Western Digital 2012 Annual Report Download - page 23

‰failure to successfully manage relationships with our supplier and customer base;
‰difficulties, when allowed, integrating and harmonizing business systems; and
‰the loss of key employees.
If we are not able to successfully manage these issues, the anticipated benefits and efficiencies of the HGST
acquisition may not be realized fully or at all, or may take longer to realize than expected, and our ability to compete,
our revenue and gross margins and our results of operations may be adversely affected.
The acquisition of HGST may result in significant restructuring charges that could adversely affect the financial results of the
combined company.
The financial results of the combined company may be adversely affected by cash expenses and non-cash account-
ing charges incurred in connection with the combination. The amount and timing of these possible charges are not yet
known. The price of our common stock following the acquisition could decline to the extent the combined company’s
financial results are materially affected by these charges.
The financing of the HGST acquisition may have an adverse impact on our liquidity, limit our flexibility in responding to other
business opportunities and increase our vulnerability to adverse economic and industry conditions.
Our acquisition of HGST was financed by a combination of the issuance of additional shares of our common
stock, the use of a significant amount of our cash on hand and the incurrence of a significant amount of indebtedness.
The use of cash on hand and indebtedness to finance the acquisition reduced our liquidity and could cause us to place
more reliance on cash flow from operations to pay principal and interest on our debt, thereby reducing the availability
of our cash flow for operations and development activities. The credit agreement we entered into with respect to the
indebtedness we incurred to finance the acquisition contains restrictive covenants, including financial covenants
requiring us to maintain specified financial ratios. Our ability to meet these restrictive covenants can be affected by
events beyond our control. The indebtedness and these restrictive covenants will also have the effect, among other
things, of impairing our ability to obtain additional financing, if needed, limiting our flexibility in the conduct of our
business and making us more vulnerable to economic downturns and adverse competitive and industry conditions. In
addition, a breach of the restrictive covenants could result in an event of default under the credit agreement, which, if
not cured or waived, could result in the indebtedness becoming immediately due and payable and could have a
material adverse effect on our business, financial condition or operating results.
Adverse global economic conditions and credit market uncertainty could harm our business, results of operations and financial
condition.
Adverse global economic conditions and uncertain conditions in the credit market have had, and in the future
could have, a significant adverse effect on our company and on the storage industry as a whole. Some of the risks and
uncertainties we face as a result of these global economic and credit market conditions include the following:
‰Volatile Demand. Negative or uncertain global economic conditions could cause many of our direct and
indirect customers to delay or reduce their purchases of our products and systems containing our products. In
addition, many of our customers rely on credit financing to purchase our products. If negative conditions in the
global credit markets prevent our customers’ access to credit, product orders may decrease, which could result
in lower revenue. Likewise, if our suppliers, sub-suppliers and sub-contractors (collectively referred to as
“suppliers”) face challenges in obtaining credit, in selling their products or otherwise in operating their busi-
nesses, they may be unable to offer the materials we use to manufacture our products. These actions could
result in reductions in our revenue and increased operating costs, which could adversely affect our business,
results of operations and financial condition.
‰Restructuring Activities. If demand slows significantly as a result of a deterioration in economic conditions or
otherwise, we may need to execute restructuring activities to realign our cost structure with softening demand.
The occurrence of restructuring activities could result in impairment charges and other expenses, which could
adversely impact our results of operations or financial condition.
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