Western Digital 2012 Annual Report Download - page 96

Download and view the complete annual report

Please find page 96 of the 2012 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets of $11 million primarily relate to a glass substrate supply agreement and existing technology.
These intangibles will be amortized to cost of revenue over the weighted average useful life of 3 years.
Note 15. Thailand Flooding
In October 2011, severe flooding in Thailand inundated all of the Company’s Thailand manufacturing facilities
and submerged certain equipment located there. These facilities included the Company’s magnetic head slider fab-
rication facilities, as well as its hard drive, head gimbal assembly and head stack assembly facilities. As a result, the
Company recorded $235 million of flood-related charges in fiscal 2012, offset by $21 million of insurance recoveries
and other cost reimbursements. These charges are separately stated as a line item, “Charges related to flooding, net,”
within operating expenses on the consolidated statements of income.
The following table summarizes the flood-related charges for the nine months ended June 29, 2012 (in millions):
Impairment of
Property, Plant
and Equipment
Recovery
Charges
Inventory
Write-
Downs
Wage
Continuation Total
Accrual for flood-related charges at
September 30, 2011 ...................... $ — $— $— $— $ —
Flood-related charges ...................... 119 61 28 27 235
Cash payments ........................... — (61) — (27) (88)
Inventory write-off ........................ — — (28) — (28)
Non-cash charges ......................... (119) $ — — — (119)
Accrual for flood-related charges at June 29,
2012 .................................. $ — $— $— $— $ —
The Company maintains insurance coverage that provides property and business interruption coverage in the
event of losses arising from flooding. The Company has submitted claims to its insurers and is awaiting a determi-
nation of how much of its total losses will be covered by insurance. For an additional discussion of the Thailand flood-
ing, see Part II, Item 7 of this Annual Report on Form 10-K.
Note 16. Impairment and Other Charges
During the Company’s fourth fiscal quarter 2012, the Company incurred charges to realign its manufacturing
capacity as a result of a softer demand environment. Total charges of $80 million are included in Impairment and
other charges within operating expenses on the consolidated statements of income. The following table summarizes
the Company’s impairment and other charges for the three months ended June 29, 2012 (in millions):
Impairment
of Property,
Plant and
Equipment
Employee
Termination
Benefits
Contract and
Other
Termination
Costs Total
Accrual at March 30, 2012 ..................... $— $— $— $—
Charges ................................... 56 8 16 80
Cash payments ............................. — (8) — (8)
Non-cash charges ........................... (56) — — (56)
Accrual at June 29, 2012 ...................... $— $— $16 $16
The asset impairment charge of $56 million primarily relates to the machinery and equipment at the facilities in
Singapore, Thailand and Phoenix, Arizona. The employee termination benefits charge of $8 million relates primarily
to TSDT employees. The contract and other termination costs liability is expected to be relieved by the second quarter
of fiscal 2013 and is included within accrued expenses in the consolidated balance sheets. See Note 14 for an addi-
tional discussion of the purchase of TSDT.
90