Western Digital 2000 Annual Report Download - page 49

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Convertible Debentures
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
price may be paid in cash or common stock, at the Company's option. The Debentures are convertible into
shares of the Company's common stock at the rate of 14.935 shares per $1,000 principal amount at maturity.
The principal amount at maturity of the Debentures when issued was $1.3 billion. During 2000, the Company
issued 26.7 million shares of common stock in exchange for Debentures with a book value of $284.1 million,
and an aggregate principal amount at maturity of $735.6 million. These redemptions were private, individually
negotiated transactions with certain institutional investors and resulted in extraordinary gains of $166.9
million. As of June 30, 2000, the book value of the remaining outstanding Debentures was $225.5 million and
the aggregate principal amount at maturity was $561.6 million. Included in other assets is the amount of
unamortized Debenture issuance costs. The Debenture issuance costs totaled approximately $14.5 million at
origination and are being amortized over 10 years. During 2000, approximately $7.1 million of unamortized
costs were netted against the extraordinary gain in connection with the redemptions. As of June 30, 2000, the
balance of unamortized Debenture issuance costs was approximately $4.7 million and is included in other
assets. Subsequent to June 30, 2000, the Company redeemed additional Debentures (see Note 11).
Note 4. Commitments, Agreements and Contingent Liabilities
Operating Leases
The Company leases certain facilities and equipment under long-term, non-cancelable operating leases
which expire at various dates through 2010. Rental expense under these leases, including month-to-month
rentals, was $39.3, $36.2 and $17.8 million in 1998, 1999 and 2000, respectively. Leases with terms through
2003 for which the Company is contingently liable, totaling $42.0 million, are not included in the table below.
See Note 8 for further discussion.
Future minimum rental payments under non-cancelable operating leases as of June 30, 2000 are as
follows (in thousands):
2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,532
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,663
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,065
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,343
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,582
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,600
Total future minimum rental payments ÏÏÏÏÏÏÏÏÏÏÏÏÏ $55,785
IBM License Agreement
In June of 1998, the Company entered into a broad based technology licensing and component supply
agreement with IBM (the ""Agreement'') involving the design and manufacture of desktop hard disk drives
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