Western Digital 2004 Annual Report Download - page 34

development facility in Fremont, California and a slider fabrication, HGA and HSA assembly, and research and
development facility in Thailand. A Ñre, Öood, earthquake or other disaster, condition or event that adversely aÅects any
of these facilities or our ability to manufacture could result in a loss of sales and revenue and harm our operating results.
Terrorist attacks may adversely aÅect our business and operating results.
The terrorist attacks on the United States on September 11, 2001, the United States-led military response to counter
terrorism and the continued threat of terrorist activity and other acts of war or hostility, including the war in Iraq, have
created uncertainty in the Ñnancial and insurance markets and have signiÑcantly increased the political, economic and
social instability in some of the geographic areas in which we operate. Further acts of terrorism, either domestically or
abroad, could create further uncertainties and instability. To the extent this results in disruption or delays of our
manufacturing capabilities or shipments of our products, our business, operating results and Ñnancial condition could be
adversely aÅected.
Manufacturing our products abroad subjects us to numerous risks.
We are subject to risks associated with our foreign manufacturing operations, including:
‚ obtaining requisite United States and foreign governmental permits and approvals;
‚ currency exchange rate Öuctuations or restrictions;
‚ political instability and civil unrest;
‚ transportation delays or higher freight rates;
‚ labor problems;
‚ trade restrictions or higher tariÅs;
‚ exchange, currency and tax controls and reallocations;
‚ increasing labor and overhead costs; and
‚ loss or non-renewal of favorable tax treatment under agreements or treaties with foreign tax authorities.
Because we manufacture our products abroad, our operating costs are subject to Öuctuations in foreign currency
exchange rates. Further Öuctuations in the exchange rate of the Thai Baht, a Öoating currency, or a determination by the
Malaysian government to repeg the Malaysian Ringgit or convert it to a Öoating currency, could result in an increase in
our operating costs, which may negatively impact our operating results.
We have attempted to manage the impact of foreign currency exchange rate changes by, among other things,
entering into short-term, forward exchange contracts. However, those contracts do not cover our full exposure and can be
canceled by the issuer if currency controls are put in place. As a result of the Malaysian currency controls, we are no longer
hedging the Malaysian currency risk. Currently, we hedge the Thai Baht, British Pound Sterling and the Euro.
There has been a trend toward a weakening U.S. dollar relative to most foreign currencies. If this trend continues the
U.S. dollar equivalents of unhedged manufacturing costs could increase because a signiÑcant portion of our production
costs are foreign-currency denominated. Conversely, there would not be an oÅsetting impact to revenues since revenues
are substantially U.S. dollar denominated.
Unforeseen environmental costs could harm our operating results.
We may be subject to various state, federal and international laws and regulations governing the environment,
including those restricting the presence of certain substances in electronic products and making producers of those
products Ñnancially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and
regulations have been passed in several jurisdictions in which we operate, including various European Union member
countries. Similar legislation may be enacted in other locations where we manufacture or sell our products.
We could incur substantial costs in connection with our compliance with such environmental laws and regulations,
and we could also be subject to governmental Ñnes and liability to our customers if we were to violate these laws. If we
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