Western Digital 2001 Annual Report Download - page 32

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. During 2001, the Company issued 16.0 million shares of common stock in exchange for
Debentures with a book value of $120.3 million and an aggregate principal amount at maturity of
$295.7 million. These redemptions were private, individually negotiated transactions with certain institutional
investors and resulted in extraordinary gains of $166.9 million and $22.4 million during 2000 and 2001,
respectively. As of June 29, 2001, the book value of the remaining outstanding Debentures was $112.5 million,
the aggregate principal amount at maturity was $265.9 million and the market value was $85.1 million.
During 2001 the Company entered into a three-year Senior Credit Facility for its hard drive business,
Western Digital Technologies, Inc. (""WDT''), replacing a previous facility that had matured on March 31,
2000. The Senior Credit Facility provides up to $125 million in revolving credit (subject to a borrowing base
calculation), matures on September 20, 2003 and is secured by WDT's accounts receivable, inventory, 65% of
the stock in its foreign subsidiaries and other assets. At the option of WDT, borrowings bear interest at either
LIBOR (with option periods of one to three months) or a base rate, plus a margin determined by the
borrowing base.
The Senior Credit Facility requires WDT to maintain certain amounts of tangible net worth, prohibits the
payment of cash dividends on common stock and contains a number of other covenants. As of the date hereof,
there were no borrowings under the facility.
Under an existing shelf registration statement (the ""equity facility''), the Company may issue shares of
common stock to institutional investors for cash. Shares sold under the facility are at the market price of the
Company's common stock less a discount ranging from 2.75% to 4.25%. During 2000, the Company issued
24.6 million shares of common stock under the equity facility for net cash proceeds of $111.8 million. During
2001, the Company issued 23.5 million shares of common stock under the equity facility for net cash proceeds
of $110.5 million. As of June 29, 2001, the Company had $167.7 million remaining under the equity facility.
The Company may continue to incur operating losses during 2002. However, at June 29, 2001, the
Company had a cash and cash equivalent balance of $167.6 million, working capital of $45.4 million and
shareholders' equity of $6.8 million. The Company has achieved signiÑcant reductions in manufacturing labor
and overhead and operating expenses resulting from the sale in late 1999 of the Company's media operations,
the closure in 2000 of the Company's two Singapore based manufacturing facilities and its Rochester design
center, the disposal of its Connex and SANavigator businesses, and an overall reduction in worldwide
headcount. In addition, the Company had the following additional sources of liquidity available as of
September 26, 2001; $167.7 million remaining available under the equity facility and a Senior Credit Facility
providing up to $125 million in revolving credit (subject to a borrowing base calculation).
Based on the above factors, the Company believes its current cash and cash equivalent balances and its
existing equity and credit facilities will be suÇcient to meet its working capital needs through the foreseeable
future. There can be no assurance that the Senior Credit Facility or the equity facility will continue to be
available to the Company. Also, the Company's ability to sustain its working capital position is dependent
upon a number of factors that are discussed below under the headings ""Risk factors related to the hard drive
industry in which we operate'' and ""Risk factors relating to Western Digital particularly.''
New Accounting Pronouncements
During July 2001, the Financial Accounting Standards Board (""FASB'') issued Statement of Financial
Accounting Standards No. 141, ""Business Combinations'' (""SFAS 141'') and Statement of Financial
Accounting Standards No. 142, ""Goodwill and Other Intangible Assets'' (""SFAS 142''). EÅective June 30,
2001, the Company adopted SFAS 141. SFAS 141 addresses Ñnancial accounting and reporting for business
combinations and requires that all business combinations initiated after June 30, 2001 be accounted for using
the purchase method. The adoption of SFAS 141 did not have a material impact on the Company's Ñnancial
position or results of operations.
22