluted) and $8.6 million ($.27 per share, fully diluted) in 1994 and
1993, respectively. The lower rates did not affect income taxes paid or net loss
in 1992. These lower rates expire periodically through 2000.
At June 30, 1994, the Company had Federal NOL carryforwards of $162.3 million
and tax credit carryforwards of $16.2 million which expire in 1995 through 2009.
Net undistributed earnings from international subsidiaries at June 30, 1994 were
approximately $87.3 million. The net undistributed earnings are intended to
finance local operating requirements. Accordingly, an additional United States
tax provision has not been made.
NOTE 7 -- SHAREHOLDERS' EQUITY
The following table summarizes all shares of common stock reserved for issuance
as of June 30, 1994 (in thousands):
Number
of Shares
- - ----------------------------------------------------------------------------------------------
Issuable upon:
Conversion of subordinated long-term debt 4,059
Exercise of stock options, including options available for grant 5,917
Employee stock purchase plan 1,750
-------
11,726
-------
-------
- - ----------------------------------------------------------------------------------------------
COMMON STOCK OFFERINGS
In February 1993, the Company issued 5,750,000 shares of its common stock in a
public common stock offering. Proceeds from the offering, net of commissions and
other related expenses totaling $3.6 million, were $42.4 million. The proceeds
were used to reduce the Company's outstanding indebtedness.
In February 1994, the Company issued 7,618,711 shares of its common stock in a
public common stock offering. Proceeds from the offering, net of commissions and
other related expenses totaling $4.2 million, were $73.3 million. The proceeds
were used for working capital and other general corporate purposes.
STOCK OPTION PLANS
Western Digital's Employee Stock Option Plan ("Employee Plan") is administered
by the Board of Directors who determine the vesting provisions, the form of
payment for the shares and all other terms of the options. Terms of the Employee
Plan require that the exercise price of options be not less than the fair market
value at the date of
-----
F-13
37
grant. Options granted vest 25% one year from the date of grant and in twelve
quarterly increments thereafter. As of June 30, 1994, 1,137,144 options were
exercisable and 862,541 options were available for grant. Participants in the
Employee Plan are permitted to finance the exercise of options with stock
purchased previously. The following table summarizes activity under the Employee
Plan (in thousands, except per share amounts):
Options Outstanding
--------------------------------------------
Number
of Shares Price Per Share Amount
- - ----------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1991 2,536 $ 4.12-$14.62 $ 11,332
Granted 1,863 2.88- 5.38 7,076
Exercised (4) 4.13 (15)
Cancelled or expired (475) 2.88- 14.62 (2,301)
-------- -------------- --------
Options outstanding at June 30, 1992 3,920 2.88- 13.63 16,092
Granted 1,879 4.38- 9.00 10,981
Exercised, net of value of redeemed shares (376) 2.88- 6.88 (1,411)
Cancelled or expired (329) 2.88- 9.88 (1,693)
-------- -------------- --------
Options outstanding at June 30, 1993 5,094 2.88- 13.63 23,969
Granted 1,731 3.88- 19.13 21,320
Exercised, net of value of redeemed shares (1,785) 2.88- 9.00 (7,120)
Cancelled or expired (664) 2.88- 19.13 (4,710)
-------- -------------- --------
Options outstanding at June 30, 1994 4,376 $ 2.88-$19.13 $ 33,459
-------- -------------- --------
-------- -------------- --------
- - ----------------------------------------------------------------------------------------------------
In 1985, the Company's directors approved the Stock Option Plan for Non-Employee
Directors ("Director Plan") and reserved 800,000 shares for issuance thereafter.
The Director Plan provides for initial option grants to new directors of 20,000
shares per director and additional grants of up to 30,000 options per director
following the exercise of the initial options. As of June 30, 1994, 120,000
options were exercisable and 488,188 options were available for grant. The
following table summarizes activity under the Director Plan (in thousands,
except per share amounts):
Options Outstanding
--------------------------------------------
Number
of Shares Price Per Share Amount
- - ----------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1991 201 $ 5.25-$14.88 $ 1,955
Granted 20 5.38 108
Cancelled or expired (37) 6.88- 14.88 (452)
-------- -------------- --------
Options outstanding at June 30, 1992 184 5.25- 14.63 1,611
Cancelled or expired (1) 6.88 (9)
-------- -------------- --------
Options outstanding at June 30, 1993 183 5.25- 14.63 1,602
Granted 90 4.25- 17.13 941
Exercised (53) 4.25- 11.50 (388)
Cancelled or expired (30) 12.88 (386)
-------- -------------- --------
Options outstanding at June 30, 1994 190 $ 4.25-$17.13 $ 1,769
-------- -------------- --------
-------- -------------- --------
- - ----------------------------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS
In November 1991 and July 1993, in connection with amending its then existing
two secured credit facilities, the Company issued warrants to the participating
banks that ultimately entitled the holders to purchase an aggregate of 1,125,000
shares of common stock at an average price of $1.08 per share. In February 1994,
the banks exercised all warrants outstanding and the related shares of common
stock were subsequently sold by the banks in conjunction with the Company's
public common stock offering. The Company received exercise price payments from
the warrant holders aggregating approximately $1.2 million. The
-----
F-14
38
shares issued and proceeds received from the exercise of the warrants have been
included in the shares issued and proceeds received from the February 1994
common stock offering.
STOCK PURCHASE RIGHTS
In 1989, the Company implemented a plan to protect stockholders' rights in the
event of a proposed takeover of the Company. Under the plan, each share of the
Company's outstanding common stock carries one Right to Purchase Series "A"
Junior Participating Preferred Stock ("the Right"). The Right enables the
holder, under certain circumstances, to purchase common stock of Western Digital
or of the acquiring company at a substantially discounted price ten days after a
person or group publicly announces it has acquired or has tendered an offer for
15% or more of the Company's outstanding common stock. The Rights are redeemable
by the Company at $.01 per Right and expire in 1999.
EMPLOYEE STOCK PURCHASE PLAN
During 1994, the Board of Directors adopted, and stockholders subsequently
approved, an employee stock purchase plan in accordance with Section 423 of the
Internal Revenue Code whereby eligible employees may authorize payroll
deductions of up to 10% of their salary to purchase shares of the Company's
common stock at the lower of 85% of the fair market value of common stock on the
first or last day of the offering period. Approximately 1.8 million shares of
common stock have been reserved for issuance under this plan. As of June 30,
1994, no shares have been issued under this plan.
PROFIT SHARING PLAN
Effective July 1, 1991, the Company adopted an annual Profit Sharing Plan
covering eligible domestic employees. During 1994, 1993 and 1992, the Company
authorized 8% of pre-tax profits to be allocated to the participants. Payments
to participants of the Profit Sharing Plan were $7.4 and $1.2 million in 1994
and 1993, respectively. No such payments were made under the Profit Sharing Plan
in 1992.
NOTE 8 -- BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS
Western Digital operates in one industry segment--the design, manufacture and
marketing of disk drives, integrated circuits and graphics enhancement boards to
the personal computer industry. During 1994 and 1993, two customers accounted
for approximately 24% of the Company's revenues. During 1992, one customer
accounted for 10% of revenues.
The Company's operations outside the United States include manufacturing
facilities in Singapore, Malaysia and Korea as well as sales offices throughout
the world.
The following table summarizes operations by entities located within the
indicated geographic areas for the past three years (in millions). United States
revenues to unaffiliated customers include export sales, principally to Asia, of
$300.0, $237.7 and $228.4 million in 1994, 1993, and 1992, respectively.
-----
F-15
39
Transfers between geographic areas are accounted for at prices comparable to
normal sales through outside distributors. General and corporate expenses of
$43.6, $32.7 and $31.1 million in 1994, 1993 and 1992, respectively, have been
excluded in determining operating income (loss) by geographic region.
United
States Europe Asia Eliminations Total
- - ------------------------------------------------------------------------------------------------------
Year ended June 30, 1994
Sales to unaffiliated customers $1,171 $321 $ 48 $1,540
Transfers between geographic areas 50 28 874 $ (952)
------ ---- ---- -------- --------
Revenues, net $1,221 $349 $922 $ (952) $1,540
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Operating income $ 24 $ 6 $108 $ (3) $ 135
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Identifiable assets $ 430 $ 61 $150 $ $ 641
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Year ended June 30, 1993
Sales to unaffiliated customers $ 924 $274 $ 27 $1,225
Transfers between geographic areas 41 21 793 $ (855)
------ ---- ---- -------- --------
Revenues, net $ 965 $295 $820 $ (855) $1,225
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Operating income (loss) $ (16) $ 7 $ 38 $ (6) $ 23
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Identifiable assets $ 336 $ 42 $154 $ (1) $ 531
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Year ended June 30, 1992
Sales to unaffiliated customers $ 713 $177 $ 48 $ 938
Transfers between geographic areas 53 38 493 $ (584)
------ ---- ---- -------- --------
Revenues, net $ 766 $215 $541 $ (584) $ 938
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Operating income (loss) $ 16 $(13 ) $(47) $ 8 $ (36)
------ ---- ---- -------- --------
------ ---- ---- -------- --------
Identifiable assets $ 327 $ 43 $164 $ (1) $ 533
------ ---- ---- -------- --------
------ ---- ---- -------- --------
- - ------------------------------------------------------------------------------------------------------
-----
F-16
40
WESTERN DIGITAL CORPORATION
UNAUDITED QUARTERLY INFORMATION
(in thousands, except per share amounts)
First Second Third Fourth
- - --------------------------------------------------------------------------------------------------
1994
Revenues, net $285,498 $371,072 $420,878 $462,232
Gross profit 46,419 72,821 93,762 104,929
Operating income (loss) (2,045) 16,342 34,149 43,434
Net income (loss) (5,098) 12,487 28,448 37,299
Primary earnings (loss) per share(1) $ (.14) $ .32 $ .64 $ .79
-------- -------- -------- ---------
-------- -------- -------- ---------
1993
Revenues, net $271,141 $343,475 $325,407 $285,208
Gross profit 50,374 58,586 52,300 20,787
Operating income (loss) 8,539 11,789 5,262 (35,606)
Net income (loss) 4,168 6,912 1,633 (37,821)
Primary earnings (loss) per share(1) $ .14 $ .22 $ .05 $ (1.07)
-------- -------- -------- ---------
-------- -------- -------- ---------
- - --------------------------------------------------------------------------------
(1) During the third and fourth quarter of 1994, fully diluted earnings per
share were $.61 and $.75, respectively. During the second quarter of 1993,
fully diluted earnings per share were $.21. For all other periods presented,
fully diluted earnings (loss) per share approximated primary earnings (loss)
per share.
-----
F-17
41
WESTERN DIGITAL CORPORATION
SCHEDULE II -- CONSOLIDATED AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER
THAN RELATED PARTIES
(in thousands)
Name of Debtor
-------------------------------------------------------------
Roger W. John M. Marc H.
Three years ended June 30, 1994 Johnson(1) Markovich(2) Nussbaum(3) Total
- - ----------------------------------------------------------------------------------------------------
Balance at June 30, 1991 $ 336 $178 $ 45 $ 559
Additions 70 70
Deletions
------- ----- ------- -------
Balance at June 30, 1992 336 178 115 629
Additions 500 500
Deletions (336) (336)
------- ----- ------- -------
Balance at June 30, 1993 500 178 115 793
Additions
Deletions (115) (115)
------- ----- ------- -------
Balance at June 30, 1994 $ 500 $178 $ $ 678
------- ----- ------- -------
------- ----- ------- -------
- - --------------------------------------------------------------------------------
(1) In October 1989, the Company made a $336 non-interest bearing loan to Roger
W. Johnson, formerly Chairman and Chief Executive Officer, in connection
with his exercise of stock options and payment of related income taxes.
Pursuant to the terms of the Chief Executive Officer Severance Agreement,
the indebtedness was forgiven upon Mr. Johnson's resignation as Chairman and
Chief Executive Officer on June 30, 1993.
In June 1993, the Company made a $500 non-interest bearing loan to Mr.
Johnson. If Mr. Johnson becomes an affiliate of, an employee of, or performs
work for a competitor within four years, the loan is to accelerate and
accrue interest from the date made and be due and payable immediately upon
Mr. Johnson establishing the relationship. In any event, the loan is to be
repaid at the end of a four-year term.
(2) The Company has made several loans to John M. Markovich, formerly Vice
President and Treasurer, to provide personal financial assistance. Mr.
Markovich terminated his employment with the Company in June 1992. Loans
aggregating $30 bear interest at 10%. The remaining loans are interest free.
(3) The Company has made several loans to Marc H. Nussbaum, Senior Vice
President, Engineering, to provide personal financial assistance. These
notes bore interest at 10% per annum. During 1994, the notes were paid in
full by Mr. Nussbaum.
-----
F-18
42
WESTERN DIGITAL CORPORATION
SCHEDULES V AND VI -- CONSOLIDATED PROPERTY AND EQUIPMENT AND RELATED
ACCUMULATED DEPRECIATION
(in thousands)
Cost of property and equipment and the related depreciation and amortization are
summarized as follows:
Machinery Furniture
Land and and and Leasehold
Three years ended June 30, 1994 Buildings Equipment Fixtures Improvements Total
- - -----------------------------------------------------------------------------------------------------
COST
Balance at June 30, 1991 $ 74,533 $ 262,194 $15,517 $24,165 $ 376,409
Additions at cost 516 26,297 838 1,167 28,818
Retirements or sales (5,475) (50,160) (2,485) (5,977) (64,097)
-------- --------- ------- --------- ----------
Balance at June 30, 1992 69,574 238,331 13,870 19,355 341,130
Additions at cost 33,896 198 2,780 36,874
Retirements or sales (212) (25,041) (701) (467) (26,421)
-------- --------- ------- --------- ----------
Balance at June 30, 1993 69,362 247,186 13,367 21,668 351,583
Additions at cost 2,643 22,073 494 3,299 28,509
Retirements or sales (65,362) (118,245) (2,159) (1,987) (187,753)
-------- --------- ------- --------- ----------
Balance at June 30, 1994 $ 6,643 $ 151,014 $11,702 $22,980 $ 192,339
-------- --------- ------- --------- ----------
-------- --------- ------- --------- ----------
ACCUMULATED DEPRECIATION AND
AMORTIZATION
Balance at June 30, 1991 $ 2,945 $ 127,725 $ 5,750 $11,891 $ 148,311
Charges to operations 3,730 39,290 2,134 2,527 47,681
Retirements or sales (754) (43,344) (1,549) (5,543) (51,190)
-------- --------- ------- --------- ----------
Balance at June 30, 1992 5,921 123,671 6,335 8,875 144,802
Charges to operations 3,689 42,813 2,008 2,353 50,863
Retirements or sales (24,147) (661) (304) (25,112)
-------- --------- ------- --------- ----------
Balance at June 30, 1993 9,610 142,337 7,682 10,924 170,553
Charges to operations 1,624 36,787 2,020 2,932 43,363
Retirements or sales (10,474) (80,965) (1,664) (1,891) (94,994)
-------- --------- ------- --------- ----------
Balance at June 30, 1994 $ 760 $ 98,159 $ 8,038 $11,965 $ 118,922
-------- --------- ------- --------- ----------
-------- --------- ------- --------- ----------
- - -----------------------------------------------------------------------------------------------------
-----
F-19
43
WESTERN DIGITAL CORPORATION
SCHEDULE VIII -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
(in thousands)
Allowance for
Doubtful
Three years ended June 30, 1994 Accounts
- - ---------------------------------------------------------------------------------------------
Balance at June 30, 1991 $ 5,474
Charges to operations 3,075
Deductions (686)
Other 141
---------
Balance at June 30, 1992 8,004
Charges to operations 2,476
Deductions (1,044)
Other (96)
---------
Balance at June 30, 1993 9,340
Charges to operations 3,797
Deductions (2,124)
Other (188)
---------
Balance at June 30, 1994 $10,825
---------
---------
- - ---------------------------------------------------------------------------------------------
WESTERN DIGITAL CORPORATION
SCHEDULE X -- SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION
(in thousands)
Charged to Costs and Expenses
-------------------------------------
Three years ended June 30, 1994 1994 1993 1992
- - ------------------------------------------------------------------------------------------------
Maintenance and repairs ** $15,521 $12,973
------- ------- -------
------- ------- -------
- - ------------------------------------------------------------------------------------------------
** Less than one percent of revenues
-----
F-20
44
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- - --------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Registrant (filed as Exhibit
3.1 to the Registrant's Current Report on Form 8-K filed January
15, 1987 (File No. 1-8703) and incorporated herein by this
reference)
3.2.1 By-laws of Registrant (incorporated by reference to Exhibit 3.2.1
to the Registrant's Current Report on Form 8-K (File No. 1-8703) as
filed with the Securities and Exchange Commission on July 18, 1994)
3.3 Certificate of Agreement of Merger(7)
3.4 Certificate of Amendment of Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-3 (File No. 33-28374) as filed
with the Securities and Exchange Commission on April 26, 1989)
4.1 Indenture, dated as of May 1, 1989, between the Registrant and U.S.
Trust Company of California, N.A., covering the Registrant's 9%
Convertible Subordinated Debentures due 2014 (incorporated by
reference to Exhibit 4 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-3 (File No. 33-28374) as filed
with the Securities and Exchange Commission on May 10, 1989)
4.2 Rights Agreement between the Registrant and First Interstate Bank,
Ltd., as Rights Agent, dated as of December 1, 1988 (incorporated
by reference to Exhibit 1 to the Registrant's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on
December 12, 1988)
4.3 Amendment No. 1 to Rights Agreement by and between the Registrant
and First Interstate Bank, Ltd. dated as of August 10, 1990
(incorporated by reference to Exhibit 1 to the Registrant's Current
Report on Form 8-K as filed with the Securities and Exchange
Commission on August 14, 1990)
4.4 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Registrant
(incorporated by reference to Exhibit A of Exhibit 1 to the
Registrant's Current Report on Form 8-K as filed with the
Securities and Exchange Commission on December 12, 1988)
10.1 The Registrant's Employee Stock Option Plan (1) **
10.2 The Registrant's Stock Option Plan for Non-Employee Directors (1)
**
10.3 The Registrant's 1993 Employee Stock Purchase Plan(8) **
10.4 Receivables Contribution and Sale Agreement, dated as of January 7,
1994 by and between the Company, as seller, and Western Digital
Capital Corporation, as buyer(2)
10.5 Receivables Purchase Agreement, dated as of January 7, 1994, by and
among Western Digital Capital Corporation, as seller, the Company,
as servicer, the Financial Institutions listed therein, as bank
purchasers and J.P. Morgan Delaware, as administrative agent(2)
10.6 First Amendment to Receivables Purchase Agreement, dated March 23,
1994, by and between Western Digital Corporation, as seller and the
Financial Institutions listed therein as bank purchasers and
administrative agents(2)
10.7 Assignment Agreement, dated as of March 23, 1994, by and between
J.P. Morgan Delaware as Bank Purchaser and Assignor and the Bank of
California, N.A. and the Long-term Credit Bank of Japan, LTD., Los
Angeles Agency as Assignees(2)
10.8 Asset Purchase Agreement dated December 16, 1993 by and between
Motorola, Inc. and Western Digital regarding the sale and purchase
of Western Digital's wafer fabrication facilities and certain
related assets(4)
45
Sequentially
Exhibit Numbered
Number Description Page
- - --------------------------------------------------------------------------------------------------
10.9 Supply Agreement dated December 16, 1993 by and between Motorola,
Inc. and Western Digital regarding the supply of wafers to Western
Digital(4)
10.10 The Western Digital Corporation Deferred Compensation Plan* **
10.11 The Western Digital Corporation Executive Bonus Plan* **
10.12 The Extended Severance Plan of the Registrant * **
10.13 Manufacturing Building lease between Wan Tien Realty Pte Ltd and
Western Digital (Singapore) Pte Ltd dated as of November 9, 1993
(incorporated by reference to Exhibit 10.17.1 to the Registrant's
Quarterly Report on Form 10-Q (File No. 1-8703) as filed with the
Securities and Exchange Commission on January 25, 1994)
10.14 The Management Incentive Compensation Plan of Registrant for fiscal
year 1995* **
10.15 Wafer and Die Purchase Contract by and between American
Microsystems, Inc. and the Company effective as of July 18,
1994(9)*
10.16 Foundry Capacity, Product Purchase, and Technology Agreement by and
between American Telephone and Telegraph Co. and the Company
effective as of August 25, 1992 (incorporated by reference to
Exhibit 10.10.3 to the Registrant's Annual Report on Form 10-K
(File No. 1-8703) as filed with the Securities and Exchange
Commission on September 28, 1992)(5)
10.17 Subleases between Wan Tien Realty Pte Ltd and Western Digital
(Singapore) Pte Ltd dated as of September 1, 1991(1)
10.18 Sublease between Wan Tien Realty Pte Ltd and Western Digital
(Singapore) Pte Ltd dated as of October 12, 1992(1)
10.19 Agreement for Purchase and Sale of Assets by and between Registrant
and Standard Microsystems Corporation effective as of September 16,
1991 and as amended by the Amendment No. 1 to Agreement for
Purchase and Sale of Assets by and between the Registrant and
Standard Microsystems Corporation effective as of September 27,
1991 (incorporated by reference to Exhibit 2 to Form 8 filed as
Amendment Number 1 to Registrant's Form 8-K dated October 16, 1991)
10.21 The Registrant's Non-Employee Director Stock-for-Fees Plan(1) **
10.22 Office Building Lease between The Irvine Company and the Registrant
dated as of January 13, 1988 (incorporated by reference to Exhibit
10.11 to Amendment No. 2 to the Registrant's Annual Report to Form
10-K (File No. 1-8703) as filed on Form 8 with the Securities and
Exchange Commission on November 18, 1988)(6)
10.26 Patent License Agreement between Western Electric Company,
Incorporated and the Registrant effective as of July 1, 1980(3)
10.27 Agreement between International Business Machines Corporation and
the Registrant dated as of January 1, 1990(3)
10.28 Letter to Mr. I.M. Booth from Mr. Roger W. Johnson dated December
3, 1992 regarding chief executive officer severance arrangement(3)
**
10.29 Form of Letter to Mr. George L. Bragg from Mr. Roger W. Johnson
dated October 22, 1992 regarding vice chairman severance
arrangement(7) **
11 Computation of Per Share Earnings (see page 20 hereof)
21 Subsidiaries of the Company (see page 21 hereof)
23 Consent of Independent Auditors (see page 22 hereof)
27 Financial Data Schedule *
46
- - ---------------
* New exhibit filed with this Report.
** Compensation plan, contract or arrangement required to be filed as an
exhibit pursuant to applicable rules of the Securities and Exchange
Commission.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
(File No. 1-8703) as filed with the Securities and Exchange Commission on
September 28, 1992.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
(File No. 1-8703) as filed with the Securities and Exchange Commission on
May 9, 1994.
(3) Incorporated by reference to Registrant's Amendment No. 1 to Form S-1 (No.
33-54968) as filed with the Securities and Exchange Commission on January 5,
1993.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K
(File No. 1-8703) as filed with the Securities and Exchange Commission on
January 5, 1994.
(5) Subject to confidentiality order dated November 24, 1992.
(6) Subject to confidentiality order dated November 21, 1988.
(7) Incorporated by reference to Amendment No. 2 to Registrant's Registration
Statement on Form S-1 (No. 33-54968) as filed with the Securities and
Exchange Commission on January 26, 1993.
(8) Incorporated by reference to Registrant's Registration Statement on Form S-8
(No. 33-51725) as filed with the Securities and Exchange Commission on
December 28, 1993.
(9) Confidental treatment requested.