Western Digital 1999 Annual Report Download - page 27

Bowne Conversion 22
Liquidity and Capital Resources
At July 3, 1999, the Company had $226.1 million of cash and cash equivalents compared to $459.8 million at June 27, 1998. Net cash
used for operating activities was $139.5 million during 1999 compared to $39.0 million in 1998. Cash flows resulting from a decrease in
accounts receivable, lower inventories and higher current liabilities were more than offset by the higher net loss (net of non-cash
charges). Significant uses of cash during 1999 were capital expenditures of $106.6 million. The capital expenditures were incurred
primarily to upgrade the Company's production capability, the normal replacement of existing assets, and further development of the
Company's new computer information systems. Partially offsetting these uses of cash was $15.0 million received in connection with
stock option exercises and Employee Stock Purchase Plan purchases.
The Company anticipates that capital expenditures in 2000 will total approximately $75 million and will relate to retooling of the
Company's hard drive assembly lines in order to accommodate new technologies and new product lines, normal replacement of existing
assets and expansion of production capabilities in Malaysia. The Company's 2000 research and development programs include planned
spending of approximately $19 million in the first three quarters of 2000 to complete development of its first products by Connex, which
are scheduled to begin shipping in January 2000. The Company also anticipates cash expenditures of $3.0 million and $16.0 million to be
paid in 2000 for severance and outplacement costs related to the Company's 1999 and 2000 restructuring programs, respectively.
The Senior Bank Facility provides the Company with up to a $125.0 million revolving credit line (depending on borrowing base
calculation) and a $50.0 million term loan, both of which expire in November 2001. The Senior Bank Facility is secured by the Company's
accounts receivable, inventory, 66% of its stock in its foreign subsidiaries and the other assets (excluding real property) of the
Company. At the option of the Company, borrowings bear interest at either LIBOR or a base rate plus a margin determined by the
borrowing base, with option periods of one to three months. The Senior Bank Facility requires the Company to maintain certain
amounts of net equity, prohibits the payment of cash dividends on common stock and contains a number of other covenants. The
Company was in compliance at July 3, 1999 with all terms of the Senior Bank Facility. As of the date hereof, the $50.0 million term loan
was funded, but there were no borrowings under the revolving credit line. The term loan requires quarterly payments of $2.5 million
beginning in September 1999 with the remaining balance due in November 2001. The costs of the product recall announced on
September 27, 1999 may result in the Company not being in compliance with certain financial covenants in the Senior Bank Facility in
future periods. The availability of this facility will depend upon, among other things, the actual cost of the recall and the Company's
ability to recover such costs from third parties.
The Company has an equity draw-down facility ("Equity Facility") with a bank which allows the Company to issue up to $150.0
million (in monthly increments of up to $12.5 million) in common stock for cash at the market price of its stock less a 2.75% discount. As
of July 3, 1999, the Equity Facility had not been used. During July through September 29, 1999, the Company issued 6.2 million shares
of common stock under the Equity Facility for net proceeds of $32.2 million.
In February 1998, the Company received gross proceeds of $460.1 million (before the Initial Purchasers' discount) from a private
offering of the Debentures. The principal amount at maturity of the Debentures when issued was $1.3 billion. The Debentures are
subordinated to all senior debt; are convertible into 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 repurchase.
During the period from July 27, through September 17, 1999, the Company issued 6.1 million shares of common stock in exchange for
Debentures with a carrying value of $79.6 million, and an aggregate principal amount at maturity of $207.1 million, in non-cash
transactions. These Debentures were subsequently retired by the Company. These exchanges were private, individually negotiated
transactions with certain institutional investors. The Company expects to record an extraordinary gain of approximately $45 million
during the quarter ending October 2, 1999 for the difference between the carrying value of the retired Debentures and the market value
of the common stock given by the Company at the time of the exchange.
On August 9, 1999, the Company sold approximately 34 acres of land in Irvine, California, upon which it had previously planned to
build a new corporate headquarters, for $26 million (the approximate cost of the land). The Company has extended the current lease of