Western Digital 2003 Annual Report Download - page 51

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Product Warranty Liability
The Company records a provision for estimated warranty costs as products are sold to cover the cost of repair or
replacement of the hard drive during the warranty period. This provision is based on estimated future returns within the
warranty period and costs to repair, using historical Ñeld return rates by product type and current average repair cost.
Changes in the warranty provision were as follows (in millions):
Balance at June 28, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 47.4
Charges to operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 54.6
Utilization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (53.8)
Changes in liability related to pre-existing warrantiesÏÏÏÏÏÏÏÏÏ 4.7
Balance at June 27, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 52.9
Note 5. Legal Proceedings
In June 1994, Papst Licensing (""Papst'') brought suit against the Company in the United States District Court for
the Central District of California, alleging infringement by the Company of Ñve disk drive motor patents owned by Papst.
In December 1994, Papst dismissed its case without prejudice. In July 2002, Papst Ñled a new complaint against the
Company and several other defendants. The suit alleges infringement by the Company of seventeen of Papst's patents
related to disk drive motors that the Company purchased from motor vendors. Papst is seeking an injunction and
damages. The Company Ñled an answer on September 4, 2002, denying Papst's complaint. On December 11, 2002, the
lawsuit was transferred to the United States District Court for the Eastern District of Louisiana and included in the
consolidated pre-trial proceedings occurring there. The lawsuit was stayed pending the outcome of certain other related
litigation. A potential loss, if any, cannot presently be reasonably estimated. The Company intends to vigorously defend
the suit.
On July 5, 2001, the Company's Western Digital Technologies, Inc. subsidiary (""WDT'') and its Malaysian
subsidiary (""WDM'') Ñled suit (the ""complaint'') against Cirrus for breach of contract and other claims resulting from
Cirrus' role as a strategic supplier of read channel devices for the Company's hard disk drives. WDM also stopped
making payments to Cirrus for past deliveries of devices and terminated all outstanding purchase orders from Cirrus for
such devices. The complaint alleges that Cirrus' unlawful conduct caused damages in excess of any amounts alleged to be
owing on outstanding invoices or arising out of any alleged breach of the outstanding purchase orders. On August 20,
2001, Cirrus Ñled an answer and cross-complaint denying the allegations contained in the complaint and asserting
counterclaims against the plaintiÅs for, among other things, the amount of the outstanding invoices and the plaintiÅs'
alleged breach of the outstanding purchase orders. The disputed payable, which is included in the Company's balance
sheet in accounts payable, is approximately $27 million. Cirrus claims that the canceled purchase orders, which are not
reÖected in the Company's Ñnancial statements, total approximately $26 million. On November 2, 2001, Cirrus Ñled
Applications for Right to Attach Orders and for Writs of Attachment against WDT and WDM in the amount of
$25.2 million as security for the approximately $27 million allegedly owed for read-channel devices purchased from
Cirrus that is disputed by WDT and WDM. On December 20, 2001, the Court granted Cirrus' Applications. Pursuant
to agreement with Cirrus, the Company posted a letter of credit in the amount of $25.2 million in satisfaction of the
Writs of Attachment.
On November 26, 2002, WDT and WDM Ñled a motion for summary adjudication as to Cirrus' second and third
causes of action. The parties fully briefed the motion, which was scheduled to be heard on December 24, 2002. On
December 24, 2002, the Court continued the summary judgment motion until February 4, 2003, and then, on
February 4, 2003, further continued the motion until April 1, 2003, to allow Cirrus to conduct additional discovery. On
December 3, 2002, Cirrus Ñled a motion for summary adjudication as to WDT and WDM's Ñrst, second, third, fourth,
Ñfth, and seventh causes of action. The parties fully briefed the motion, which was scheduled to be heard on
December 31, 2002. On December 31, 2002, after hearing arguments from both sides, the Court granted Cirrus' motion
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