Western Digital 1998 Annual Report Download - page 31

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Year 2000 Issue
The Year 2000 issue is the result of computer programs, microprocessors, and embedded date reliant systems
using two digits rather than four to define the applicable year. If such programs are not corrected, date data concerning
the Year 2000 could cause many systems to fail, lock up or generate erroneous results. The Company considers a
product to be "Year 2000 compliant" if the product's performance and functionality are unaffected by processing of
dates prior to, during and after the Year 2000, but only if all products (for example hardware, software and firmware)
used with the product properly exchange accurate date data with it. As storage devices, the Company's hard drives are
transparent to Year 2000 requirements. The Company believes its hard drive products are Year 2000 compliant,
although other products previously sold by the Company may not be Year 2000 compliant. The Company anticipates
that litigation may be brought against vendors, including the Company, of all component products of systems that are
unable to properly manage data related to the Year 2000. The Company's agreements with customers typically contain
provisions designed to limit the Company's liability for such claims. It is possible, however, that these measures will
not provide protection from liability claims, as a result of existing or future federal, state or local laws or ordinances
or unfavorable judicial decisions. Any such claims, with or without merit, could result in a material adverse effect on
the Company's business, financial condition and results of operations, customer satisfaction issues and potential
lawsuits.
The Company has committed personnel and resources to resolve potential Year 2000 issues, both internally and
externally (with respect to the Company's suppliers and customers) for both information technology assets and non-
information technology assets. The Company is identifying Year 2000 dependencies in its systems, equipment, and
processes and is implementing changes to such systems, updating or replacing such equipment, and modifying such
processes to make them Year 2000 compliant. The Company has completed its assessment of internal Year 2000
issues and is in the process of remediation of the critical systems. The Company has also initiated formal
communications with all of its significant suppliers and financial institutions to evaluate their Year 2000 compliance
plans and state of readiness and to determine whether any Year 2000 issues will impede the ability of such suppliers
to continue to provide goods and services to the Company. As a general matter, the Company is vulnerable to its key
suppliers' failure to remedy their own Year 2000 issues, which could delay shipments of essential components,
thereby disrupting or halting the Company's manufacturing operations. Further, the Company also relies, both
domestically and internationally, upon governmental agencies, utility companies, telecommunication service
companies and other service providers outside of the Company's control. There is no assurance that such suppliers,
governmental agencies, financial institutions, or other third parties will not suffer business disruption caused by a
Year 2000 issue. Such failures could have a material adverse effect on the Company's financial condition and results
of operations. Additionally, the Company is in the process of communicating with its large customers to determine the
extent to which the Company is vulnerable to those third parties' failure to remedy their own Year 2000 issues.
The Company anticipates that its systems, equipment and processes will be substantially Year 2000 compliant by
the end of June 1999. Although a budget has been established, the cost to the Company of achieving Year 2000
compliance is evolving; however, it is not expected to have a material effect on the Company's financial condition or
results of operations. While the Company currently expects that the Year 2000 issue will not pose significant
operational problems, delays in the Company's remediation efforts, or a failure to fully identify all Year 2000
dependencies in the systems, equipment or processes of the Company or its vendors, customers or financial institutions
could have material adverse consequences, including delays in the manufacture, delivery or sale of products.
Therefore, the Company is in the process of developing contingency plans along with its remediation efforts for
continuing operations in the event such problems arise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Disclosure About Foreign Currency Risk
Although the majority of the Company's transactions are in U.S. Dollars, some transactions are based in various
foreign currencies. The Company purchases short-term, forward exchange contracts to hedge the impact of foreign
currency fluctuations on certain underlying assets, liabilities and commitments for operating expenses denominated in
foreign currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency
fluctuations on the results of operations. A majority of the increases or decreases in the Company's local currency
operating expenses are offset by gains and losses on the hedges. The contracts have maturity dates that do not exceed