Western Digital 2001 Annual Report Download - page 54

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 3. Long-Term Debt
Line of Credit
During 2001, the Company's hard drive business, Western Digital Technologies (""WDT''), entered into
a three-year Senior Credit Facility which 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 its 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. The Senior Credit facility replaced a previous facility that matured on March 31, 2000.
Outstanding borrowings at July 3, 1999 from this previous facility amounted to $50.0 million and were paid in
full during 2000. As of the date hereof, there were no borrowings under the Senior Credit Facility.
Convertible Debentures
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
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, non-cash 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 and the aggregate principal amount at maturity was $265.9 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 and 2001, approximately
$7.1 million and $2.4 million, respectively, of unamortized costs were netted against the extraordinary gain in
connection with the redemptions. As of June 29, 2001 the balance of unamortized Debenture issuance costs
was approximately $1.9 million and is included in other assets.
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 $36.2, $17.8 and $15.4 million in 1999, 2000 and 2001, respectively. Leases with terms through
2003 for which the Company is contingently liable are included in the table below. See Note 8 for further
discussion.
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