Western Digital 1998 Annual Report Download - page 43

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Convertible Debentures
On February 18, 1998, the Company received gross proceeds of $460.1 million (before the Initial Purchasers'
discount) from a private offering of 5.25% zero coupon convertible subordinated debentures due in 2018. The
principal amount at maturity of the Debentures is $1.3 billion. The Debentures are subordinated to all senior debt; are
convertible into 19.4 million shares of the Company's common stock at the rate of 14.935 shares per $1,000 principal
amount at maturity; are redeemable at the option of the Company any time after February 18, 2003 at the issue price
plus accrued original issue discount to the date of redemption; and will be repurchased by the Company, at the option
of the holder, as of February 18, 2003, February 18, 2008 or February 18, 2013, or if there is a Fundamental Change
(as defined in the Debenture documents), at the issue price plus accrued original issue discount to the date of
redemption.
Note 4. Commitments and Contingent Liabilities
Operating Leases
The Company leases certain facilities and equipment under long-term, non-cancelable operating leases which
expire at various dates through 2015. Rental expense under these leases, including month-to-month rentals, was $27.2,
$32.2, and $39.3 million in 1996, 1997, and 1998, respectively.
Future minimum rental payments under non-cancelable operating leases as of June 27, 1998 are as follows (in
thousands):
1999.................................................................................................................... $ 40,665
2000.................................................................................................................... 30,525
2001.................................................................................................................... 19,052
2002.................................................................................................................... 9,010
2003.................................................................................................................... 3,505
Thereafter........................................................................................................... 29,975
Total future minimum rental payments...................................................... $132,732
Legal Proceedings
The Company was sued by Amstrad PLC ("Amstrad") in December 1992 in Orange County Superior Court. The
complaint alleges that hard drives supplied by the Company in calendar 1988 and 1989 were defective and caused
damages to Amstrad of $186.0 million in out-of-pocket expenses, lost profits, injury to Amstrad's reputation and loss
of goodwill. The Company filed a counterclaim for $3.0 million in actual damages in addition to exemplary damages
in an unspecified amount. The Company believes that it has meritorious defenses to Amstrad's claims and intends to
vigorously defend itself against the Amstrad claims and to press its claims against Amstrad in this action. The case is
scheduled for trial in September 1998. Although the Company believes that the final disposition of this matter will not
have an adverse effect on the Company's financial condition or operating results, if Amstrad were to prevail on its
claims, a judgment for a material amount could be awarded against the Company.
Between December 12, 1997 and February 24, 1998, eight class action suits were filed against the Company and
certain of its officers and directors. The plaintiffs in the actions purport to represent purchasers of the Company's
common stock during various periods ranging from July 25, 1996, through December 2, 1997 (collectively, the "Class
Periods"). The complaints allege that the Company issued false and misleading statements during the respective Class
Periods concerning the outlook for the Company's operations and earnings and that the Company issued false and
misleading financial statements in fiscal years 1996 and 1997 by improperly deferring the write-down of obsolete
inventory. The complaints seek compensatory damages for the purported class members in an unspecified amount. The
Court ordered the cases consolidated and designated the plaintiffs in the first case filed as the lead plaintiffs and the
law firm representing such plaintiffs as lead counsel. The Company filed a motion to dismiss the amended
consolidated complaint which was granted by the Court with prejudice.