Western Digital 2000 Annual Report Download - page 25

The Company recorded an income tax beneÑt of $1.8 million in 1998 for the expected beneÑt of loss
carrybacks, partially oÅset by provisions for income taxes recorded in certain jurisdictions where the Company
had positive earnings, and an income tax beneÑt of $19.5 million in 2000 for adjustment of its current tax
accruals and certain deferred tax amounts. These accruals were previously established over time and primarily
relate to unremitted income of foreign subsidiaries. However, due to the signiÑcant increase of net operating
loss carryforwards in recent years and reevaluation of the accruals after the substantial international
restructurings in 2000, the Company believes these accruals are no longer necessary. In 1999, no tax beneÑt
was recorded because additional loss carrybacks were not available and management believed it was ""more
likely than not'' that the deferred tax beneÑts generated would not be realized (see Note 5 of Notes to
Consolidated Financial Statements).
Liquidity and Capital Resources
The Company had cash and cash equivalents of $226.1 million at July 3, 1999 and $184.0 million at
June 30, 2000. Net cash used in operations was $139.5 million during 1999 as compared to $152.0 million
during 2000. Excluding cash used for restructuring and product recall activities, cash used for operations was
$122.8 million during 1999 as compared to $104.5 million during 2000. Cash used for restructuring activities
during 1999 was $16.7 million and consisted of expenditures for severance and outplacement and facility
renovation costs. Cash used for restructuring and other nonrecurring activities was $47.5 million during 2000
and consisted of expenditures for severance and outplacement, lease cancellations and product recall costs.
The Company's cash conversion cycle decreased 12 days in 1999 and another 17 days in 2000. The
conversion cycles consist of the following: days of sales outstanding (""DSO'') of 44 in 1999 and 28 in 2000;
days of payables outstanding (""DPO'') of 50 in 1999 and 52 in 2000; and days of inventory on hand of 22 in
1999 and 23 in 2000. Despite this improvement, the cash Öows provided by changes in working capital
accounts decreased from $147.3 million in 1999 to $67.5 million in 2000 due to an approximate 30% decrease
in 2000 revenues and corresponding cost of revenues as compared to 1999, and the utilization in 2000 of
signiÑcant accruals recorded in 1999 and 2000 for thin-Ñlm warranty, restructuring and other charges.
Other uses of cash during 2000 included the repayment of bank debt of $50.0 million, strategic cost-
method investments of $12.9 million and net capital expenditures of $22.0 million. Other sources of cash
during 2000 included proceeds of $111.8 million received upon issuance of 24.6 million shares of the
Company's stock under the Company's equity facility, $10.0 million received by Sagetree upon issuance of
preferred stock, $6.2 million received in connection with stock option exercises and Employee Stock Purchase
Plan purchases, and $66.8 million received from sales of real property.
Capital expenditures in 1999 amounted to $106.6 million to upgrade and expand the Company's
production capability, replace existing assets, and further develop the Company's information systems. The
Company received $15.3 million in connection with stock option exercises and Employee Stock Purchase Plan
purchases in 1999.
The Company anticipates that capital expenditures in 2001 will not be more than $50.0 million and will
relate to accommodating new product lines, normal replacement of existing assets and expansion of production
capabilities in Malaysia. The Company also anticipates cash expenditures of not more than $20.0 million to be
paid in the Ñrst half of 2001 related to restructuring and special charges accrued during 2000, primarily for
settlements with vendors on existing purchase orders related to the Company's exit from the enterprise hard
drive market.
In February 1998, the Company received gross proceeds of $460.1 million (before the Initial Purchasers'
discount) from an oÅering of zero coupon convertible subordinated debentures due February 18, 2018 (the
""Debentures''). The Debentures are subordinated to all senior debt; 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 at the holder's option, will be repurchased by the Company, as of February 18, 2003,
February 18, 2008 or February 18, 2013, or if there is a Fundamental Change (as deÑned in the Debenture
documents), at the issue price plus accrued original issue discount to the date of repurchase. (The repurchase
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