Western Digital 2001 Annual Report Download - page 63

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
independent party, $14.3 million for severance and other incremental costs related to the closure of the facility,
$5.7 million for the write-oÅ of duplicate warranty repair and engineering supplies and $1.4 million for
renovation related costs of the Tuas facility. Of the severance and other related charges, approximately
$11.0 million was paid in 1999, and the remainder was paid in 2000. The write-oÅ of duplicate warranty repair
and engineering supplies, including base replacement stock for warranty repairs and engineering materials, was
necessary due to the reduced requirements of a single combined repair facility. Tuas facility renovation and
related costs consisted of costs incurred to ready the facility for sale.
In April 1999, the Company completed the sale of its Santa Clara disk media operations to Komag. The
components of the sale are summarized below (in millions):
Proceeds:
Common stock of Komag, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $34.9
Note receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30.1
Trade receivable for certain inventory sold ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12.1
77.1
Costs:
Equipment sold ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 68.3
Inventory sold ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18.1
Prepaids and other related assets sold or written oÅÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.7
Severance and outplacement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.0
97.1
Restructuring chargeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $20.0
The Company received, as a component of the total consideration, an unsecured note (the ""Note'') in the
amount of $30.1 million, which was recorded in other assets. The Note matures in April 2002 and has an
annual interest rate of 4.9%, compounded quarterly. The outstanding principal balance and accrued interest is
due and payable in full upon maturity. The Note contains a principal and accrued interest reduction provision
which is based on the excess, if any, of proceeds received upon sale of Komag stock over a predetermined
Öoor. In conjunction with the sale of Company assets, Komag assumed certain liabilities, mainly leases related
to production equipment and facilities. The Company is contingently liable for these leases. If Komag is
unable to meet its payment obligations on the remaining leases, totaling approximately $9.3 million as of
June 29, 2001, the Company is liable to make the payments (see Note 2).
The transaction with Komag included a three-year volume purchase agreement under which the
Company must purchase a signiÑcant percentage of its media requirements from Komag. The agreement does
not require the Company to purchase a Ñxed minimum amount of media from Komag. The Company also
entered into a License Agreement and Joint Development Agreement. The License Agreement grants Komag
a fully paid-up license to utilize certain of the Company's technology in the development of future media
products for the Company. The Joint Development Agreement provides the basis for determining the
ownership of any media manufacturing related technology developed by Komag and/or the Company in the
future. There is no additional consideration related to the sale inherent in these other agreements. Therefore,
no portion of the sales proceeds was allocated to them.
The April 1999 sale of the media business resulted in a reduction of employee headcount of 1,106 employees,
approximately 650 of which were direct labor, with the rest being technicians, management and other professionals.
Of the severance and outplacement charge of $3.0 million, approximately $1.9 million was paid in 1999, and the
balance was paid in 2000. The sale of the Company's media assets to Komag and the related transition and
restructuring program were substantially completed by the end of the fourth quarter of 1999.
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