Western Digital 1999 Annual Report Download - page 50

Bowne Conversion 45
of litigation, should the outcome of this action be unfavorable, the Company may be required to pay damages and other expenses,
which may have a material adverse effect on the Company's financial position, results of operations and liquidity. In addition, the costs
of defending such litigation may be material, regardless of the outcome.
On July 2, 1999, Magnetic Media Development, LLC ("Magnetic Media") brought suit against the Company in the United States
District Court for the Northern District of California. The suit alleges infringement by the Company of four patents allegedly owned by
Magnetic Media. While the Company has not yet had an opportunity to fully study the complaint, it believes that the patents cited in
the complaint are those previously cited to the Company by Mr. Virgle Hedgcoth. In a letter dated July 16, 1996, Mr. Hedgcoth gave
notice of his assertion that the Company's products infringe several of his patents. Each of the patents which Hedgcoth cited relates to
magnetic media. In the letter, Hedgcoth offered the Company a license under all his patents, without specifying any amount of
compensation. The Company has investigated these assertions and believes it is likely that, with respect to magnetic disks that it
purchases from others and incorporates into the Company's products, it may have the right to have the vendors of such magnetic disks
undertake the defense and indemnify the Company with respect to such purchased disks. The Company does not believe that the
outcome of this matter will have a material adverse effect on its financial position, results of operations or liquidity. However, because
of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, the Company may be required
to pay damages and other expenses, which may have a material adverse effect on the Company's financial position, results of
operations or liquidity. In addition, the costs of defending such litigation may be material, regardless of the outcome.
The Company and Censtor Corporation ("Censtor") have had discussions concerning any royalties that might be due Censtor
under a licensing agreement. Censtor has initiated arbitration procedures under the agreement seeking payment of royalties. In
response, the Company has filed a complaint in federal court seeking a determination that the patents at issue are invalid. The federal
court action has been stayed pending completion of the arbitration procedures. The Company does not believe that the outcome of this
dispute will have a material adverse effect on its financial position, results of operations or liquidity.
In the normal course of business, the Company receives and makes inquiry regarding possible intellectual property matters
including alleged patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements.
Although patent holders often offer such licenses, no assurance can be given that a license will be offered or that the terms of any
license offered will be acceptable to the Company. Several such matters are currently pending. The Company does not believe that the
ultimate resolution of these matters will have a material adverse effect on the financial position, results of operations or liquidity of the
Company.
From time to time the Company receives claims and is a party to suits and other judicial and administrative proceedings incidental to
its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity.
Note 5. Income Taxes
The domestic and international components of income (loss) before income taxes are as follows (in thousands):
1997 1998 1999
United States........................................... $105,884 $(348,397) $(399,006)
International........................................... 208,935 56,389 (93,684)
Income (loss) before income taxes .......... $ 314,819 $ (292,008)$ (492,690)
The components of the provision (benefit) for income taxes are as follows (in thousands):
1997 1998 1999
Current
United States................................................... $29,153 $(6,195) $(3,519)
International................................................... 9,964 4,905 3,352
State............................................................... 8,106 (501) 167
47,223 (1,791) —
Deferred, net..................................................... — — —
Provision (benefit) for income taxes................. $ 47,223 $ (1,791)$ —