Western Digital 2006 Annual Report Download - page 29

Manufacturing and marketing our products abroad subjects us to numerous risks.
We are subject to risks associated with our foreign manufacturing operations and foreign marketing efforts,
including:
• obtaining requisite United States of America and foreign governmental permits and approvals;
• currency exchange rate fluctuations or restrictions;
• political instability and civil unrest;
• limited transportation availability, delays, and extended time required for shipping, which risks may be
compounded in periods of price declines;
• higher freight rates;
• labor problems;
• trade restrictions or higher tariffs;
• exchange, currency and tax controls and reallocations;
• increasing labor and overhead costs; and
• loss or non-renewal of favorable tax treatment under agreements or treaties with foreign tax authorities.
Terrorist attacks may adversely affect our business and operating results.
The continued threat of terrorist activity and other acts of war or hostility have created uncertainty in the financial
and insurance markets and have significantly increased the political, economic and social instability in some of the
geographic areas in which we operate. Acts of terrorism, either domestically or abroad, could create further uncertainties
and instability. To the extent this results in disruption or delays of our manufacturing capabilities or shipments of our
products, our business, operating results and financial condition could be adversely affected.
We face litigation risks relating to our historical stock option grants that could have a material adverse effect on the operation
of our business.
Several purported derivative actions were filed nominally on our behalf against certain of our current and former
directors and officers in connection with our historical stock option granting practices. See Part I, Item 3, “Legal
Proceedings” for a more detailed description of these proceedings. We are and may in the future be subject to other
litigation or government investigations arising in connection with such option practices. These proceedings may be time-
consuming, expensive and disruptive to normal business operations, and the outcome of any such proceeding is difficult
to predict. The defense of such lawsuits or investigations could result in significant expense and the diversion of our
management’s time and attention from the operation of our business, which could impede our ability to achieve our
business objectives. Some or all of the amount we may be required to pay to defend or to satisfy a judgment or settlement
of any or all of these proceedings may not be covered by insurance.
Under indemnification agreements we have entered into with our current and former officers and directors, we are
required to indemnify them, and advance expenses to them, in connection with their participation in proceedings arising
out of their service to us. These payments may be material.
The nature of our business and our reliance on intellectual property and other proprietary information subjects us to the risk of
significant litigation.
The hard drive industry has been characterized by significant litigation. This includes litigation relating to patent
and other intellectual property rights, product liability claims and other types of litigation. Litigation can be expensive,
lengthy and disruptive to normal business operations. Moreover, the results of litigation are inherently uncertain and may
result in adverse rulings or decisions. We may enter into settlements or be subject to judgments that may, individually or
in the aggregate, have a material adverse effect on our business, financial condition or results of operations.
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