Western Digital 1995 Annual Report Download - page 24

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arrangement. The facility is intended to serve as a source of working capital as
may be needed from time to time. The facility, under which there has been no bor-
rowings, requires the Company to maintain certain financial ratios and restricts the
payment of dividends.
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 mil-
lion of unamortized issue costs to shareholders’equity. The remaining $.5 million
of the Company’s debentures were redeemed for cash.
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Patents and Licenses
Although the Company owns numerous patents and has many patent applications
in process, the Company believes that the successful manufacture and marketing of
its products generally depends more upon the experience, technical know-how and
creative ability of its personnel rather than upon ownership of patents.
The Company pays royalties under several patent licensing agreements which
require periodic payments. From time to time, the Company receives claims of
alleged patent infringement from patent holders which typically contain an offer to
grant the Company a license.
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 July 1, 1995 and June
30, 1994, the Company had outstanding $110.0 and $30.5 million, respectively,
of forward exchange contracts with commercial banks. These contracts generally
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 year 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. At July 1, 1995 and June
30, 1994, the carrying value of the foreign currency contracts approximated their
fair market value.
Operating Leases
The Company leases certain facilities and equipment under long-term, non-
cancelable operating leases which expire at various dates through 2000. Rental
expense under these leases, including month-to-month rentals, was $25.5, $26.5
and $29.5 million in 1995, 1994 and 1993, respectively.