Western Digital 2001 Annual Report Download - page 31

Liquidity and Capital Resources
The Company had cash and cash equivalents of $184.0 million at June 30, 2000 and $167.6 million at
June 29, 2001. Net cash used for continuing operations was $126.7 million during 2000 as compared to
$71.3 million during 2001. The decrease in cash used for continuing operations reÖects a signiÑcant
improvement in the Company's operating results, net of non-cash items, oÅset by a higher level of cash used to
fund net operating asset growth. The improvement in continuing operating results, net of non-cash items, of
$204.3 million was due to signiÑcantly better performance by the Company's hard drive business, as a result of
higher sales volume and improved cost management, the discontinuance in 2000 of the Company's SCSI drive
product line and the inclusion in 2000 of signiÑcant charges relating to the product recall. The improved
operating results of the hard drive business were oÅset somewhat by increased spending on continuing new
business ventures. Cash used to fund net operating asset growth for continuing operations increased in 2001 by
$148.9 million due primarily to the impact in the prior year of the product recall on net operating assets.
SpeciÑcally, there was a sharp contraction during 2000 in the Company's cash conversion cycle which
represents the sum of the number of days sales outstanding (""DSO'') and days inventory outstanding
(""DIO'') less days payable outstanding (""DPO''). As the following chart indicates, the Company's cash
conversion cycle was reduced by 17 days during 2000, and another 6 days during 2001.
1999 2000 2001
Cash Conversion Cycle:
Days Sales Outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 44 28 25
Days Inventory Outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22 23 18
Days Payables Outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (50) (52) (50)
16 (1) (7)
The decrease in the cash conversion cycle from 1999 to 2000 was due primarily to a reduction in DSO's,
due in large part to the product recall during the Ñrst quarter of 2000 and a sustained improvement in the
linearity of shipments during the remainder of 2000. The decrease from 2000 to 2001 was due to a reduction in
DSO's and DIO's, due primarily to improved sales and production linearity, oÅset partially by a slight
decrease in DPO's. The Company seeks to maintain a negative cash conversion cycle.
Other uses of cash during 2000 included the repayment of bank debt of $50.0 million, cost-method
investments of $12.9 million and net capital expenditures of $21.4 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.
Other uses of cash during 2001 included net capital expenditures of $50.7 million, primarily to upgrade
the Company's hard drive production capabilities and for normal replacement of existing assets. Other sources
of cash during 2001 included proceeds of $15.0 million received upon the sale of marketable equity securities,
$110.5 million received upon issuance of 23.5 million shares of the Company stock under the Company's
equity facility, $7.1 million received in connection with the stock option exercises and Employee Stock
Purchase Plan purchases and $5.0 million received by Keen upon issuance of an investor note.
The Company anticipates that capital expenditures in 2002 will not be more than $65.0 million and will
relate to normal replacement of existing assets.
During 1998 the Company issued 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 payment on
those dates, with the exception of a Fundamental Change, can be in cash, stock or any combination, at the
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