Western Digital 2004 Annual Report Download - page 52

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 6. Legal Proceedings
On August 22, 2003, the Company and Cirrus Logic, Inc. reached a settlement of litigation Ñled in California
Superior Court for the County of Orange involving alleged 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. The parties subsequently executed a
formal written settlement agreement. Pursuant to the terms of the agreement, on October 16, 2003, the Company made
a one-time payment to Cirrus of $45.0 million in exchange for a mutual release of claims. The letter of credit previously
posted by the Company also has been released. Western Digital had previously recorded an obligation totaling
approximately $26.5 million related to the disputed payables. The diÅerence of approximately $18.5 million between the
settlement amount and the amount previously recorded was included in cost of sales for the fourth quarter and year ended
June 27, 2003. Formal dismissals of claims were entered with the Court in this matter on October 22, 2003.
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 hard 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 hard 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. The Company believes that the outcome of this matter will not have a material adverse impact on the
Company's Ñnancial statements. The Company intends to vigorously defend the suit.
In the normal course of business, the Company is subject to legal proceedings, lawsuits and other claims. Although
the ultimate aggregate amount of monetary liability or Ñnancial impact with respect to these matters, including the
matter described in the preceding paragraph, is subject to many uncertainties and is therefore not predictable with
assurance, management believes that any monetary liability or Ñnancial impact to the Company from these matters,
individually and in the aggregate, beyond that provided at July 2, 2004, would not be material to the Company's
Ñnancial condition. However, there can be no assurance with respect to such result, and monetary liability or Ñnancial
impact to the Company from these legal proceedings, lawsuits and other claims could diÅer materially from those
projected.
Note 7. Shareholders' Equity
Stock Option Plans
Western Digital's Employee Stock Option Plan (""Employee Plan'') is administered by the Compensation
Committee of the Board of Directors (""Compensation Committee''), which determines the vesting provisions, the form
of payment for the shares and all other terms of the options. Terms of the Employee Plan require that the exercise price of
options be not less than the fair market value of the common stock on the date of grant. Options granted generally vest
25% one year from the date of grant and in twelve quarterly increments thereafter and have a ten-year term. As of July 2,
2004, options to purchase 9.1 million shares of common stock were exercisable and 3.9 million shares were available for
grant under this plan. Pursuant to the terms of the Employee Plan, participants are permitted to utilize previously
purchased common stock as consideration to purchase additional common stock upon exercise of options or to exercise on
a cashless basis through the Company-designated broker.
The Company has a Broad-Based Stock Incentive Plan (the ""Broad-Based Plan'') under which options to purchase
shares of common stock and stock awards may be granted to employees of the Company and others. This plan is intended
to qualify as ""broadly-based'' under the New York Stock Exchange shareholder approval policy. The Compensation
Committee determines the vesting provisions and other terms of the options and stock. To date, the options granted vest
either one-year, two years or four years from the date of grant. As of July 2, 2004, options to purchase 6.0 million shares
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