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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 29, 1996

/ / 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8105 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92618
(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:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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COMMON STOCK, $.10 PAR VALUE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A JUNIOR NEW YORK STOCK EXCHANGE
PARTICIPATING 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 August 1, 1996, the aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $1.3 billion.

As of August 1, 1996, the number of outstanding shares of Common Stock, par
value $.10 per share, of the Registrant was 43,644,345.

Information required by Part III is incorporated by reference to portions
of the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the 1996 fiscal year.

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2

WESTERN DIGITAL CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 29, 1996

PAGE
----

PART I
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 8
Item 3. Legal Proceedings........................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 11
Item 6. Selected Financial Data..................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 11
Item 8. Financial Statements and Supplementary Data................................. 15
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................. 31
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 32
Item 11. Executive Compensation...................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 32
Item 13. Certain Relationships and Related Transactions.............................. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 32

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3

THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD-LOOKING
STATEMENTS, WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE," "STRATEGY," OR
WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS ARE IDENTIFIED BELOW IN PART I, ITEM 1 AND ITEM 3 AND PART II, ITEM 7
OF THIS REPORT.

PART I

ITEM 1. BUSINESS

GENERAL

Western Digital Corporation (the "Company" or "Western Digital") currently
designs, manufactures and sells hard drives for the personal computer ("PC")
market. The Company is one of the three largest independent manufacturers of
hard drives. The Company's principal drive products are 3.5-inch form factor
hard drives for the desktop PC market with storage capacities from 850 megabytes
("MBs") to 3.1 gigabytes ("GBs"), including the Caviar AC33100, a 3.1 GB drive
which began initial volume shipments in August 1996. These hard drives utilize
the enhanced integrated drive electronics ("EIDE") interface. With the planned
introduction of product lines for the mobile and enterprise storage markets in
1997, the Company will design, manufacture and sell hard drives across the
entire spectrum of the hard drive market. The mobile products will use the
3.0-inch form factor. The first generation of enterprise storage products will
include 2.1 and 4.3 GB capacities and will use the 3.5-inch form factor and the
small computer system interface ("SCSI"). The initial enterprise storage
products have been designed to be used by workstations, LAN servers, multi-user
systems and high-end PCs.

Until April 1996, the Company also designed and sold proprietary
semiconductors, some of which were used in the manufacture of hard drives. These
businesses (multimedia, high speed fiber-optic communication links and
input/output products), which were sold at various times during 1996, were
collectively referred to as the microcomputer products ("MCP") group and had
combined revenues of $70.1, $191.0 and $160.0 million in 1996, 1995, and 1994,
respectively. During the fourth quarter of 1996, all of the Company's revenues
were generated from hard drive product sales.

Effective July 1, 1994, the Company changed its fiscal year end from June
30 to a 52 or 53-week year ending on the Saturday nearest June 30. Accordingly,
the 1996 and 1995 fiscal years ended on June 29 and July 1, respectively,
whereas the previous fiscal years ended on June 30.

Unless otherwise indicated, references herein to specific years and
quarters are to the Company's fiscal years and fiscal quarters.

The Company's principal executive offices are located at 8105 Irvine Center
Drive, Irvine, California 92618, and its telephone number is (714) 932-5000.

MARKETS

Personal Computer. The market for PC EIDE hard drives is segmented by type
of computer (mobile or desktop), form factor (2.5-inch, 3.0-inch, 3.5-inch and
5.25-inch) and storage capacity (currently up to 3.1 GBs). The segment of the PC
market currently generating the largest requirements for EIDE hard drives is the
desktop segment which primarily uses 3.5-inch drives with capacities up to 3.1
GBs.

The mobile market is currently dominated by the 2.5-inch form factor. The
new 3.0-inch form factor offers several advantages over the 2.5-inch form factor
including larger disk surface area, permitting higher capacity per platter, and
lower cost structure without any compromise in performance. The Company
anticipates that these advantages will enable the 3.0-inch form factor to be
successfully accepted into the mobile market.

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The hard drive market has been highly cyclical and 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 and changing market requirements. In 1996, with the merger
of Seagate Technology, Inc. ("Seagate Technology") and Conner Peripherals, Inc.
("Conner"), the industry dynamics were changed by reducing the number of
competitors and significantly increasing the size of Seagate Technology. The
Company is unable to predict the effect, if any, that the merger will have on
this industry and/or on 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 hard drives. At the same time, intense price competition
among PC manufacturers requires that hard drive suppliers meet aggressive cost
targets in order to become high-volume suppliers. The Company's strategy in
response to these conditions is to increase market share by achieving volume
time-to-market leadership while minimizing its fixed cost structure and
maximizing the utilization of its assets. The Company attempts to implement 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 hard drive products.

Enterprise Storage. The market for SCSI hard drives is segmented by
workstations, LAN servers, multi-user systems and high-end PCs. The Company's
strategy to penetrate this market is to provide a competitive price and
performance solution to prospective customers. The initial products offered in
1997 will leverage technology and processes that are currently used by the
Company's 3.5-inch desktop product line.

PRODUCTS

Revenues from hard drive products were $2.8, $1.9, and $1.4 billion for
1996, 1995 and 1994, respectively. Revenues from microcomputer products were
$70.1, $191.0 and $160.0 million for 1996, 1995 and 1994, respectively.

Technology. Hard 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. Commonly quoted measures of hard 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
is transferred between the drive and the host computer) and spindle rotational
speed.

Product Offerings. The Company's current line of hard drive products for
the personal computer market consists of the WD Caviar(R) family of low-profile
drives which includes 1-inch high, 3.5-inch form factor models for desktop
applications. In addition, the Company plans to begin shipping 3.0-inch form
factor models for mobile computer applications in 1997. Each of these drives
features CacheFlow(TM), the Company's proprietary adaptive disk caching system
which 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 III, which spans the Company's entire
3.5-inch WD Caviar product line. Architecture III features EIDE technology,
which provides the desktop marketplace the key attributes of the SCSI 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
integrated drive electronics ("IDE"). The Company believes that the commonality
of control and communication electronics featured in all of the WD Caviar hard
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.

In 1997, the Company plans to introduce a new line of 3.5-inch form factor,
low profile, SCSI hard drives for the enterprise storage market. The initial WD
Enterprise(TM) products will have formatted capacities of 2.1 GBs and 4.3 GBs,
rotational speed of 7,200 RPM, media data transfer rates of 17.5 MB per second,
and will support Ultra Fast and Ultra Fast Wide host transfers.

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5

The following table summarizes certain design and performance
characteristics and specifications of the Company's current hard drive products:

AVERAGE
FORMATTED ACCESS TIME NUMBER NUMBER
DATE CAPACITY (MILLI- OF OF
PRODUCT FIRST SHIPPED (MEGABYTES) SECONDS) DISKS HEADS INTERFACE
- ---------------------- -------------- ----------- ----------- ------ ------ ---------

Desktop Products:
WD Caviar AC2850 December 1994 854 <10 2 4 EIDE
WD Caviar AC21000 June 1995 1,084 <11 2 4 EIDE
WD Caviar AC21200 December 1995 1,282 <10 2 4 EIDE
WD Caviar AC21600 March 1996 1,625 <12 2 4 EIDE
WD Caviar AC31600 June 1995 1,625 <10 3 6 EIDE
WD Caviar AC32100 March 1996 2,112 <12 3 5 EIDE
WD Caviar AC32500 March 1996 2,560 <12 3 6 EIDE
WD Caviar AC33100 August 1996 3,167 <12 3 6 EIDE

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 the customer's new product requirements. This structure
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 improve customer fulfillment and overall service. The Company's major
original equipment manufacturer ("OEM") customers include Apple Computer, AST
Research, Compaq Computer, Dell Computer, Digital Equipment Corporation,
Fujitsu, Gateway 2000, Hewlett-Packard, IBM, Intel, Micron Technology, NEC and
Siemens. While Western Digital believes its relationships with key customers
such as these 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 1996 and
1995, sales to Gateway 2000 accounted for 11% of revenues. During 1994, sales to
Gateway 2000 and IBM accounted for 12% of revenues each.

The Company also sells its products through its direct sales force to
selected resellers, which include major distributors, mass merchandisers and
value-added resellers. The Company's major distributor customers include
Decision Support Systems, Frank and Walter, Ingram Micro, Loeffelhardt, National
Computer Distributors, Supercom and Synnex. Major mass merchandiser customers
include Best Buy, Computer City, CompUSA, Egghead Software, Office Depot, Radio
Shack and Wal-Mart. In accordance with standard industry practice, the Company's
agreements with its resellers 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.

Western Digital maintains sales offices in the United States, Europe and
Asia. Technical support services are provided within the United States and
Europe. The Company's international sales, which include sales to foreign
subsidiaries of U.S. companies, represented 51%, 44%, and 43% of revenues for
1996, 1995 and 1994, respectively. Sales to international customers may be
subject to certain risks not normally encountered in domestic operations,
including exposure to tariffs, various trade regulations and fluctuations in
currency exchange rates.

For information concerning sales by geographic region, see Note 7 of Notes
to Consolidated Financial Statements.

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6

SERVICE AND WARRANTY

Western Digital warrants its newly manufactured desktop and mobile products
against defects in materials and workmanship for a period of three years. The
Company's enterprise storage products will provide similar warranties for up to
five years. The Company refurbishes or repairs its products at an in-house
service facility located in Singapore and at a third-party return facility
located in Germany.

RESEARCH AND DEVELOPMENT

Research and development expenses totaled $150.1, $130.8 and $112.8 million
in 1996, 1995 and 1994, respectively. The Company devotes substantial resources
to research and development in order to develop new products and improve
existing products. The Company 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 availability of research and
development funds depends upon the Company's revenues and profitability.
Reductions in such expenditures could impair the Company's ability to innovate
and compete.

The Company's current product line primarily uses thin film head
technology. Over the next several years, as storage capacity requirements
increase, the Company expects that it will be required to replace thin film
heads with magnetoresistive ("MR") heads. There can be no assurance that the
Company will be successful in the transition from thin film heads to MR heads.

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. 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.

MANUFACTURING

The Company produces hard drives in its plants in Singapore and Malaysia.
Western Digital is currently expanding its printed circuit board assembly and
hard drive manufacturing capabilities in Malaysia and has a new building in
Singapore which will be used to produce hard drives for the enterprise storage
market beginning in 1997. These plants have complete responsibility for all hard
drives in volume production, including manufacturing, 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 hard drives from external suppliers, although the Company
has a media manufacturing facility which supplies a portion of its media
requirements.

The Company experiences fluctuations in manufacturing yields that 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.

Because the Company has manufacturing facilities located in Singapore and
Malaysia, the Company is subject to certain foreign manufacturing risks such as
changes in government policies, high employee turnover, political risk,
transportation delays, tariffs, fluctuations in foreign exchange rates and
import, export, exchange and tax controls and reallocations. 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 hard
drives are magnetic heads (both thin film and metal-in-gap ("MIG")) and related
head stack assemblies, media, micro controllers, spindle motors and mechanical
parts used in the head-disk assembly. The Company also uses standard
semiconductor components such as logic, memory and microprocessor devices
obtained from other

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manufacturers as well as proprietary semiconductor circuits manufactured for the
Company and a wide variety of other parts, including connectors, cables and
switches.

Substantially all of the Company's thin film head requirements are
purchased from Read-Rite, SAE and AMC Corporation. The Company also uses MIG
heads, which are supplied by several vendors. The Company has a media
manufacturing facility which supplies a portion of its media requirements. Other
media requirements are purchased through several outside vendors including Komag
Inc., Trace Storage, Akashic and Showa Denko. The Company has established an
agreement with SGS Thompson to purchase finished integrated circuits ("IC")
which were previously manufactured internally.

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. Because the Company is
less vertically integrated than its competitors, an extended shortage of
required materials and supplies could have a more severe adverse effect on
Western Digital's revenue and earnings as compared to its competition. The
Company must allow for significant lead times when procuring certain materials
and 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
has entered into close technical and manufacturing relationships, has access to
more than one manufacturing location in most instances, and believes that a
second source could be obtained over a period of time. However, no assurance can
be given that the Company's results of operations would not be adversely
affected until a new source could be secured.

COMPETITION

The computing industry is intensely competitive and has been 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 hard drive market in particular has
been subject to recurring periods of severe price competition. The Company's
principal competitors are Quantum Corporation ("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 February 1996, Seagate
Technology merged with Conner, formerly one of the Company's principal
competitors. This merger changed the industry dynamics by reducing the number of
competitors and by significantly increasing the size of Seagate Technology. The
Company is unable to predict the effect, if any, that the merger will have on
Western Digital.

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 and as technological advancements are achieved. 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, to liquidate excess
inventories and/or to gain market share.

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.

The Company believes that proprietary hard 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.

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BACKLOG

At June 29, 1996, the Company's backlog, consisting of orders scheduled for
delivery within the next twelve months, aggregated approximately $479 million,
compared with a backlog at July 1, 1995 which aggregated approximately $426
million. Historically, a substantial portion of the Company's orders has 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 that, pursuant to industry
practice, may be canceled with relatively short notice to the Company, subject
to payment of certain costs, or modified by customers to provide for delivery at
a later date. Also, certain of the Company's sales to OEMs are made under
"just-in-time" delivery contracts that do not generally require firm order
commitments by the customer. 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.

PATENTS AND LICENSES

The Company owns numerous patents and has many patent applications in
process. The Company believes that, although its patents and applications have
significant value, the successful manufacturing and marketing of its products
depends primarily upon the technical competence and creative ability of its
personnel rather than on patent protection. See also "Legal Proceedings."

The Company has cross-licensing agreements with IBM and Seagate Technology,
which grant the Company licenses for its products under patents owned by these
companies, and which grant each of these companies a license for its products
under patents owned by the Company. The Company pays periodic royalties under
the IBM cross-license agreement. Several patent holders have made assertions
that the Company needs a license under certain patents. The Company conducts
ongoing investigations into such assertions and presently believes that any
licenses ultimately determined to be required could be obtained on commercially
reasonable terms. However, there is no assurance that such licenses are
presently obtainable, or if later determined to be required, could be obtained.
See also "Legal Proceedings."

EMPLOYEES

As of June 29, 1996, the Company employed a total of 9,628 full-time
employees worldwide. The Company employed 1,776 employees in the United States,
of whom 725, 487 and 564 were engaged in engineering, sales and administration,
and manufacturing, respectively. The Company employed 2,892 employees at its
hard drive manufacturing facility in Malaysia, 4,837 at its hard drive
manufacturing facilities in Singapore, and 123 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. The Company has
two hard drive manufacturing facilities located in Singapore. The first
Singapore facility, which is used to produce hard drives for the personal
computer market, is leased to the Company and consists of several buildings
totaling approximately 297,000 square feet. The second Singapore facility is
approximately 90,000 square feet and will be used to produce hard drives for the
enterprise storage products market beginning in 1997. This facility is currently
leased, but the Company has entered into an agreement to purchase the facility.
Western Digital also owns an 88,000 square foot hard drive manufacturing
facility located in Malaysia. The Company recently acquired an adjacent parcel
of land in Malaysia and is in

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the process of constructing a building totaling approximately 250,000 square
feet to expand its printed circuit board assembly and hard drive manufacturing
facility. The Company's media processing facilities total approximately 100,000
square feet and are located on leased property in Santa Clara, California. In
addition, the Company leases facilities in San Jose, California and in
Rochester, Minnesota for research and development activities. The leases
referenced above expire at various times through 2006.

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 following discussion contains forward-looking statements relating to
the Company's legal proceedings described below. Litigation is inherently
uncertain and, accordingly, actual results could differ materially from those
expressed in the forward-looking statements.

The Company was sued in March 1993 in the United States District Court for
the Northern District of California by Conner. The suit alleged that the Company
infringed five Conner patents and sought damages in an unspecified amount and
injunctive relief. The Company also filed a suit alleging that Conner infringed
two of the Company's patents. On February 20, 1996, the lawsuits were dismissed
with prejudice by mutual agreement of the parties.

The Company was sued in December 1994 by Rodime plc ("Rodime") in the
United States District Court for the Central District of California. The suit
alleged that the Company infringed one of Rodime's patents which relates to
3.5-inch hard drives and sought damages in an unspecified amount. In April 1994,
in an action for declaratory judgment involving this patent which was brought by
Quantum against Rodime, the United States District Court for the District of
Minnesota entered a summary judgment in Quantum's favor, ruling that claims of
the Rodime patent were invalid because of impermissible broadening in
reexamination proceedings. This summary judgment was affirmed on September 22,
1995, by the United States Court of Appeals for the Federal Circuit. On April
29, 1996, The United States Supreme Court declined to review this decision. This
ruling, now final, concluded Quantum's action against Rodime. Subsequently, on
May 3, 1996, Rodime dismissed its claim against the Company without prejudice.

The Company was sued by Amstrad plc ("Amstrad") in December 1992 in Orange
County Superior Court. The complaint alleges that hard drives supplied by the
Company in 1988 and 1989 were defective and caused damages to Amstrad of $186.0
million for out-of-pocket expenses, lost profits, injury to Amstrad's reputation
and loss of goodwill. The Company filed a counterclaim for $3.0 million in
actual damages plus exemplary damages in an unspecified amount. Trial in the
matter is currently scheduled for February 1997. The Company believes that it
has meritorious defenses to Amstrad's claims and intends to vigorously defend
itself against the Amstrad claims and to press its claims against Amstrad in
this action. Although the Company believes the final disposition of this matter
will not have a material adverse effect on the Company's financial position or
results of operations, if Amstrad were to prevail on its liability claims, a
judgment in a material amount could be awarded against the Company.

The Company is also subject to other legal proceedings and claims which
arise in the ordinary course of its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all the executive officers of the Company
as of August 1996 are listed below, followed by a brief account of their
business experience during the past five years. Executive officers are

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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 55 Chairman of the Board, President and Chief Executive
Officer
Kathryn A. Braun 45 Executive Vice President, Personal Storage Group
Marc H. Nussbaum 40 Senior Vice President, Engineering, Personal Storage Group
David W. Schafer 44 Senior Vice President, Worldwide Sales
Duston M. Williams 38 Senior Vice President and Chief Financial Officer
Michael A. Cornelius 54 Vice President, Law and Administration, and Secretary
Scott T. Hughes 33 Vice President, Human Resources
Steven M. Slavin 45 Vice President, Taxes and Treasurer

Messrs. Nussbaum, Schafer, Slavin 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. Cornelius joined the Company in January 1995. Prior to joining the
Company, he served in various positions with U.S. affiliates of Nissan Motor
Company, Inc. for 19 years. From 1990 to 1992, he served as Nissan North
America's Vice President of Legal and Public Affairs. Immediately prior to
joining the Company, he held the position of Vice President of Corporate Affairs
for Nissan North America.

Mr. Hughes joined the Company in July 1993 as Vice President, Human
Resources before becoming an elected officer of the Company in July 1994. He
served as Director of Human Resources of Quantum from 1992 to 1993. From 1990 to
1992, he served in various capacities with Western Digital, including acting
Vice President, Human Resources.

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11

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 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 August 1, 1996 was 3,400.

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 sales prices of the Company's common stock, as reported by
the NYSE, for each quarter of 1996 and 1995 are as follows:

FIRST SECOND THIRD FOURTH
----- ------ ----- ------

1996
High.................................. $22 1/8 $18 7/8 $21 3/8 $29
Low................................... 15 1/8 14 3/8 16 1/8 18 7/8
1995
High.................................. $16 3/8 $19 $19 3/8 $21 3/4
Low................................... 12 3/4 13 3/4 13 1/8 13 3/8

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

YEARS ENDED
------------------------------------------------------------
(IN MILLIONS, EXCEPT PER JUNE 29, JULY 1, JUNE 30, JUNE 30, JUNE 30,
SHARE AND EMPLOYEE DATA) 1996 1995 1994 1993 1992
- ---------------------------------------- -------- -------- -------- -------- --------

Revenues, net........................... $2,865.2 $2,130.9 $1,539.7 $1,225.2 $938.3
Gross Profit............................ 382.1 394.1 317.9 182.0 110.6
Operating income (loss)................. 77.5 133.0 91.9 (10.0) (67.0)
Net Income (loss)....................... 96.9 123.3 73.1 (25.1) (72.9)
Earnings (loss) per share:
Primary............................... $ 2.01 $ 2.56 $ 1.77 $ (.79) $(2.49)
Fully diluted......................... $ 2.01 $ 2.47 $ 1.70 $ (.79) $(2.49)
Working capital......................... $ 280.2 $ 360.5 $ 261.7 $ 111.5 $138.9
Total assets............................ $ 984.1 $ 858.8 $ 640.5 $ 531.2 $532.5
Total long-term debt.................... -- -- $ 58.6 $ 182.6 $243.0
Shareholders' equity.................... $ 453.9 $ 473.4 $ 288.2 $ 131.0 $112.3
Number of employees..................... 9,628 7,647 6,593 7,322 6,906

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Western Digital operates in an extremely competitive industry which has
experienced a great deal of consolidation and change over the past several
years. The industry is characterized by short product life cycles, dependence
upon a limited number of suppliers for certain component parts, dependence upon
highly skilled engineering and other personnel, significant expenditures for
product development and recurring periods of severe price competition.

The Company's product strategy for the PC market is to be the first to
market in volume with the highest capacity per platter 3.5-inch EIDE hard drives
at competitive prices. The successful implementation of this strategy during the
last three fiscal years has resulted in significant increases in unit shipments
of hard drives, with attendant improvements in factory utilization and
manufacturing efficiencies, lower component costs and overall reductions in per
unit manufacturing costs.

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12

During the first quarter of 1996, the Company sold its multimedia business
to Philips Semiconductors, Inc. Later in 1996, Western Digital sold its high
speed fiber-optic communication links and input/output products businesses to
Vixel Corporation and Adaptec, Inc. ("Adaptec"), respectively. These businesses
represented the final elements of the Company's MCP group. Concurrent with the
sale of these final two businesses, the Company restructured its business to
focus on its primary objectives and strengths: the design, manufacture and sale
of hard drives. Beginning with the fourth quarter of 1996, the Company's
operations were related entirely to hard drive products.

The Company invested a significant amount during the year in the
development of two new hard drive product lines, enterprise storage products and
mobile PC products. The Company expects to begin shipping these new products in
1997 and anticipates that these products will positively impact its consolidated
gross margin and operating income in 1997.

Unless otherwise indicated, references herein to specific years and
quarters are to the Company's fiscal years and fiscal quarters.

RESULTS OF OPERATIONS

Comparison of 1996, 1995 and 1994

In 1996, the Company reported net income of $96.9 million, including a
one-time, pre-tax gain of $17.3 million on the sale of its multimedia products
business, compared with net income of $123.3 million for 1995 and $73.1 million
for 1994. The decrease in net income from 1995 to 1996 occurred because of a
decline in gross profit margin percentage of approximately five percentage
points and an increase in operating expenses as the Company invested in new
storage-related product lines. The increase in net income in 1995 over 1994
resulted from a 38% increase in revenues and higher net interest and other
income. A two percentage point decline in gross profit margin partially offset
these improvements.

Sales of hard drive products were $2.8, $1.9 and $1.4 billion in 1996, 1995
and 1994, respectively. During 1996, unit shipments increased 50% which,
combined with a modest decline in average selling prices ("ASPs"), resulted in
hard drive revenues increasing 44% from 1995. Although increased sales to OEMs
during 1996 accounted for the majority of the increase in unit shipments, a
year-over-year increase in reseller units was also a considerable factor. During
1995, unit shipments increased 49% from 1994, but declining ASPs reduced the
1994 to 1995 hard drive revenue growth rate to 41%. The revenue increase in 1995
primarily resulted from increased business with OEMs.

Gross profit margins were as follows:

1996 1995 1994
---- ---- ----

Hard drive products.................................. 12.8% 16.2% 19.1%
Microcomputer products............................... 36.8% 41.8% 33.7%
Overall.............................................. 13.3% 18.5% 20.6%

The decrease in gross profit margin from 1995 to 1996 was primarily due to
three factors. First, higher-capacity products were introduced at lower average
selling prices as a result of competitive pricing pressures. Second, the Company
shipped a broader mix of hard drives during fiscal year 1996. This resulted in
higher shipments of lower-capacity products at lower price points, which
generally have smaller gross margins. Finally, fewer microcomputer products
(which have higher average gross margin percentages) were sold due to the sale
of the MCP businesses during 1996.

During 1995, the Company increased its shipments of hard drive products to
OEMs, which typically require lower prices and a broader product mix (including
lower capacity hard drives) in exchange for high volumes. Overall hard drive
industry conditions also became more competitive during 1995 as the industry's
manufacturing capacity more closely matched demand and competitors continued to
shorten product development cycles. These were the primary factors which
contributed to the decline in hard drive product gross margins during 1995.

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13

The decline in microcomputer product gross margin was generally
attributable to the relationship between fixed costs and the lower revenue base
experienced as the non-drive related products lines were divested in 1996.

Research and development expense ("R&D") in 1996 was approximately $150.1
million, or 5.2% of revenues, as compared to approximately $130.8 million, or
6.1% of revenues, and $112.8 million, or 7.3% of revenues, during 1995 and 1994,
respectively. Higher expenditures to support the development of enterprise
storage and mobile products, partially offset by lower expenditures for
microcomputer products, were the primary factors contributing to the $19.3
million, or 15%, increase in total R&D expenses in 1996. R&D expenses declined
as a percentage of revenues primarily as a result of the higher revenue base in
1996 as compared to 1995 and 1994.

Selling, general and administrative expenses ("SG&A") were $154.5 million,
or 5.4% of revenues, in 1996 versus $130.3 million, or 6.1% of revenues, and
$113.2 million, or 7.4% of revenues, in 1995 and 1994, respectively. The
increases in total SG&A expenses were primarily the result of higher selling,
marketing and other related expenses in support of higher revenue levels and
higher royalty expenses. The higher revenue base was the primary factor
contributing to the decline in SG&A expenses as a percentage of revenues in 1996
as compared to 1995 and 1994.

Interest and other income was $13.1 million in 1996. Interest and other
income was $12.0 million in 1995 versus an expense of $5.8 million in 1994. The
improvement from 1995 to 1996 was the result of the elimination of the Company's
outstanding debt in June 1995, partially offset by lower average cash and short-
term investment balances. The improvement from 1994 to 1995 was the result of
significantly lower levels of outstanding debt and higher average cash and
short-term investment balances.

The provision for income taxes in 1996 and 1995 consists primarily of taxes
associated with certain of the Company's foreign subsidiaries which had taxable
income. The Company's effective tax rate of 10% recorded in 1996 and 15% in 1995
and 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 5 of Notes to Consolidated Financial Statements).

In October 1995, The Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 provides an alternative to APB Opinion 25,
"Accounting for Stock Issued to Employees" (APBO 25) and requires additional
disclosures. SFAS 123 is effective for the Company's fiscal year beginning June
30, 1996. The Company plans to continue to account for its employee stock plans
in accordance with the provisions of APBO 25 and provide the additional
disclosures required by SFAS 123 in 1997. Accordingly, SFAS 123 is not expected
to have a material impact on the Company's financial position or results of
operations.

LIQUIDITY AND CAPITAL RESOURCES

At June 29, 1996, the Company had $219.2 million in cash and short-term
investments as compared with $307.7 million at July 1, 1995. During 1996, the
Company generated $58.3 million in cash flow from operations. Cash flow from
earnings (net of the gain on sale of the multimedia business), depreciation and
amortization, and an increase in current liabilities were partially offset by
cash used to fund increased accounts receivable, inventories, prepaid expenses
and other assets. Other significant uses of cash during 1996 were $108.7 million
for capital expenditures, which were incurred primarily to support increased
production of hard drives and related components, and the acquisition of 7.7
million shares of the Company's common stock in the open market for $132.1
million. Partially offsetting these uses of cash was $85.5 million received in
connection with the sale of the multimedia, high speed fiber-optics
communication links and input/output products businesses. The Company
anticipates that capital expenditures in 1997 will total approximately $150
million and will relate to increased hard drive and media capacity and normal
replacement of existing assets. In addition, the Company may purchase up to an
additional 2.6 million shares of its common stock under the current Board of
Directors' authorization, which expires in July 1997.

The Company has an $150 million revolving credit agreement with certain
financial institutions extending through April 1999. This facility is intended
to meet short-term working capital requirements which may arise from time to
time. The Company believes that its current cash and short-term investments
combined with cash flow from operations and its revolving credit agreement will
be sufficient to meet its working capital needs

13
14

for the foreseeable future. However, the Company's ability to sustain its
favorable working capital position is dependent upon a number of factors that
are discussed below under the heading "Certain Factors Affecting Future
Operating Results."

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

The hard drive industry in which the Company competes is subject to a
number of risks which have affected the Company's operating results in the past
and could affect its future operating results. Demand for the Company's hard
drive products depends on the demand for the computer systems manufactured by
its customers and storage upgrades to computer systems, which in turn are
affected by computer system product cycles, end user demand for increased
storage capacity, and prevailing economic conditions. Growth in demand for
computer systems, especially in the desktop segment where the Company derives a
significant amount of its revenue, has historically been subject to significant
fluctuations. Such fluctuations have in the past and may in the future result in
deferral or cancellation of orders for the Company's products.

Even during periods of consistent demand, the hard drive industry has been
characterized by intense competition and ongoing price erosion over the life of
a given drive product, and the Company expects that price erosion in the data
storage industry will continue for the foreseeable future. This competition and
continuing price erosion could adversely affect the Company's result of
operations in any given quarter, and such adverse effect often cannot be
anticipated until late in any given quarter.

The demand of hard drive customers for greater storage capacity and higher
performance has led to short product life cycles that require the Company to
constantly develop and introduce new drive products on a cost effective and
timely basis. Failure of the Company to execute its strategy of achieving
time-to-market in volume leadership with these new products, or any delay in
introduction of more advanced and more cost effective products, could result in
significantly lower gross margins. The Company's future is therefore dependent
upon its ability to develop new products, to qualify these new products with its
customers, to successfully introduce these products to the market on a timely
basis, and to commence volume production to meet customer demands. In this
regard, the Company's new enterprise storage products, currently under
development, are expected to achieve volume production and contribute to sales
beginning in the second quarter of 1997. The Company's inability to successfully
achieve its sales goals for its enterprise storage products would significantly
impact the Company's future operating results. The Company's future operating
results may also be adversely affected if it is unsuccessful in marketing the
3.0-inch form factor hard drive to the mobile PC market.

All of the Company's hard drive products currently utilize conventional
thin film inductive head technology. The Company believes that MR heads, which
enable higher capacity per disk than conventional thin film inductive heads,
will eventually replace thin film inductive heads as the leading recording head
technology. Several of the Company's major competitors incorporate MR head
technology into some of their current products. Failure of the Company to
successfully manufacture and market products incorporating MR head technology in
a timely manner could have a material adverse effect on the Company's business
and results of operations.

The Company's operating results have been and may in the future be subject
to significant quarterly fluctuations as a result of a number of other factors.
These factors have included the timing of orders from and shipments of products
to major customers, product mix, pricing, delays in product development,
introduction in production, competing technologies, variations in product cost,
component availability due to single or limited sources of supply, foreign
exchange fluctuations, increased competition and general economic and industry
fluctuations. The Company's future operating results may also be adversely
affected by an adverse judgment or settlement in the legal proceedings in which
the Company is currently involved (see "Part I, Item 3. Legal Proceedings").

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

PAGE(S)
-------

CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report...................................................... 16
Consolidated Statements of Income -- Three Years Ended June 29, 1996.............. 17
Consolidated Balance Sheets -- June 29, 1996 and July 1, 1995..................... 18
Consolidated Statements of Shareholders' Equity -- Three Years Ended June 29,
1996........................................................................... 19
Consolidated Statements of Cash Flows -- Three Years Ended June 29, 1996.......... 20
Notes to Consolidated Financial Statements........................................ 21-30
FINANCIAL STATEMENT SCHEDULE:
Schedule II -- Consolidated Valuation and Qualifying Accounts -- Three Years Ended
June 29, 1996.................................................................. 31

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INDEPENDENT AUDITORS' REPORT

The Board of Directors
Western Digital Corporation:

We have audited the consolidated financial statements of Western Digital
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule 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 and subsidiaries as of June 29, 1996 and July 1, 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended June 29, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

KPMG PEAT MARWICK LLP

Orange County, California
July 24, 1996

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17

WESTERN DIGITAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEARS ENDED
------------------------------------------------
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
------------- ------------ -------------

Revenues, net......................................... $2,865,219 $2,130,867 $1,539,680
Costs and expenses:
Cost of revenues.................................... 2,483,155 1,736,761 1,221,749
Research and development............................ 150,112 130,789 112,827
Selling, general and administrative (Note 8)........ 154,497 130,286 113,224
---------- ---------- ----------
Total costs and expenses.................... 2,787,764 1,997,836 1,447,800
---------- ---------- ----------
Operating income...................................... 77,455 133,031 91,880
Net interest and other income (expense) (Note 2)...... 13,134 12,002 (5,838)
Gain on sale of multimedia business (Note 8).......... 17,275 -- --
---------- ---------- ----------
Income before income taxes............................ 107,864 145,033 86,042
Provision for income taxes (Note 5)................... 10,970 21,731 12,906
---------- ---------- ----------
Net income............................................ $ 96,894 $ 123,302 $ 73,136
========== ========== ==========
Earnings per common and common equivalent share:
Primary............................................. $ 2.01 $ 2.56 $ 1.77
========== ========== ==========
Fully diluted....................................... $ 2.01 $ 2.47 $ 1.70
========== ========== ==========
Common and common equivalent shares used in computing
per share amounts:
Primary............................................. 48,124 48,198 41,363
========== ========== ==========
Fully diluted....................................... 48,280 51,420 45,680
========== ========== ==========

See notes to consolidated financial statements.

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18

WESTERN DIGITAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

JUNE 29, JULY, 1,
1996 1995
--------- --------

ASSETS
Current assets:
Cash and cash equivalents........................................... $ 182,565 $217,531
Short-term investments.............................................. 36,598 90,177
Accounts receivable, less allowance for doubtful accounts
of $9,376 in 1996 and $9,309 in 1995............................. 409,473 303,841
Inventories (Note 2)................................................ 142,622 98,925
Prepaid expenses.................................................... 23,006 19,663
--------- --------
Total current assets........................................ 794,264 730,137
Property and equipment at cost, net (Note 2).......................... 148,258 88,576
Intangible and other assets, net...................................... 41,621 40,127
--------- --------
Total assets................................................ $ 984,143 $858,840
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 345,866 $250,325
Accrued compensation................................................ 30,457 30,064
Accrued expenses.................................................... 137,699 89,213
--------- --------
Total current liabilities................................... 514,022 369,602
Deferred income taxes (Note 5)........................................ 16,229 15,812
Commitments and contingent liabilities (Note 4)
Shareholders' equity (Notes 3 and 6):
Preferred stock, $.10 par value; Authorized -- 5,000 shares;
Outstanding -- None..............................................
Common stock, $.10 par value; Authorized -- 95,000 shares;
Outstanding -- 50,666 shares in 1996 and 50,482 shares in 1995... 5,066 5,048
Additional paid-in capital.......................................... 349,773 355,624
Retained earnings................................................... 220,470 123,576
Treasury stock-common shares at cost;
7,095 shares in 1996 and 805 shares in 1995...................... (121,417) (10,822)
--------- --------
Total shareholders' equity.................................. 453,892 473,426
--------- --------
Total liabilities and shareholders' equity.................. $ 984,143 $858,840
========= ========

See notes to consolidated financial statements.

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19

WESTERN DIGITAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

THREE YEARS ENDED JUNE 29, 1996

(IN THOUSANDS)

RETAINED
COMMON STOCK TREASURY STOCK ADDITIONAL EARNINGS TOTAL
--------------- ------------------ PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ ------ ------ --------- ---------- ------------ -------------

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 6)..... 7,619 762 -- -- 72,531 -- 73,293
Common stock issued upon conversion of
debentures............................ 24 2 -- -- 352 -- 354
Common stock issued in settlement of
shareholder lawsuit................... 76 8 -- -- 1,031 -- 1,039
Income tax benefit from stock options
exercised (Note 5).................... -- -- -- -- 1,959 -- 1,959
Net income.............................. -- -- -- -- -- 73,136 73,136
------ ------ ------ --------- -------- -------- --------
BALANCE AT JUNE 30, 1994................ 44,895 4,490 -- -- 283,475 274 288,239
Exercise of stock options............... 1,076 107 -- -- 5,583 -- 5,690
ESPP shares issued (Note 6)............. 484 48 -- -- 5,557 -- 5,605
Common stock issued upon conversion of
debentures (Note 3)................... 4,027 403 -- -- 56,987 -- 57,390
Income tax benefit from stock options
exercised (Note 5).................... -- -- -- -- 4,022 -- 4,022
Purchase of treasury stock.............. -- -- (805) (10,822) -- -- (10,822)
Net income.............................. -- -- -- -- -- 123,302 123,302
------ ------ ------ --------- -------- -------- --------
BALANCE AT JULY 1, 1995................. 50,482 5,048 (805) (10,822) 355,624 123,576 473,426
Purchase of treasury stock.............. -- -- (7,720) (132,114) -- -- (132,114)
Exercise of stock options............... 184 18 784 12,833 (5,542) -- 7,309
ESPP shares issued (Note 6)............. -- -- 646 8,686 (309) -- 8,377
Net income.............................. -- -- -- -- -- 96,894 96,894
------ ------ ------ --------- -------- -------- --------
BALANCE AT JUNE 29, 1996................ 50,666 $5,066 (7,095) $(121,417) $349,773 $220,470 $ 453,892
====== ====== ====== ========= ======== ======== ========

See notes to consolidated financial statements.

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20

WESTERN DIGITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEARS ENDED
-------------------------------------
JUNE 29, JULY 1, JUNE 30,
1996 1995 1994
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 96,894 $ 123,302 $ 73,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 51,643 43,612 46,175
Gain on sale of multimedia business................ (17,275) -- --
Changes in current assets and liabilities,
excluding the effects of facility and business
sales (Note 8):
Accounts receivable.............................. (107,532) (102,329) (42,034)
Inventories...................................... (69,180) (19,350) 23,793
Prepaid expenses................................. (5,478) (6,746) (2,130)
Accounts payable and accrued expenses............ 110,311 93,858 74,149
Deferred income taxes................................. 417 (2,072) 7,133
Other assets.......................................... (1,519) (8,958) (1,384)
--------- --------- ---------
Net cash provided by operating activities.......... 58,281 121,317 178,838
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net............................. (108,696) (54,774) (16,282)
Proceeds from sale of facility and businesses
(Note 8)........................................... 85,486 -- 110,677
Decrease (increase) in short-term investments......... 53,579 (90,177) --
Increase in other assets.............................. (7,188) (6,287) --
--------- --------- ---------
Net cash provided by (used for) investing
activities.................................. 23,181 (151,238) 94,395
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt........................... -- -- (146,346)
Proceeds from stock offering, net (Note 6)............ -- -- 73,293
Exercise of stock options and warrants, including tax
benefit............................................ 7,309 9,712 9,467
Proceeds from ESPP shares issued...................... 8,377 5,605 --
Redemption of convertible debentures (Note 3)......... -- (527) --
Repurchase of common stock............................ (132,114) (10,822) --
--------- --------- ---------
Net cash provided by (used for) financing
activities.................................. (116,428) 3,968 (63,586)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... (34,966) (25,953) 209,647
Cash and cash equivalents at beginning of year.......... 217,531 243,484 33,837
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 182,565 $ 217,531 $ 243,484
========= ========= =========

See notes to consolidated financial statements.

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21

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:

Fiscal Year

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and 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, foreign exchange gains or losses resulting from remeasurement
of these accounts are reflected in the results of operations. Monetary and
nonmonetary asset and liability accounts have been translated at the exchange
rate in effect at each year end and at historical rates, respectively. Operating
statement accounts have been translated at average monthly exchange rates.

Cash Equivalents and Short-Term Investments

The Company's cash equivalents represent highly liquid investments,
primarily money market funds and commercial paper, with original maturities of
three months or less. Short-term investments represent investments in U.S.
Treasury Bills with original maturities beyond three months and less than twelve
months and are considered held to maturity.

Concentration of Credit Risk

The Company designs, manufactures and sells hard drives 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 and short-term investment policies that
limit the amount of credit exposure to any one financial institution or
investment instrument, and require that investments be made only with financial
institutions or in investment instruments 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, which are included in other assets,

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22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

are capitalized at cost and amortized on a straight-line basis over their
estimated lives which are fifteen and five to fifteen years, respectively.

In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which was adopted by the Company in 1996,
the Company reviews identifiable intangibles and goodwill for impairment
whenever events or circumstances indicate the carrying amounts may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of an asset, an
impairment loss is recognized. The effect of adopting SFAS 121 was not material
to the financial statements.

Revenue Recognition

The Company recognizes revenue at time of shipment and records a reserve
for price adjustments, warranty and estimated sales returns. In accordance with
standard industry practice, the Company's agreements with its resellers 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.

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 Company records a
valuation allowance for certain temporary differences for which it is not
certain it will receive future tax benefits. 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. For 1995 and 1994, fully diluted earnings per share also include the
dilutive effects of shares assumed to be issued upon conversion of the Company's
convertible subordinated debentures.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents approximates fair value
for all periods presented because of the short-term maturity of these financial
instruments. The carrying amounts of all other financial instruments in the
consolidated balance sheets approximate fair values.

Use of Estimates

Company management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.

Reclassifications

Certain prior years' amounts have been reclassified to conform to the
current year presentation.

22
23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SUPPLEMENTAL FINANCIAL STATEMENT DATA (IN THOUSANDS)

1996 1995 1994
--------- --------- -------

Net Interest and Other Income (Expense)
Interest income................................. $ 13,134 $ 12,976 $ 2,942
Other income.................................... -- 3,056 --
Interest expense................................ -- (4,030) (8,780)
--------- --------- -------
Net interest and other income (expense)......... $ 13,134 $ 12,002 $(5,838)
========= ========= =======
Cash paid for interest.......................... $ -- $ 4,471 $ 9,035
========= ========= =======
Inventories
Finished goods.................................. $ 72,239 $ 31,811
Work in process................................. 31,781 35,763
Raw materials and component parts............... 38,602 31,351
--------- ---------
$ 142,622 $ 98,925
========= =========
Property and Equipment
Land and buildings.............................. $ 34,165 $ 11,067
Machinery and equipment......................... 199,614 163,857
Furniture and fixtures.......................... 10,617 11,302
Leasehold improvements.......................... 47,352 30,965
--------- ---------
291,748 217,191
Accumulated depreciation and amortization....... (143,490) (128,615)
--------- ---------
Net property and equipment...................... $ 148,258 $ 88,576
========= =========

NOTE 3 -- DEBT

Line of Credit

During April 1996, the Company entered into an unsecured revolving credit
agreement with certain financial institutions which provides for borrowings up
to $150 million. Borrowings under the agreement bear interest at either the
banks' base rate or the Federal Funds Effective Rate plus a margin. The
agreement, which expires in April 1999, is intended to meet short-term working
capital requirements which may arise from time to time. The agreement requires
the Company to maintain certain financial ratios and restricts the payment of
dividends. No borrowings were made on this agreement during 1996.

Subordinated Debt

During 1995, $58.1 million of the Company's 9% convertible subordinated
debentures, due 2014, were converted into 4,026,623 shares of the Company's
common stock. In connection with this conversion, the Company charged $.7
million of unamortized issue costs to shareholders' equity. The remaining $.5
million of the Company's debentures were redeemed for cash.

NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

Patents and Licenses

The Company has cross-licensing agreements with IBM and Seagate Technology,
which grant the Company licenses for its products under patents owned by these
companies, and which grant each of these

23
24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

companies a license for its products under patents owned by the Company. The
Company pays periodic royalties under the IBM cross-license agreement. Several
patent holders have made assertions that the Company needs a license under
certain patents. The Company conducts ongoing investigations into such
assertions and presently believes that any licenses ultimately determined to be
required could be obtained on commercially reasonable terms. However, there is
no assurance that such licenses are presently obtainable, or if later determined
to be required, could be obtained.

Foreign Exchange Contracts

The Company enters into short-term, forward exchange contracts to hedge the
impact of foreign currency fluctuations on certain underlying assets,
liabilities and future commitments denominated in foreign currencies. At June
29, 1996 and July 1, 1995, the Company had outstanding $177.6 and $110.0
million, respectively, of forward exchange contracts with commercial banks.
These contracts have maturity dates that do not exceed twelve months. The
realized and unrealized gains and losses on these contracts are deferred and
recognized in the results of operations in the period in which the underlying
transaction is consummated and are not material for all periods presented. Costs
associated with entering into such contracts are amortized over the life of the
instrument.

Operating Leases

The Company leases certain facilities and equipment under long-term,
non-cancelable operating leases which expire at various dates through 2006.
Rental expense under these leases, including month-to-month rentals, was $27.2,
$25.5, and $26.5 million in 1996, 1995, and 1994, respectively.

Future minimum rental payments under non-cancelable operating leases as of
June 29, 1996 are (in thousands):

1997............................................................... $23,029
1998............................................................... 16,540
1999............................................................... 13,810
2000............................................................... 12,716
2001............................................................... 3,624
Thereafter......................................................... 8,484
-------
Total future minimum rental payments.......................... $78,203
=======

Legal Claims

24
25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- INCOME TAXES

The domestic and international components of income before income taxes are
as follows (in thousands):

1996 1995 1994
-------- -------- --------

United States...................................... $(10,877) $ 26,421 $(25,140)
International...................................... 118,741 118,612 111,182
-------- -------- --------
Income before income taxes......................... $107,864 $145,033 $ 86,042
======== ======== ========

The components of the provision for income taxes are as follows (in
thousands):

1996 1995 1994
------- ------- -------

Current
United States....................................... $ 400 $ 342 $ 337
International....................................... 10,262 15,941 4,313
State............................................... 310 310 620
------- ------- -------
10,972 16,593 5,270
Deferred, net
United States....................................... -- 1,867 4,857
International....................................... (2) (751) 820
------- ------- -------
(2) 1,116 5,677
Additional paid-in capital from benefit of stock
options exercised................................... -- 4,022 1,959
------- ------- -------
Provision for income taxes............................ $10,970 $21,731 $12,906
======= ======= =======

The total cash paid for income taxes was $4.5, $4.9 and $1.1 million for
the years ended June 29, 1996, July 1, 1995 and June 30, 1994, respectively.

Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at June 29, 1996 and July 1, 1995 are as follows (in
thousands):

1996 1995
-------- --------

Deferred tax assets:
NOL carryforward............................................. $ 44,880 $ 53,036
Business credit carryforward................................. 23,095 21,114
Reserves not currently deductible............................ 44,747 24,795
All other.................................................... 8,519 10,051
-------- --------
121,241 108,996
Valuation allowance.......................................... (117,231) (105,076)
-------- --------
Total deferred tax assets.................................... 4,010 3,920
Deferred tax liabilities:
Leases....................................................... 3,560 3,560
All other.................................................... 16,679 16,172
-------- --------
Total deferred tax liabilities............................... 20,239 19,732
-------- --------
Net deferred income taxes...................................... $ 16,229 $ 15,812
======== ========

25
26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:

1996 1995 1994
----- ----- -----

U.S. Federal statutory rate......................... 35.0% 35.0% 35.0%
State income taxes, net............................. 0.2 0.2 0.7
Tax rate differential on international income....... (30.7) (19.3) (34.7)
Benefit of NOL carry forward........................ (7.6) (4.8) (8.6)
NOL with no tax benefit realized.................... 0.2 -- 10.2
Effect of valuation allowance....................... 11.4 (0.7) 6.0
Other............................................... 1.7 4.6 6.4
----- ----- -----
Effective tax rate.................................. 10.2% 15.0% 15.0%
===== ===== =====

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 $30.1 million ($.62 per share, fully
diluted), $33.2 million ($.65 per share, fully diluted) and $27.4 million ($.60
per share, fully diluted) in 1996, 1995 and 1994, respectively. These lower
rates are in effect through 2004.

At June 29, 1996, the Company had federal net operating loss carryforwards
and tax credit carryforwards of $119.7 million and $23.1 million, respectively.
The losses expire in fiscal years 2007 and 2008, and the credits expire in
fiscal years 1997 through 2010.

Net undistributed earnings from international subsidiaries at June 29, 1996
were $261.6 million. The net undistributed earnings are intended to finance
local operating requirements. Accordingly, an additional United States tax
provision has not been made.

NOTE 6 -- SHAREHOLDERS' EQUITY

The following table summarizes all shares of common stock reserved for
issuance at June 29, 1996 (in thousands):

NUMBER
OF SHARES
---------

Issuable in connection with:
Exercise of stock options, including options available for
grant......................................................... 6,122
Employee stock purchase plan..................................... 620
-----
6,742
=====

Common Stock Offering

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.

Stock Option Plans

Western Digital's Employee Stock Option Plan ("Employee Plan") is
administered by the Compensation Committee of the Board of Directors which
determines 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 grant.
Options granted vest 25% one year from the date of grant and in twelve quarterly
increments thereafter. As of June 29, 1996, 1,548,099 options were exercisable
and 1,015,117 options were available for grant. Participants in the Employee
Plan are permitted to

26
27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

utilize stock purchased previously as consideration to exercise options. The
following table summarizes activity under the Employee Plan (in thousands,
except per share amounts):

OPTIONS OUTSTANDING
-------------------
NUMBER PRICE
OF SHARES PER SHARE AMOUNT
--------- ------------------- -------

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
Granted............................................. 1,429 13.38 -- 18.13 22,210
Exercised, net of value of redeemed shares.......... (1,036) 2.88 -- 13.88 (5,478)
Cancelled or expired................................ (351) 2.88 -- 19.13 (2,979)
------ ------------------ -------
OPTIONS OUTSTANDING AT JULY 1, 1995................. 4,418 2.88 -- 19.13 47,212
Granted............................................. 1,907 15.50 -- 28.88 35,362
Exercised, net of value of redeemed shares.......... (898) 2.88 -- 19.13 (6,805)
Cancelled or expired................................ (888) 3.25 -- 20.75 (13,388)
------ ------------------ -------
OPTIONS OUTSTANDING AT JUNE 29, 1996................ 4,539 $ 2.88 -- $28.88 $62,381
====== ================== =======

In 1985, the Company adopted the Stock Option Plan for Non-Employee
Directors ("Director Plan") and reserved 800,000 shares for issuance thereunder.
The Director Plan was restated and amended in 1995. The Director Plan provides
for initial option grants to new directors of 20,000 shares per director and
additional grants of 5,000 options per director each year upon their reelection
as a director at the annual shareholders' meeting. Terms of the Director Plan
require that the exercise price of options be not less than the fair market
value at the date of grant. As of June 29, 1996, 64,500 options were exercisable
and 435,732 options were available for grant. The following table summarizes
activity under the Director Plan (in thousands, except per share amounts):

OPTIONS OUTSTANDING
-------------------
NUMBER PRICE
OF SHARES PER SHARE AMOUNT
--------- ------------------- ------

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 -- 12.88 (386)
--- ------------------ ------
OPTIONS OUTSTANDING AT JUNE 30, 1994................. 190 4.25 -- 17.13 1,769
Granted.............................................. 40 14.00 -- 17.75 614
Exercised............................................ (40) 4.25 -- 7.44 (212)
Cancelled or expired................................. (20) 4.25 -- 7.75 (279)
--- ------------------ ------
OPTIONS OUTSTANDING AT JULY 1, 1995.................. 170 4.88 -- 17.13 1,892
Granted.............................................. 45 15.38 -- 25.38 924
Exercised............................................ (70) 4.88 -- 15.38 (504)
Cancelled or expired................................. (13) 6.88 -- 7.44 (91)
--- ------------------ ------
OPTIONS OUTSTANDING AT JUNE 29, 1996................. 132 $13.88 -- $25.38 $2,221
=== ================== ======

STOCK PURCHASE RIGHTS

In 1989, the Company implemented a plan to protect shareholders' 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

27
28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 Company implemented an employee stock purchase plan
("ESPP") 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 85% of the fair market value
of common stock on the date of grant or the exercise date, whichever is less.
Approximately 1.8 million shares of common stock have been reserved for issuance
under this plan. Approximately 646,000 and 484,000 shares were issued under this
plan during 1996 and 1995, respectively. No shares were issued during 1994.

SAVINGS AND PROFIT SHARING PLAN

Effective July 1, 1991, the Company adopted an annual Savings and Profit
Sharing Plan covering eligible domestic employees. The Company authorized 6.5%,
8% and 8% of defined pre-tax profits to be allocated to the participants in
1996, 1995 and 1994, respectively. Payments to participants of the Savings and
Profit Sharing Plan were $7.1, $11.3, and $7.4 million in 1996, 1995 and 1994,
respectively.

NOTE 7 -- BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS

Western Digital currently operates in one industry segment--the design,
manufacture and marketing of hard drives for the personal computer market.
During 1996 and 1995, one customer accounted for 11% of the Company's revenues.
During 1994, two customers accounted for a total of 24% of the Company's
revenues.

The Company's operations outside the United States include manufacturing
facilities in Singapore and Malaysia 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. United States revenues to
unaffiliated customers include export sales, principally to Asia, of $674.1,
$399.2, and $300.0 million in 1996, 1995, and 1994, respectively.

Transfers between geographic areas are accounted for at prices comparable
to normal sales through outside distributors. General and corporate expenses of
$61.5, $49.6, and $43.6 million in 1996, 1995, and 1994, respectively, have been
excluded in determining operating income by geographic region.

28
29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UNITED
STATES EUROPE ASIA ELIMINATIONS TOTAL
------ ------ ------ ------------ ------
(IN MILLIONS)

Year ended June 29, 1996
Sales to unaffiliated customers......... $2,084 $735 $ 46 $ -- $2,865
Transfers between geographic areas...... 869 96 2,540 (3,505) --
------ ------ ------ -------- ------
Revenues, net........................... $2,953 $831 $2,586 $ (3,505) $2,865
====== ===== ====== ======== ======
Operating income........................ $ 21 $ 9 $ 113 $ (4) $ 139
====== ===== ====== ======== ======
Identifiable assets..................... $ 569 $143 $ 276 $ (4) $ 984
====== ===== ====== ======== ======
Year ended July 1, 1995
Sales to unaffiliated customers......... $1,596 $485 $ 50 $ -- $2,131
Transfers between geographic areas...... 139 57 1,216 (1,412) --
------ ------ ------ -------- ------
Revenues, net........................... $1,735 $542 $1,266 $ (1,412) $2,131
====== ===== ====== ======== ======
Operating income........................ $ 64 $ 6 $ 117 $ (4) $ 183
====== ===== ====== ======== ======
Identifiable assets..................... $ 597 $ 78 $ 185 $ (1) $ 859
====== ===== ====== ======== ======
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
====== ===== ====== ======== ======

NOTE 8 -- SALE OF FACILITY AND BUSINESSES

SALE OF MULTIMEDIA BUSINESS

In October 1995, the Company sold its multimedia business to Philips
Semiconductors, Inc. ("Philips") for $51.9 million cash, resulting in a
one-time, pre-tax gain of $17.3 million. Through this transaction, Philips
acquired specific intellectual properties and assumed certain liabilities
directly related to the multimedia business.

SALE OF HIGH SPEED FIBER-OPTIC COMMUNICATION LINKS BUSINESS

In March 1996, the Company sold its high speed fiber-optic communication
links business to Vixel Corporation for $1.2 million cash as well as other
non-cash consideration. This transaction was not material to the Company's
financial position or results of operations.

29
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SALE OF INPUT/OUTPUT PRODUCTS BUSINESS

During April 1996, the Company disposed of its input/output products
business, which represented the final element of its MCP group. The transaction
included the sale of related assets and resulted in a restructuring of the
Company's other support organizations. The restructuring resulted in personnel
reductions of 102 people, not including employees that were hired by the
purchaser, Adaptec, Inc. The net result of the asset sale and related
restructuring charges is included in selling, general and administrative
expenses and was not material to the Company's 1996 results of operations. The
consideration received and related costs associated with the sale of the
input/output products business are as follows (in millions):

Sales price......................................................... $ 32.4
Assets sold or written off:
Inventory, net.................................................... (18.0)
Property and equipment............................................ (2.5)
Prepaid expenses.................................................. (.5)
------
Total assets sold or written off.................................... (21.0)
Accruals for severance, facilities, contractual commitments
and other miscellaneous items..................................... (11.4)
------
$ --
======

As of June 29, 1996, approximately $8.7 million of the accruals for
severance, facilities, contractual commitments and other miscellaneous items
remained. The majority of these amounts are scheduled to be paid during 1997.

SALE OF WAFER FABRICATION FACILITY

In December 1993, the Company sold its silicon wafer fabrication facility
and certain tangible assets to Motorola, Inc. ("Motorola") for $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 was not material to the financial position or
results of operations of the Company. Concurrent with the sale, the Company
entered into a supply contract with Motorola under which Motorola supplied
silicon wafers to Western Digital through December 1995.

NOTE 9 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1996
Revenues, net............................... $558,149 $757,992 $728,362 $820,716
Gross profit................................ 80,792 103,379 93,324 104,569
Operating income............................ 6,165 21,175 19,014 31,101
Net income.................................. 8,327 36,393 19,438 32,736
Primary earnings per share.................. .16 .75 .42 .71
Fully diluted earnings per share............ $ .16 $ .75 $ .42 $ .71
======== ======== ======== ========
1995
Revenues, net............................... $464,590 $551,944 $529,297 $585,036
Gross profit................................ 97,767 109,040 88,368 98,931
Operating income............................ 37,902 47,330 20,664 27,135
Net income.................................. 34,718 42,554 19,650 26,380
Primary earnings per share.................. .73 .89 .40 .54
Fully diluted earnings per share............ $ .70 $ .85 $ .40 $ .52
======== ======== ======== ========

30
31

WESTERN DIGITAL CORPORATION

SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

ALLOWANCE FOR
DOUBTFUL
THREE YEARS ENDED JUNE 29, 1996 ACCOUNTS
------------------------------- -------------

Balance at June 30, 1993.............................................. $ 9,340
Charges to operations............................................... 3,797
Deductions.......................................................... (2,124)
Other............................................................... (188)
-------
Balance at June 30, 1994.............................................. 10,825
Charges to operations............................................... 250
Deductions.......................................................... (1,682)
Other............................................................... (84)
-------
Balance at July 1, 1995............................................... 9,309
Charges to operations............................................... 1,279
Deductions.......................................................... (1,212)
Other............................................................... --
-------
Balance at June 29, 1996.............................................. $ 9,376
=======

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

31
32

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 1996 Annual Meeting of
Shareholders under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year ended June 29, 1996.

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 1996 Annual Meeting of
Shareholders under the captions "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Stock Performance Graph,"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended June 29, 1996.

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 1996 Annual Meeting of
Shareholders under the caption "Security Ownership of Beneficial Owners," which
will be filed with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year ended June 29, 1996.

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 1996 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions,"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended June 29, 1996.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as a part of this Report:

(1) Index to Financial Statements

The financial statements included in Part II, Item 8 of this document
are filed as part of this Report.

(2) Financial Statement Schedules

The financial statement schedule included in Part II, Item 8 of this
document is filed as part of this Report.

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 Company have been omitted as the
Company 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 Company in amounts which together exceed 5% of the
total consolidated assets as shown by the most recent year-end consolidated
balance sheet.

32
33

(3) Exhibits

3.1 Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed
with the Securities and Exchange Commission on January 15, 1987)
3.2.1 By-laws of the Company (incorporated by reference to Exhibit 3.2.1 to
the Company's Current Report on Form 8-K as filed with the Securities
and Exchange Commission on July 18, 1994)
3.3 Certificate of Agreement of Merger(2)
3.4 Certificate of Amendment of Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company'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 Rights Agreement between the Company and First Interstate Bank, Ltd.,
as Rights Agent, dated as of December 1, 1988 (incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on December 12,
1988)
4.2 Amendment No. 1 to Rights Agreement by and between the Company and
First Interstate Bank, Ltd. dated as of August 10, 1990 (incorporated
by reference to Exhibit 1 to the Company's Current Report on Form 8-K
as filed with the Securities and Exchange Commission on August 14,
1990)
4.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company (incorporated by
reference to Exhibit A of Exhibit 1 to the Company's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on
December 12, 1988)
10.1 The Western Digital Corporation Amended and Restated Employee Stock
Option Plan(7)**
10.3 The Registrant's 1993 Employee Stock Purchase Plan(3)**
10.4 Receivables Contribution and Sale Agreements, dated as of January 7,
1994 by and between the Company, as seller, and Western Digital
Capital Corporation, as buyer(5)
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(5)
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(5)
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(5)
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)
10.10 The Western Digital Corporation Deferred Compensation Plan(6)**
10.11 The Western Digital Corporation Executive Bonus Plan(6)**
10.12 The Extended Severance Plan of the Registrant(6)**

33
34

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 Company's
Quarterly Report on Form 10-Q as filed with the Securities and
Exchange Commission on January 25, 1994)
10.15 Fiscal Year 1996 Western Digital Short-Term Bonus Plan(9)(10) **
10.16 Western Digital Long-Term Retention Plan (10) **
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)
10.21 The Company's Non-Employee Directors Stock-for-Fees Plan(1)**
10.22 Office Building Lease between The Irvine Company and the Company dated
as of January 13, 1988 (incorporated by reference to Exhibit 10.11 to
Amendment No. 2 to the Company's Annual Report to Form 10-K as filed
on Form 8 with the Securities and Exchange Commission on November 18,
1988)(8)
10.30 The Company's Savings and Profit Sharing Plan(10) **
10.31 First Amendment to the Company's Savings and Profit Sharing
Plan(10)**
10.32 Second Amendment to the Company's Savings and Profit Sharing Plan* **
10.33 The Company's Amended and Restated Stock Option Plan for Non-Employee
Directors* **
10.34 Fiscal Year 1997 Western Digital Management Incentive Plan* **
10.35 Revolving Credit Agreement, dated as of April 24, 1996, among Western
Digital Corporation and Nationsbank of Texas, N.A., the First National
Bank of Boston and the other Financial Institutions listed therein *
10.36 First Amendment to the Revolving Credit Agreement, dated as of June
27, 1996, among Western Digital Corporation and Nationsbank of Texas,
N.A., the First National Bank of Boston and the other Financial
Institutions listed therein *
11 Computation of Per Share Earnings
21 Subsidiaries of the Company
23 Consent of Independent Auditors
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 Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 28, 1992.

(2) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-l (No. 33-54968) as filed with the Securities and
Exchange Commission on January 26, 1993.

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 33-51725) as filed with the Securities and Exchange Commission on
December 28, 1993.

(4) Incorporated by reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on January 5, 1994.

(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on May 9, 1994.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 23, 1994.

34
35

(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on May 16, 1995.

(8) Subject to confidentiality order dated November 21, 1988.

(9) Confidential treatment requested.

(10) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 27, 1995.

(b) Reports on Form 8-K: None.

35
36

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: DUSTON M. WILLIAMS
---------------------------------
Duston M. Williams
Senior Vice President
and Chief Financial Officer
Dated: September 16, 1996

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 16, 1996.

SIGNATURE TITLE
- ----------------------------------------------- --------------------------------------------

CHARLES A. HAGGERTY Chairman of the Board, President and Chief
- ----------------------------------------------- Executive Officer (Principal Executive
Charles A. Haggerty Officer)

DUSTON M. WILLIAMS Senior Vice President and Chief Financial
- ---------------------------------------------- Officer (Principal Financial and Accounting
Duston M. Williams Officer)

JAMES A. ABRAHAMSON Director
- ---------------------------------------------
James A. Abrahamson

PETER D. BEHRENDT Director
- ---------------------------------------------
Peter D. Behrendt

I. M. BOOTH Director
- ---------------------------------------------
I. M. Booth
Director
I. FEDERMAN
- ---------------------------------------------
Irwin Federman

ANDRE R. HORN Director
- ---------------------------------------------
Andre R. Horn

ANNE O. KRUEGER Director
- ---------------------------------------------
Anne O. Krueger

THOMAS E. PARDUN Director
- ---------------------------------------------
Thomas E. Pardun

36
37

EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ------------

3.1 Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed
with the Securities and Exchange Commission on January 15, 1987)......
3.2.1 By-laws of the Company (incorporated by reference to Exhibit 3.2.1 to
the Company's Current Report on Form 8-K as filed with the Securities
and Exchange Commission on July 18, 1994).............................
3.3 Certificate of Agreement of Merger(2).................................
3.4 Certificate of Amendment of Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company'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 Rights Agreement between the Company and First Interstate Bank, Ltd.,
as Rights Agent, dated as of December 1, 1988 (incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on December 12,
1988).................................................................
4.2 Amendment No. 1 to Rights Agreement by and between the Company and
First Interstate Bank, Ltd. dated as of August 10, 1990 (incorporated
by reference to Exhibit 1 to the Company's Current Report on Form 8-K
as filed with the Securities and Exchange Commission on August 14,
1990).................................................................
4.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Company (incorporated by
reference to Exhibit A of Exhibit 1 to the Company's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on
December 12, 1988)....................................................
10.1 The Western Digital Corporation Amended and Restated Employee Stock
Option Plan(7)**......................................................
10.3 The Registrant's 1993 Employee Stock Purchase Plan(3)**...............
10.4 Receivables Contribution and Sale Agreements, dated as of January 7,
1994 by and between the Company, as seller, and Western Digital
Capital Corporation, as buyer(5)......................................
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(5).......
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(5)..............................................
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(5).......................................
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).............................................................
10.10 The Western Digital Corporation Deferred Compensation Plan(6)**.......
10.11 The Western Digital Corporation Executive Bonus Plan(6)**.............
10.12 The Extended Severance Plan of the Registrant(6)**....................

37
38

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ------------

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 Company's
Quarterly Report on Form 10-Q as filed with the Securities and
Exchange Commission on January 25, 1994)..............................
10.15 Fiscal Year 1996 Western Digital Short-Term Bonus Plan(9)(10) **......
10.16 Western Digital Long-Term Retention Plan (10) **......................
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)...................
10.21 The Company's Non-Employee Directors Stock-for-Fees Plan(1)**.........
10.22 Office Building Lease between The Irvine Company and the Company dated
as of January 13, 1988 (incorporated by reference to Exhibit 10.11 to
Amendment No. 2 to the Company's Annual Report to Form 10-K as filed
on Form 8 with the Securities and Exchange Commission on November 18,
1988)(8)..............................................................
10.30 The Company's Savings and Profit Sharing Plan(10) **..................
10.31 First Amendment to the Company's Savings and Profit Sharing
Plan(10) **...........................................................
10.32 Second Amendment to the Company's Savings and Profit Sharing
Plan* **..............................................................
10.33 The Company's Amended and Restated Stock Option Plan for Non-Employee
Directors* **.........................................................
10.34 Fiscal Year 1997 Western Digital Management Incentive Plan* **........
10.35 Revolving Credit Agreement, dated as of April 24, 1996, among Western
Digital Corporation and Nationsbank of Texas, N.A., the First National
Bank of Boston and the other Financial Institutions listed
therein*..............................................................
10.36 First Amendment to the Revolving Credit Agreement, dated as of June
27, 1996, among Western Digital Corporation and Nationsbank of Texas,
N.A., the First National Bank of Boston and the other Financial
Institutions listed therein *.........................................
11 Computation of Per Share Earnings.....................................
21 Subsidiaries of the Company...........................................
23 Consent of Independent Auditors.......................................
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 Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 28, 1992.

(2) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-l (No. 33-54968) as filed with the Securities and
Exchange Commission on January 26, 1993.

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 33-51725) as filed with the Securities and Exchange Commission on
December 28, 1993.

(4) Incorporated by reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on January 5, 1994.

38
39

(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on May 9, 1994.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 23, 1994.

(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on May 16, 1995.

(8) Subject to confidentiality order dated November 21, 1988.

(9) Confidential treatment requested.

(10) Incorporated by reference to the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 27, 1995.