Western Digital 2012 Annual Report Download - page 22

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much of our losses will be covered by insurance. It is reasonably possible that the final losses that we incur in
connection with the flood damage and our business interruption will exceed the limits of our insurance poli-
cies. We also cannot estimate the timing of the proceeds we will ultimately receive under our insurance poli-
cies, and there may be a substantial delay between our incurrence of losses and our recovery under our
insurance policies.
‰New Product Development. The flooding of our Thailand facilities and suspension of operations delayed or
adversely impacted our development and introduction of new products and technologies. If our competitors are
able to gain an advantage in implementing new technologies and introducing new products, it may reduce our
sales and adversely affect our results of operations.
In connection with obtaining the regulatory approvals required to complete our acquisition of HGST, we agreed to divest certain
assets to Toshiba, and the completion of the divestiture is subject to risks and uncertainties, and our business will be adversely
affected in the event we fail to successfully execute the divestiture on a timely basis or at all.
In connection with obtaining the regulatory approvals required to complete our acquisition of HGST, we agreed,
subject to review by regulatory agencies in certain jurisdictions, to divest certain assets to Toshiba that will expand
Toshiba’s capacity to manufacture 3.5-inch hard drives for the desktop, consumer electronics and near-line (business
critical) applications. While this divestiture transaction closed in May 2012, certain steps remain before we will have
successfully completed the transfer of the divested assets to Toshiba as provided in the purchase agreement. There is
no guarantee that we will complete the divestiture to Toshiba on a timely basis or at all. If we are not able to complete
the divestiture on a timely basis or at all, the jurisdictions that conditioned their approval of the HGST acquisition on
the divestiture could impose certain obligations on us, including a requirement that we divest the assets subject to the
Toshiba divestiture (or other assets) to another purchaser, which could adversely affect our business, financial con-
dition and results of operations.
If we fail to realize the anticipated benefits from our acquisition of HGST on a timely basis, or at all, our business and
financial condition may be adversely affected.
In connection with obtaining the regulatory approvals required to complete the acquisition of HGST, we agreed
to certain conditions required by the Chinese Ministry of Commerce (“MOFCOM”), including adopting measures to
keep HGST as an independent competitor until MOFCOM agrees otherwise (with the minimum period being two
years). We are working closely with MOFCOM to finalize an operations plan that is expected to outline in more detail
the conditions of the competitive requirement. Compliance with these measures limits our ability to integrate
HGST’s business with our business, and we do not expect to achieve significant operating expense synergies while the
conditions remain in place, cause delays or uncertainties in making decisions about the combined business, and result
in significant costs (including additional capital expenditures relative to our competitors as a result of maintaining
separate research and development functions) or require changes in business practices, each of which could negatively
impact our business, financial condition and results of operations. In the event we fail to comply with these measures,
the time during which we are required to comply with the condition could be extended and we could be subject to
other conditions or penalties that could adversely affect the business.
In addition to the requirement to maintain HGST as an independent competitor, we may also fail to realize the
anticipated benefits from our acquisition of HGST on a timely basis, or at all, for a variety of other reasons, including
the following:
‰difficulties entering new markets or manufacturing in new geographies where we have no or limited direct
prior experience;
‰failure to identify or assess the magnitude of certain liabilities we are assuming in the acquisition, which could
result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, unexpected increases
in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or
financial condition;
‰failure to realize the anticipated increase in our revenues due to the acquisition if customers adjust their pur-
chasing decisions and allocate more market share to our competitors;
16