Western Digital 2001 Annual Report Download - page 30

primarily due to the Company's exit from SCSI hard drive production in 2000 and the expense reduction
eÅorts in its remaining hard drive operations, partially oÅset by increased spending in the Company's
developing new business ventures.
Interest and Other Income/Expense, Tax BeneÑt and Extraordinary Item
Net interest and other (expense) income was ($15.9), $4.9 and ($53.2) million in 1999, 2000 and 2001,
respectively. The $20.8 million decrease in expense in 2000 was due to a $14.8 million gain on the disposition
of certain investment securities and to lower interest expense on lower average debt balances resulting from
the payment in 2000 of an outstanding term loan of $50.0 million and redemptions during 2000 of the
Company's 5.25% zero coupon convertible debentures (the ""Debentures''), oÅset by a reduced amount of
interest income due to lower cash and cash equivalent balances.
During the fourth quarter of 2001, the Company recorded nonoperating charges of $52.4 million to adjust
the carrying value of equity investments in and notes receivable from Komag and accruals of Komag
contingent guarantees. The assets were received as a component of the total consideration from the sale of the
Company's disk media operations to Komag in 1999. Also in conjunction with the sale, Komag assumed
certain liabilities, mainly leases related to production equipment and facilities, for which the Company
remained contingently liable. Due to recent market conditions and the announcement by Komag that it would
not pay its senior debt when it became due in June and an interest payment on its convertible bonds due in
July, the Company recorded the charges. On August 24, 2001, Komag announced its voluntary Chapter 11
reorganization Ñling.
The $58.1 million increase in net interest and other expense in 2001 was due primarily to the nonrecurring
charges related to Komag of $52.4 million, a $15.1 million decrease in gains from the disposition of investment
securities and a reduced amount of interest income due to lower cash and cash equivalent balances, oÅset
slightly by lower accrued interest expense due to Debenture redemptions.
The Company recorded an income tax beneÑt of $19.5 million in 2000 to adjust its current and deferred
tax accruals. The accruals were previously established over time and primarily related to unremitted income of
foreign subsidiaries. However, due to the signiÑcant increase of net operating loss carryforwards in recent years
and reevaluation of the accruals after the substantial international restructurings in 2000, the Company
believed the accruals were no longer necessary. In 1999 and 2001, no tax beneÑt was recorded because
additional loss carrybacks were not available and management believed it was ""more likely than not'' that the
deferred tax beneÑts generated would not be realized (see Note 5 of Notes to Consolidated Financial
Statements).
During 2000, the Company issued 26.7 million shares of common stock in exchange for $735.6 million in
face value of its convertible debentures (with a book value of $284.1 million). During 2001 the Company
issued 16.0 million shares of common stock in exchange for $295.7 million in face value of its convertible
debentures (with a book value of $120.3 million). These redemptions were private, individually negotiated
non-cash transactions with certain institutional investors. As a result of the redemptions, the Company
recognized extraordinary gains of $166.9 million and $22.4 million in 2000 and 2001, respectively.
Discontinued Operations
Subsequent to June 29, 2001, the Company decided to discontinue the operations of Connex and
SANavigator and sold substantially all of the assets of these two businesses. Accordingly, the operating results
of Connex and SANavigator have been segregated from continuing operations and reported separately on the
statements of operations as discontinued operations for all periods presented.
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