Western Digital 2001 Annual Report Download - page 51

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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Standards No. 115, ""Investments in Certain Debt and Equity Securities'' (""SFAS 115''). These shares were
marked to market using published closing prices of Komag stock on a monthly basis and a related
accumulated unrealized gain or loss was included in accumulated other comprehensive income (loss). During
the fourth quarter of 2001, due to market conditions of Komag's common stock and a public announcement by
Komag that it would not make current payments on its debt, the decline in market value of the 4.8 million
shares held as current and the remaining 1.1 million shares held as long term was deemed ""other than
temporary'' and an impairment loss of $19.2 million was recognized.
The Company owns approximately 1.2 million shares of Vixel Corporation (""Vixel'') common stock. The
Company has identiÑed these shares as ""available for sale'' under the provisions of SFAS 115. At June 29,
2001 an unrealized gain of $3.1 million is included in accumulated other comprehensive income (loss). The
aggregate book value of the shares was $3.1 million as of June 29, 2001, and the investment was classiÑed as
current.
Other Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standards No. 130, ""Reporting Comprehen-
sive Income'' (""SFAS 130''), beginning with the Company's fourth quarter of 1999. Prior to the fourth
quarter of 1999, the Company did not possess any components of other comprehensive income as deÑned by
SFAS 130. Adjustments to net income to arrive at other comprehensive income (loss) include revenue,
expenses, gains and losses that are recorded as an element of shareholders' equity (deÑciency) but are
excluded from net income (loss). While SFAS 130 establishes new rules for the reporting and display of
comprehensive income (loss), SFAS 130 has no impact on the Company's net loss or total shareholders'
equity (deÑciency). The Company's components of other comprehensive income (loss) are unrealized gains
and losses on marketable securities categorized as ""available for sale'' under SFAS 115.
Minority Interest in Subsidiary
In June 2000, the Company's subsidiary, SageTree, Inc. (""SageTree''), received cash proceeds of
$10.0 million from NCR Corporation in exchange for a minority voting interest in SageTree at June 30, 2000.
The Company reÖects the portion of the earnings or losses of SageTree, which are applicable to the minority
interest as an adjustment to minority interest on the consolidated balance sheets, and as a component of other
income (expense) on the consolidated statements of operations. The amount of minority interest in
SageTree's losses was not material to the Company's consolidated Ñnancial statements for the years ended
June 30, 2000 and June 29, 2001.
Foreign Exchange Contracts
Although the majority of the Company's transactions are in U.S. Dollars, some transactions are based in
various foreign currencies. From time to time, the Company purchases short-term, forward exchange contracts
to hedge the impact of foreign currency Öuctuations on certain underlying assets, liabilities and commitments
for operating expenses denominated in foreign currencies. The purpose of entering into these hedge
transactions is to minimize the impact of foreign currency Öuctuations on the results of operations. A majority
of the increase or decreases in the Company's local currency operating expenses are oÅset by gains and losses
on the hedges. The contracts have maturity dates that do not exceed twelve months. The Company does not
purchase short-term forward exchange contracts for trading purposes. In response to the Company's
underlying foreign currency exposures, the Company may, from time to time, adjust its foreign currency
hedging position by taking out additional contracts or by terminating or oÅsetting existing foreign currency
forward exchange contracts.
During 2001, the Company adopted Statement of Financial Accounting Standards No. 133, ""Accounting
for Derivative Instruments and Hedging Activities'' (""SFAS 133''), as amended by Statement of Financial
41