Western Digital 1999 Annual Report Download - page 56

Bowne Conversion 51
network attached storage systems and $3 million for network storage management software) were incurred during 1999 after the
acquisition. The Company is continuing development efforts and expects to ship the first new products developed by Connex in
January 2000. The primary risks and uncertainties associated with timely completion of the projects lies in the Company's ability to
attract and retain qualified software engineers in the current competitive environment. Should the projects not be completed on a timely
basis, the Company's first-to-market advantages would be reduced (e.g. lower margins), or an alternative technology might be
developed by a competitor which could severely impact the marketability of the Company's planned products. Should the projects
prove to be unsuccessful, the impact on the 2000 results of operations will primarily consist of the engineering and start up efforts
incurred to complete the projects for which there would be no future value, plus the costs of any new efforts on replacement projects
and/or costs to unwind the infrastructure if a decision was made not to pursue new efforts.
Restructuring Programs
In January 1999, the Company initiated a restructuring program which resulted in the combination of its Personal Storage Division
and Enterprise Storage Group into a single hard drive operating unit. The new Drive Products Division ("DPD") has combined design,
manufacturing, materials, business and product marketing resources to address both the desktop and enterprise markets. In connection
with the combination of the divisions, the Company's Tuas, Singapore facility was closed and production of Enterprise drives was
moved to the Company's nearby manufacturing facility in Chai-Chee, Singapore. This restructuring program, which was substantially
completed by the end of the third quarter of 1999, resulted in a reduction of worldwide employee headcount of 934 employees
(compared to the original plan of 900), approximately 250 of which were direct and indirect labor and the rest were management,
professional and administrative personnel. A $41.0 million restructuring charge was recorded in the third quarter of 1999, the
components of which are summarized below (in millions):
Write-down of building and equipment to fair value ......................... $22.7
Severance and related costs.............................................................. 11.2
Write-off of duplicate warranty repair and engineering supplies....... 4.1
Tuas facility renovation and related costs........................................ 1.3
Miscellaneous.................................................................................. 1.7
Total..................................................................................... $ 41.0
The write-down of building and equipment includes the reduction of the Tuas building to its estimated fair market value of $7.8
million, which was based on a valuation done by an independent party. As of July 3, 1999, the Tuas building is held for sale. The
Company expects the building to sell within 6 months to 1 year. Of the severance and related charge of $11.2 million, approximately $9.3
million was paid in 1999, leaving a liability of approximately $1.9 expected to be paid in the first and second quarters of fiscal 2000. The
write-off of duplicate warranty repair and engineering supplies, including base replacement stock for warranty repairs and engineering
materials, was necessary due to the reduced requirements of a single combined repair facility. Tuas facility renovation and related costs
consist of costs incurred to ready the facility for sale. The miscellaneous category includes various other incremental costs incurred
during the quarter for closure of the facility and wind-down of its operations. All other non-severance related costs were substantially
paid by July 3, 1999.
Following is a reconciliation of the original accrual, the cash and non-cash charges, and the remaining accrual (in millions):
Original restructuring accrual .......................................................... $41.0
Non-cash charges............................................................................ (26.0)
Cash utilized................................................................................... (13.1)
Changes in original estimates:
Reduced building and equipment impairment ................................. (3.0)
Increased severance and outplacement costs................................. 1.0
Increased duplicate warranty repair and engineering supplies......... 2.0
Balance at July 3, 1999................................................................... $ 1.9