Western Digital 1999 Annual Report Download - page 59

Bowne Conversion 54
Sale of Land
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
its worldwide headquarters in Irvine, California, through December 2000, and has an option to extend the lease for an additional six
month period.
Restructurings
On July 8, 1999, a further restructuring of operations and management responsibilities was executed. The structural change
establishes a Worldwide Operations and Geographies structure and a Lines of Business/ Research and Development organization
(LOB). Each of the Geographies will be responsible for their own operating results, field sales, customer and channel business
management and channel marketing in its respective region. The restructure resulted in a reduction of worldwide employee headcount
of approximately 40 employees, approximately 25 of which were direct and indirect labor and the rest were management, professional
and administrative personnel. The Company expects to record a charge to operations of approximately $2.0 million in the first quarter
ending October 2, 1999, consisting primarily of severance accruals to be fully paid by the end of the second quarter ending December
31, 1999.
On August 13, 1999, the Company announced its intention to move substantially all of its production of desktop hard drives to
Malaysia, while retaining in Singapore production of enterprise drives and expanding its role in design, development and
manufacturing process engineering. The Company expects to finalize its plans relative to the restructuring by the end of its first quarter.
The Company expects that the transfer of production of desktop hard drives to its Malaysia facility will result in a reduction of
employee headcount in Singapore by the end of December 1999 of approximately 2,000 direct and 500 indirect workers and a charge to
operations during the first half of 2000 of approximately $30 million (unaudited) relating to the write-off of fixed assets to be disposed
of, lease cancellations, and employee severance and other costs of vacating leased properties. The Company expects that the transfer
to its Malaysia facility will result in an employee headcount increase in Malaysia of approximately 2,000 workers by the end of
December 1999.
Product Recall (unaudited)
On September 27, 1999, the Company announced a recall of up to 400,000 of its 6.8GB per platter series of WD Caviar desktop hard
drives which are in completed computer systems, because of a reliability problem resulting from a faulty power driver chip
manufactured by a third-party supplier. Approximately 1.2 million units were manufactured with the faulty chip, but the Company
believes the remaining drives are either in the Company's or its customers' inventory. Replacement of the chips will involve rework of
the printed circuit board assembly. The Company expects that it will be able to resume production of the hard drives with new chips by
approximately October 11, 1999. The Company has not yet quantified the total impact of the recall, rework, and manufacturing stoppage
on its financial position, results of operation, or liquidity, although it believes it will be material. The special charges associated with the
cost of recalling and repairing the affected drives are not expected to exceed $50 million. This estimate excludes any impact on the
Company's revenues or market share. The Company has not yet determined how much of the potential loss might be recoverable from
insurance sources and from the supplier of the faulty chip.
Note 12. Quarterly Results of Operations (unaudited)
First (1) Second(2) Third (3) Fourth(4)
(in thousands, except per share amounts)
1998
Revenues, net ........................................ $
1,090,164
$969,564 $831,294 $650,503
Gross profit (loss).................................. 161,059 (55,548) 36,279 (41,740)
Operating income (loss) ........................ 72,063 (147,198) (58,221) (162,469)
Net income (loss) .................................. 62,707 (145,183) (45,022) (162,719)
Basic earnings (loss) per share ............... .72 (1.66) (.51) (1.84)
Diluted earnings (loss) per share ............ $
.67
$ (1.66)$ (.51)$ (1.84)
1999
Revenues, net ........................................ $ $ 738,590 $668,456 $709,302