Western Digital 2005 Annual Report Download - page 60

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Long-term Purchase Agreements
The Company has entered into long-term purchase agreements with various component suppliers. The commit-
ments depend on specific products ordered and may be subject to minimum quality requirements and future price
negotiations. For 2006, 2007, and 2008, WD expects these commitments to total approximately $460 million,
$670 million, and $340 million, respectively. No purchases were made under these long-term purchase agreements in
2005. In conjunction with these agreements, the Company has advanced approximately $13 million related to 2006
purchase commitments, which is included in other current assets as of July 1, 2005.
Note 6. 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 five hard disk drive motor patents owned by
Papst. In December 1994, Papst dismissed its case without prejudice. In July 2002, Papst filed a new complaint against
the Company and several other defendants. The suit alleged infringement by the Company of seventeen of Papst's patents
related to hard disk drive motors that the Company purchased from motor vendors. Papst sought an injunction and
damages. The Company filed 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.
On July 4, 2005, the Company entered into a Settlement and License Agreement with Papst. In connection with the
settlement, the Company made a one-time payment of $24 million to Papst on July 29, 2005, of which $19 million
represented a charge to selling, general and administrative expense for the Company's fiscal fourth quarter and $5 million
had been accrued in a prior year. In exchange for the payment, Papst has dismissed with prejudice its lawsuit pending
against the Company, granted the Company a fully-paid license to certain patents owned by Papst, and released the
Company of all past, present and future claims alleging infringement by the Company of those Papst patents. The
Settlement and License Agreement resolved all outstanding litigation between the two companies without any admission
of infringement by the Company.
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 financial impact with respect to these matters is subject to many
uncertainties and is therefore not predictable with assurance, management believes that any monetary liability or financial
impact to the Company from these matters, individually and in the aggregate, beyond that provided at July 1, 2005,
would not be material to the Company's financial condition. However, there can be no assurance with respect to such
result, and monetary liability or financial impact to the Company from these legal proceedings, lawsuits and other claims
could differ materially from those projected.
Note 7. Shareholders' Equity
Stock Incentive Plans
The Company has four stock-based incentive plans (collectively referred to as the ""Stock Plans''): The 2004
Performance Incentive Plan, the Employee Stock Option Plan, the Broad-Based Stock Incentive Plan and the Stock
Option Plan for Non-Employee Directors. Subsequent to the expiration of the Employee Stock Option Plan on
November 10, 2004 and approval of the 2004 Performance Incentive Plan by the Company's shareholders on
November 18, 2004, no new awards are permitted under the Employee Stock Option Plan, the Broad-Based Stock
Incentive Plan or the Stock Option Plan for Non-Employee Directors (collectively referred to as the ""Prior Stock Plans'').
As of July 1, 2005, options to purchase 17.4 million shares of the Company's common stock remain outstanding under
the Prior Stock Plans, of which 11.4 million shares were exercisable and 0.3 million shares of restricted stock remain
unvested. Options granted under the Prior Stock Plans were generally issued at the fair market value at the date of grant
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