Western Digital 2006 Annual Report Download - page 45

Long-Term Debt
We have a $125 million credit facility (“Senior Credit Facility”) consisting of a revolving credit line (subject to
outstanding letters of credit and a borrowing base calculation) and a term loan. Both the revolving credit facility and the
term loan mature on September 20, 2009 and are secured by our accounts receivable, inventory, 65% of our stock in
foreign subsidiaries and other assets. For the year ended June 30, 2006, we had no borrowings on the revolving credit line
and the average variable rate on our term loan was 6.5%. The term loan requires quarterly principal payments of
approximately $3 million. Principal payments made on the term loan increase the amount of revolving credit available.
At June 30, 2006, $97.5 million was available for borrowing under the revolving credit line, $25 million was
outstanding on the term loan, and there was $2.5 million in outstanding letters of credit.
The Senior Credit Facility prohibits the payment of cash dividends on common stock and contains specific financial
covenants. We are required to maintain an available liquidity level of $300 million at the end of each quarter. We define
available liquidity as cash plus eligible trade receivables. Should our available liquidity be less than $300 million, we
would then be subject to minimum EBITDA (earnings before interest, taxes, depreciation and amortization) require-
ments and capital expenditure limitations. As of June 30, 2006, we were in compliance with all covenants.
The terms of the Senior Credit Facility require that we deliver to the lenders our audited financial statements within
90 days of the end of each fiscal year. As a result of the independent investigation into our stock option accounting that
was conducted under the direction of the Special Committee, we were delayed in completing our fiscal year 2006 audited
financial statements, this Annual Report on Form 10-K, and our Quarterly Report on Form 10-Q as of and for the period
ending September 29, 2006. At our request, the lenders under the Senior Credit Facility agreed that we would not be in
default under the Senior Credit Facility as a result of our failure to timely deliver our 2006 audited financial statements,
or the management discussion and analysis for our Quarterly Report on Form 10-Q as of and for the period ending
September 29, 2006, provided that the lenders receive the 2006 audited financial statements, the management discussion
and analysis for our Quarterly Report on Form 10-Q as of and for the period ending September 29, 2006, and all other
documents reasonably requested by the lenders before the earlier of: (a) 30 days following the filing of this Annual Report
on Form 10-K or (b) January 12, 2007. We intend to deliver our audited financial statements to the lenders on or around
the date of filing this Annual Report on Form 10-K.
Purchase Orders
In the normal course of business, we issue purchase orders to suppliers for the purchase of hard drive components
used to manufacture our products. These purchase orders generally cover forecasted component supplies needed for
production during the next quarter, are recorded as a liability upon receipt of the components, and generally may be
changed or canceled at any time prior to shipment of the components. We may be obligated to pay for certain costs related
to changes to, or cancellation of, a purchase order, such as costs incurred for raw materials or work in process.
We have entered into long-term purchase agreements with various component suppliers. The commitments are
subject to minimum quality requirements. In addition, the dollar amount of the purchases may depend on the specific
products ordered and future price negotiations. The estimated related minimum purchase requirements are included in
“Purchase obligations” in the table above.
From time to time, we enter into other long-term purchase agreements for components with certain vendors.
Generally, future purchases under these agreements are not fixed and determinable as they depend on our overall unit
volume requirements and are contingent upon the prices, technology and quality of the supplier’s products remaining
competitive. These arrangements are not included under “Purchase obligations” in the table above. Please see Item 1A of
this Annual Report on Form 10-K for a discussion of risks related to these commitments.
Forward Exchange Contracts
We purchase short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain
underlying assets, liabilities and commitments for operating expenses and product costs denominated in foreign
currencies. See Part II, Item 7A, under the heading “Disclosure About Foreign Currency Risk,” for our current forward
exchange contract commitments.
39