Western Digital 2005 Annual Report Download - page 59

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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
with this covenant. Should the Company's available liquidity be less than $300 million, the Company would then be
subject to minimum EBITDA (earnings before interest, taxes, depreciation and amortization) requirements and capital
expenditure limitations.
The term loan requires quarterly principal payments of approximately $3 million. Principal payments made on the
term loan increase the amount of revolving credit available. At July 1, 2005, $84.5 million was available for borrowing
under the revolving credit line and the Company had $3 million in outstanding letters of credit.
Note 5. Commitments and Contingencies
Lease Commitments
The Company leases certain facilities and equipment under long-term, non-cancelable operating and capital leases.
The Company's operating leases consist of leased property and equipment that expire at various dates through 2012.
Rental expense under these operating leases, including month-to-month rentals, was $16.2 million, $14.9 million and
$11.4 million in 2005, 2004 and 2003, respectively. The Company's capital leases consist of leased equipment. These
leases have maturity dates through August 31, 2007 and interest rates averaging approximately 4.5%. Future minimum
lease payments under operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one
year at July 1, 2005 are as follows (in millions):
Operating Capital
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11.7 $ 8.1
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.0 7.5
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9.6 0.3
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.9 Ì
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.9 Ì
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12.2 Ì
Total future minimum paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $60.3 $15.9
Less: interest on capital leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.7)
Total principal payable on capital leases ÏÏÏÏÏÏÏÏÏ $15.2
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 disk drive during the warranty period. This provision is based on estimated future returns within
the warranty period and costs to repair, using historical field return rates by product type and current average repair cost.
Changes in the warranty provision were as follows for the years ended July 1, 2005, July 2, 2004 and June 27, 2003 (in
millions):
2005 2004 2003
Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 56.8 $ 52.9 $ 47.4
Charges to operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 82.0 60.6 54.6
Utilization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (46.3) (55.1) (53.8)
Changes in liability related to pre-existing
warrantiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.6) (1.6) 4.7
Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 91.9 $ 56.8 $ 52.9
The warranty provision includes amounts classified in non-current liabilities of $16.7 million at July 1, 2005 and
$10.4 million at July 2, 2004.
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