1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
______________________________________
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 25, 1993.March 26, 1994.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 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
incorporation or organization) Identification No.)
8105 Irvine Center Drive
Irvine, California 92718
---------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8105 Irvine Center Drive
Irvine, California 92718
------------------------ -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (714) 932-5000
N/A
---- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report.
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 ___
Number of shares outstanding of Common Stock, as of January 20,April 30, 1994 is
36,354,156.44,773,002.
2
WESTERN DIGITAL CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three
Months Ended March 26, 1994 and March 27, 1993 . . . 3
Consolidated Statements of Operations - Nine
Months Ended March 26, 1994 and March 27, 1993 . . . 4
Consolidated Balance Sheets - March 26, 1994 and
June 30, 1993. . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Nine
Months Ended March 26, 1994 and March 27, 1993 . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . . . . . . 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . .. . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . 13
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE-MONTH PERIOD ENDED
-------------------------------------
DECEMBER 25, DECEMBER------------------------
MARCH 26, MARCH 27,
1994 1993
1992
------------ --------------------- ---------
Revenues, net . . . . . . . . . . . . . . . . . . . . . . $371,072 $343,475$420,878 $325,407
Costs and expenses:
Cost of revenues . . . . . . . . . . . . 327,116 273,107
Research and development . . . . . . . 298,251 284,889
Research. 27,542 24,946
Selling, general and developmentadministrative. . . 32,071 22,092
-------- --------
Total costs and expenses. . . . . . . 386,729 320,145
-------- --------
Operating income. . . . . . . . . . . . . . . . 30,073 24,718
Selling, general and administrative . . . . . . . . . 26,406 22,079
-------- --------
Total costs and expenses34,149 5,262
Net interest expense. . . . . . . . . . . . . 354,730 331,686681 3,629
-------- --------
OperatingIncome before income taxes. . . . . . . . . 33,468 1,633
Provision for income taxes. . . . . . . . . . . . . 16,342 11,789
Net interest expense . . . . . . . . . . . . . . . . . . 2,551 4,109
-------- --------
Income before income taxes . . . . . . . . . . . . . . . 13,791 7,680
Provision for income taxes . . . . . . . . . . . . . . . 1,304 7685,020 --
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 12,48728,448 $ 6,9121,633
======== ========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . $ .32.64 $ .22.05
======== ========
Fully diluted . . . . . . . . . . . . . . . $ .32.61 $ .21.05
======== ========
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . 38,673 31,83544,480 35,302
======== ========
Fully diluted . . . . . . . . . . . . . . . 39,117 32,38348,863 35,306
======== ========
The accompanying notes are an integral part of these financial statements.
23
34
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX-MONTHNINE-MONTH PERIOD ENDED
-------------------------------------
DECEMBER 25, DECEMBER-----------------------
MARCH 26, MARCH 27,
1994 1993
1992
------------ --------------------- ---------
Revenues, net . . . . . . . . . . . . . . . . . . . . . . $656,570 $614,616$1,077,448 $940,023
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . 537,330 505,656864,446 778,763
Research and development . . . . . . . . . . . . . . . 56,425 46,87083,967 71,816
Selling, general and administrativeadministrative. . . . . . . . . . 48,518 41,762
--------80,589 63,854
---------- --------
Total costs and expenses . . . . . . . . . . . . 642,273 594,288
--------1,029,002 914,433
---------- --------
Operating incomeincome. . . . . . . . . . . . . . . . . . . . . 14,297 20,32848,446 25,590
Net interest expenseexpense. . . . . . . . . . . . . . . . . . . 5,604 8,017
--------6,285 11,646
---------- --------
Income before income taxestaxes. . . . . . . . . . . . . . . . 8,693 12,31142,161 13,944
Provision for income taxestaxes. . . . . . . . . . . . . . . . 1,3046,324 1,231
------------------ --------
Net income . .income. . . . . . . . . . . . . . . . . . . . . . $ 7,38935,837 $ 11,080
========12,713
========== ========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . . . $ .20.91 $ .36
========.39
========== ========
Fully diluted . . . . . . . . . . . . . . . . . $ .19.88 $ .34
========.39
========== ========
Common and common equivalent shares
used in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . . . 37,020 31,211
========39,507 32,546
========== ========
Fully diluted . . . . . . . . . . . . . . . . . 38,984 32,350
========44,917 32,681
========== ========
The accompanying notes are an integral part of these financial statements.
34
45
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 25,MARCH 26, JUNE 30,
1994 1993
1993
------------ -------- ASSETS--------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 84,846$173,396 $ 33,837
Accounts receivable, less allowance for doubtful
accounts of $10,701$10,611 and $9,340 $9,340. . . . . . . . . . . 185,555 159,478
Inventories (Notes 3 and 4). . . . . . . . . . . . . 177,210 159,478
Inventories (Notes 3 and 4)73,465 112,516
Prepaid expenses. . . . . . . . . . . . . . . . . 87,418 112,516
Prepaid expenses. . 13,133 12,626
-------- --------
Total current assets. . . . . . . . . . . . . . . . 445,549 318,457
Property and equipment, at cost, less accumulated
depreciation and amortization (Note 4). . . . . . . . 78,280 181,030
Intangible and other assets, net (Note 4) . . . . . . . 31,485 31,684
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . 12,127 12,626
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 361,601 318,457
Property and equipment, at cost, less accumulated
depreciation and amortization (Note 4) . . . . . . . . . . . 84,540 181,030
Intangible and other assets, net (Note 4) . . . . . . . . . . . 36,983 31,684
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $483,124$555,314 $531,171
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $136,084$133,069 $128,538
Accrued expenses (Note 4). . . . . . . . . . . . . . . . 98,947106,808 54,911
Current portion of long-term debt (Notes 4 and 5). . . . 12,707-- 23,460
-------- ---------------
Total current liabilitiesliabilities. . . . . . . . . . . . . . 247,738239,877 206,909
Long-termOther long-term debt, less current portion
(Notes 4 and 5) . . . . 85,332 182,561
Deferred income taxes . . . . . . . . . . . . . . . . . . . -- 123,561
Convertible subordinated debentures. . 9,622. . . . . . . . . 58,870 59,000
Deferred income taxes. . . . . . . . . . . . . . . . . . 9,464 10,751
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $.10 par value;
Authorized: 5,000 shares
Outstanding: None . . . . . . . . . . . . . . . . . -- --
Common stock, $.10 par value;
Authorized: 95,000 shares
Outstanding: 35,84844,669 shares at December 25March 26 and
35,338 shares at June 30 . . . . . . . . . . . . . . . . . . . . . 3,5854,467 3,534
Additional paid-in capital . . . . . . . . . . . . . . . . 202,320279,661 200,278
Accumulated deficitdeficit. . . . . . . . . . . . . . . . . . . . (65,473)(37,025) (72,862)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . 140,432247,103 130,950
-------- --------
Total liabilities and shareholders' equity . . . . . $483,124$555,314 $531,171
======== ========
The accompanying notes are an integral part of these financial statements.
45
56
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHNINE-MONTH PERIOD ENDED
-------------------------------------
DECEMBER 25, DECEMBER------------------------
MARCH 26, MARCH 27,
1994 1993
1992
------------ --------------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 7,38935,837 $ 11,08012,713
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortizationamortization. . . . . . . . . . . . . 26,382 26,25537,668 39,160
Changes in current assets and liabilities, net of
effects from the sale of facility (Note 4):
Accounts receivablereceivable. . . . . . . . . . . . . . . . (17,732) (32,867)
Inventories(26,077) (42,510)
Inventories. . . . . . . . . . . . . . . . . . . . 15,950 9,23429,903 17,169
Prepaid expenses . . . . . . . . . . . . . . . . (1,340) (1,478)(2,346) (2,239)
Accounts payable and accrued expensesexpenses. . . . . . . 32,397 19,57937,244 31,916
Other assets . . . . . . . . . . . . . . . . . . . . . (505) (174)(2,563) (2,335)
Deferred income taxestaxes. . . . . . . . . . . . . . . . . (1,129) (43)
---------(1,287) (61)
-------- --------
Net cash provided by operating activitiesactivities. . . . . 61,412 31,586
---------108,379 53,813
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net . . . . . . . . . . . . . . . . . (9,131) (19,591)(13,337) (34,021)
Proceeds from the sale of facility (Note 4). . . . . . . . 103,942110,677 --
----------------- --------
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . . . . . . 94,811 (19,591)
---------97,340 (34,021)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debtdebt. . . . . . . . . . . . . . . . . . (146,346) (62,453)
Proceeds from stock offering, net (Note 6) . . (107,307) (13,260). . . 73,293 42,390
Exercise of stock options and warrants . . . . . . . . . . 2,093 773
---------6,893 1,404
-------- --------
Net cash used for financing activities . . . . . . . . (105,214) (12,487)
---------(66,160) (18,659)
-------- --------
Net increase (decrease) in cash and cash equivalentsequivalents. . . . . . . . . . . . . . . . . . . . 51,009 (492)139,559 1,133
Cash and cash equivalents, beginning of period . . . . 33,837 33,815
----------------- --------
Cash and cash equivalents, end of period . . . . . . .$173,396 $ 84,846 $ 33,323
=========34,948
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 5,6194,889 $ 7,35610,631
Income taxes . . . . . . . . . . . . . . . . . . . . . 310 6281,419 1,026
The accompanying notes are an integral part of these financial statements.
56
67
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accounting policies followed by the Company are set forth in Note 1 of
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1993. Quarterly information
is reported on a 13 week fiscal period which ends the last Saturday of the
quarter.
2. Primary earnings per share amounts are based upon the weighted average
number of shares and dilutive common stock equivalents calculated using the
average price of the Company's common stock for each period presented.
Fully diluted earnings per share additionally reflect dilutive shares
assumed to be issued upon conversion of the Company's convertible
debentures.
3. Inventories comprised the following:
December 25, JuneMARCH 26, JUNE 30,
1994 1993
1993
--------------------- --------
(in thousands)(IN THOUSANDS)
Finished goods . . . . . . . . . $29,800. . . . $24,993 $ 43,634
Work in processprocess. . . . . . . . . . 30,385. . . 27,936 44,087
Raw materials and component partsparts. . 27,233. . 20,536 24,795
------- --------
$87,418$73,465 $112,516
======= ========
4. 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 $110.6
million ($103.9 million in cash and a $6.7 million note payable, over a 60-day period after closing)which has
been paid as of March 26, 1994) 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 gain on the sale of the facility, which has been reduced to provide for
certain additional costs necessary to conform the Company's operations to an
environment without in-house wafer fabrication facilities, is not material
to the financial position of the Company and is being deferred and amortized
over the life of the supply contract with Motorola.
5. In January 1994, the Company entered into a $75.0 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 $25.0 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 a credit facility secured by
substantially all of the Company's assets, the remaining borrowings under
which were repaid on December 31, 1993. In March 1994, the facility was
amended to increase the one-year commitment to $35.0 million, for a total of
$85.0 million available credit.
6. In February 1993, 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.
7
8
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. In the opinion of management, all adjustments necessary to fairly state the
results of operations for the three and sixnine months ended December 25,March 26, 1994 and
March 27, 1993 and December 26, 1992 have been made. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report.
68
79
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS)
RESULTS OF OPERATIONS
Net income for the secondthird quarter of 1994 was $12.5$28.4 million, compared with a
net loss of $5.1 million in the first quarter of fiscal 1994 and net
income of $6.9$1.6 million in the corresponding quarter of the prior year.year and $12.5
million in the immediately preceding quarter. Net income for the sixnine months
ended December 25, 1993March 26, 1994 was $7.4$35.8 million versus $11.1$12.7 million for the same period
of the prior year.a year ago. Revenue for the three month period ended December 25, 1993March 26, 1994 increased
29% to $371.1$420.9 million from $285.5$325.4 million in the firstthird quarter of 1994,1993 and 13%
from $343.5$371.1 million in the second quarter of 1993.1994. Gross margins for the
secondcurrent fiscal quarter of 1994improved six percentage points to 22.3% from 16.1% in
the same quarter a year ago as gross profit margins for the disk drive and
microcomputer products ("MCP") businesses improved five and 20 percentage
points, respectively. As compared with the immediately preceding quarter,
gross margin improved approximately three percentage points, to 19.6% from 16.3% in the immediately preceding quarter
primarily asdespite a result of a 40% increasesix
percent decline in disk drive unit shipments which
reduced per unit product costs and a favorable product mix inaverage selling prices ("ASPs"), reflecting the
Company's disk drive business.continuing effort to improve manufacturing efficiencies. For the
sixnine months ended December 25, 1993,March 26, 1994, the Company increased its revenue and gross
profit margins to $656.6 million$1.08 billion and 18.2%19.8%, respectively, reflecting the significant
increaseincreases in the volume of drives
shippeddisk drive unit shipments and lower component costs
in both the disk drive and microcomputer
products ("MCP")MCP businesses.
Revenue for disk drive products totaled $332.8$387.3 million in the secondthird quarter of
1994, an increase of $90.5$54.5 million or 37%16% from the firstsecond quarter of 1994. This
increase reflects1994, as a
40%result of a 19% increase in unit shipments combined with an abatement
in the pricing pressures experienced in the immediately preceding quarter.shipments. Revenue for drive products for the
three and sixnine months ended December 25, 1993March 26, 1994 increased $34.5$105.9 million or 12%38% and
$52.0$157.9 million or 10%20%, respectively, as
compared toover the corresponding periods of 1993.the
prior year. These increases were the result of a 38%69% and 32%45% increase in the
volume of drives shipped over the corresponding three and sixnine month periods,
respectively, of the prior year and a shift in the mix to higher-capacity
drives.
Revenue for MCP totaled $38.3$33.6 million in the secondthird quarter of 1994, a decrease
of $4.9$4.7 million, or 11%12% from the firstsecond quarter of 1994, reflecting decreases
across allprimarily due to a
decrease in storage controller product lines.revenue as a result of reduced unit
shipments to one customer period to period. Revenue for MCP for the three and
sixnine months ended December 25, 1993March 26, 1994 decreased $7.0$10.4 million or 15%24% and $10.1$20.5
million or 11%15%, respectively, as compared towith the corresponding periods of
the prior year. The decline in revenue for both periods was the result ofreflects decreases
in systems
solutions and imaging product revenue which was partially offset by increases
in storage controller product revenue.across all products lines.
Disk drive gross margin for the current quarterthree months ended March 26, 1994 increased
approximately fourthree and five percentage points to 18.3%21.2% from 13.9%18.3% in the
immediately preceding quarter and from 16.2% in the third quarter of the prior
year. The increases in gross margin are primarily as athe result of increased unit
shipments which reduced per unit product costs, lower component costs and a
favorable product mix and was relatively flat as compared
to the second quarter of the prior year.mix. Disk drive gross margin for the sixnine months ended December 25, 1993 decreased approximately three percentage points
from 19.4% inMarch
26, 1994 remained relatively flat as compared with the corresponding period of
the prior year due to the pricing pressures experienced in the disk drive
industry in the first halfquarter of the current fiscal year.1994.
MCP gross margin for the secondthird quarter of 1994 increased approximately twofour
percentage points to 31.2%35.0% from 29.6%31.2% in the immediately preceding quarter as
a
resultthe Company began to realize the cost benefits of lower componentselling its wafer fabrication
facility (see Note 4) and thereby reducing manufacturing costs. MCP gross
margin for the three and sixnine month periods forof the current fiscal year
increased approximately 2920 and 2221 percentage points, respectively, from 1.8%15.3%
and 8.2%10.5% in the three and six monthsame periods of the prior year. These increases in MCP gross
marginmargins were primarily theattributable to reduced product costs as a result of
realizing the cost of benefits of selling the wafer fabrication facility and
continued improvements in manufacturing efficiencies which
reduced product costs.
7efficiencies.
9
810
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS)
Research and development expense ("R&D") for the secondthird quarter of 1994
increaseddecreased approximately $3.7$2.5 million or 14% as compared to8% from the firstsecond quarter of 1994 as a
result of continued increases in new product introduction expenses.the timing of the completion of certain R&D related projects. R&D
expense for the three and sixnine months ended December 25, 1993March 26, 1994 increased $5.4$2.6
million or 22%10% and $9.6$12.2 million or 20%17%, respectively, as compared towith the
corresponding periods of the prior year. These increases were primarily
attributable to planned expenditures to support new product introductions for
the current fiscal year.
Selling, general and administrative ("SG&A") expense for the three months ended
December 25, 1993March 26, 1994 increased $4.3$5.7 million or 19%21% from the preceding quarterquarter. SG&A
expense for the three and $4.3nine month periods of the current year increased
$10.0 million or 20% from45% and $16.7 million or 26%, respectively, as compared with
the same period a year ago as a resultthree and nine month periods of increased
selling and marketing expenses. As compared to the first six months of 1993,1993. The increases in SG&A expense increased $6.8 million or 16%for
all periods are primarily as a result of increases in selling, expensesmarketing and increased reserves for bad debt expenseother
related expenses in support of higher revenue levels and provisions made for
the higher revenues.Company's pay-for-performance plans.
Net interest expense decreased $.5$1.9 million in the secondthird quarter of
1994 as compared with the prior quarter due to significant reductions in outstanding debt.debt
outstanding. Net interest expense decreased $1.6$2.9 million and $5.4 million from
the second quarterthree and nine month periods of 1993, and
$2.4 million from the first six months of 1993,respectively, primarily due to lower
interest rates and significantly lower levels of debt outstanding during 1994
as compared towith the prior periods.
FINANCIAL CONDITION
Cash and cash equivalents increased to $84.8totaled $173.4 million at December 25, 1993March 26, 1994 as compared
towith $33.8 million at June 30, 1993. This $51.0 million increaseIn the first nine months of 1994, the
Company generated $108.4 in cash and cash equivalents resulted primarily from increased cash flows from operations which totalled $61.4and $73.3 million forin net
proceeds from the six months ended December 25,
1993.sale of 7,618,711 shares of common stock on February 8, 1994.
Cash flows from operations, along with approximately $95.0 million of proceeds
from the sale of the Company's wafer fabrication facility (see Note 4) were
used to reduce long-term debt by $107.3$146.3 million and to fund capital
expenditures of $9.1$13.3 million. Capital expenditures were incurred primarily
for increased disk drive manufacturing and wafer testing capacity.
In January 1994, the Company entered into a $75.0 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 $25.0 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 a credit facility secured by substantially all of the Company's
assets, the remaining borrowings under which were repaid on December 31, 1993.
In March 1994, the facility was amended to increase the one-year commitment to
$35.0 million, for a total of $85.0 million available credit.
Notwithstanding the significant improvements in financial position realized
over the past sixnine months, 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 and the timely development and introduction of new products which
address market needs.
810
911
PART II. OTHER INFORMATION
ITEM 1. Legal Procedings
The Company was sued on September 17, 1991,is engaged in the United States
District Court for the Central District of California bylitigation with Amstrad plc, a British
computer maker. The suit alleged that disk drives
furnished to AmstradFor a complete discussion of this matter see Part II,
Item 1, "Legal Procedings" 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.
ITEM 4. Submission of Matters to Vote of Security Holders
The annual meeting of shareholders was heldQuarterly Report on November 18, 1993.
The shareholders approved the following proposal:
Number of Votes
-------------------------
For Against*
---------- ---------
1. To approve the Western Digital Corporation 1993
Employee Stock Purchase Plan under which
employees may purchase shares of the Company's
common stock pursuant to the provisions of the
regulations relating to Section 423 of the Internal
Revenue Code. 23,193,359 4,116,135
* includes abstentions
At the annual meeting of shareholders the entire slate of
director nominees was elected, with each nominee receiving at
least 27,090,977 votes in favor of election.
ITEM 5. Other Information
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 patentsForm 10-Q for
the life of such patents, and has obtained
from IBM a patent license which expiresquarter ended 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 discussions 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.
9
10
PART II. OTHER INFORMATION25, 1993.
ITEM 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
10.17.1 Manufacturing Building lease between Wan Tien
Realty Pte LTD and Western Digital (Singapore)
Pte Ltd dated as of November 9, 1993.
10.30 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.
10.31 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.
10.32 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.
10.32.1 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.
11 Computation of Per Share Earnings.
(b) Reports on Form 8-K:
On January 5,March 16, 1994, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting that a
proposed settlement of the sale of its Irvine,
California silicon wafer fabrication facility topending class action securities
litigation against the Semiconductor Products Sector of Motorola, Inc. for
approximately $110.6 million ($103.9 million in cash
and a $6.7 million note payable over the 60-day
period after closing).
10Company received preliminary court
approval.
11
1112
SIGNATURES
- - ----------
Pursuant to the requirements 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
---------------------------------------------------------------------------
Registrant
/s/Scott Mercer
----------------------------------------------------------------------------
D. Scott Mercer
Executive Vice President,
Chief Financial and
Administrative Officer
Date: January 24,May 9, 1994
12
13
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -------------
10.30 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.
10.31 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.
10.32 First Amendment to Receivables Purchase Agreement, dated March 23, 1994, by and
between Western Digital Capital Corporation, as seller and the Financial Institutions
listed therein as bank purchasers and adminitrative agents.
10.32.1 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.
11 Computation of Per Share Earnings.
13