Western Digital 2005 Annual Report Download - page 27

Western Digital's working capital requirements depend upon the effective management of its cash conversion cycle,
which measures how quickly a company can convert its products into cash through sales. The cash conversion cycles for
2005, 2004 and 2003 were as follows:
Years Ended
July 1, July 2, June 27,
2005 2004 2003
Days sales outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40 39 31
Days in inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 20 16
Days payables outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (65) (61) (56)
Cash conversion cycleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) (2) (9)
The improvement in the cash conversion cycle for 2005 was primarily due to better alignment in the timing of the
Company's inventory build and sales schedules. Cash flow from operations for 2005 also benefited from an increase in
other expenses that did not require the use of cash in 2005. The decrease in the 2004 cash conversion cycle as compared
to 2003 was primarily due to a higher accounts receivable balance associated with changes in the Company's mix of
customers and higher work in process inventory associated with the head manufacturing operations. Cash flow from
operations for 2004 was also impacted by the payment of a $45 million litigation settlement.
Investing Activities
Net cash used in investing activities for 2005 was $314 million as compared to $259 million for 2004 and
$59 million for 2003. During 2005, cash used in investing activities consisted of $233 million for capital expenditures
and $81 million for short-term investments. The net cash used in investing activities for 2004 consisted of $132 million
for capital expenditures, $95 million for the Read-Rite asset acquisition and $32 million for short-term investments. The
increase in capital expenditures in 2005 was primarily a result of assets purchased to upgrade the Company's head
manufacturing capabilities, increased desktop and mobile hard disk drive production capabilities and for the normal
replacement of existing assets. The increase in short-term investments in 2005 was a result of additional investments in
auction rate securities. The 2003 investing activities related primarily to capital expenditures. The increase in capital
expenditures in 2004 was primarily for assets purchased to upgrade the Company's head manufacturing capabilities,
increase desktop hard disk drive production capabilities and for the normal replacement of existing assets. For 2006,
capital expenditures are expected to be approximately $275 million to $300 million. This increase in capital expenditures
is expected to consist primarily of investments in advanced head technologies, new product platforms and capacity for
WD's broadening and growing product portfolio.
Financing Activities
Net cash used in financing activities for 2005 was $7 million as compared to net cash provided by financing
activities of $21 million for 2004 and net cash used in financing activities of $30 million for 2003. The net cash used in
financing activities in 2005 consisted of $45 million used for common stock repurchases and $20 million for debt
payments partially offset by $58 million received upon issuance of common stock under employee plans. The net cash
provided by financing activities for 2004 consisted primarily of $24 million received upon issuance of common stock
under employee plans and $14 million in net proceeds from long-term debt partially offset by $16 million used for
common stock repurchases. The net cash used by financing activities for 2003 consisted primarily of $68 million used for
redemption of the Company's remaining convertible debentures, partially offset by $44 million received upon issuance of
common stock under employee plans.
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